<PAGE> 1
As filed via EDGAR with the Securities and Exchange Commission on May 10, 1999
File No. 333-62051
ICA No. 811-8979
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. __ [ ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1
_______________________
THE VICTORY VARIABLE INSURANCE FUNDS
------------------------------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 362-5365
Ellen F. Stoutamire, Esq.
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
--------------------
(Name and Address of Agent for Service)
Copy to:
Carl Frischling, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Approximate date of proposed public offering: As soon as practicable
after this registration statement becomes effective.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in the Prospectus of
the responses to the Items in Part A and location in the Statement of Additional
Information of the responses to the Items in Part B of Form N-1A.)
THE VICTORY VARIABLE INSURANCE FUNDS
<TABLE>
<CAPTION>
Form N-1A,
Part A
Item Number Prospectus Caption
----------- ------------------
<S> <C>
1(a) Front Cover Page
(b) Back Cover Page
2(a) Risk/Return Summary - Investment Objective
(b) Risk/Return Summary - Principal Investment Strategies
(c) Risk/Return Summary - Principal Risks; Q&A --
Important Considerations
3 Not applicable
4(a) Risk/Return Summary - Investment Objective
(b) Risk/Return Summary - Principal Investment Strategies;
Definitions
(c) Risk Factors
5 Not applicable
6(a) Organization and Management of the Funds - Investment Adviser;
Portfolio Management
(b) Not Applicable
7(a) Share Price
(b) Investing in the Victory Variable Insurance Funds - Purchases
(c) Investing in the Victory Variable Insurance Funds - Redemptions
(d) Dividends, Distributions and Taxes
(e) Important Information about Taxes
(f) Not applicable
8(a) Not applicable
(b) Not applicable
(c) Investing in the Victory Variable Insurance Funds
9 Not applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
THE VICTORY VARIABLE INSURANCE FUNDS
Form N-1A,
Part B
Item Number Statement of Additional Information Caption
----------- -------------------------------------------
<S> <C>
10(a) Front Cover Page
(b) Table of Contents
11(a) Additional Information - Description of Shares
(b) Not Applicable
12(a) Statement of Additional Information
(b) Instruments in which the Funds can Invest
(c) Investment Policies and Limitations
(d) Temporary Defensive Measures - Short-Term Obligations
(e) Not applicable
13(a) Trustees and Officers - Board of Trustees
(b) Trustees and Officers - Board of Trustees; Officers
(c) Trustees and Officers - Board of Trustees
(d) Trustees and Officers - Board of Trustees
(e) Not applicable
14(a) Miscellaneous
(b) Not applicable
(c) Trustees and Officers - Officers
15(a) Advisory and Other Contracts - Investment Adviser
(b) Advisory and Other Contracts - Distributor
(c) Advisory and Other Contracts - Investment Adviser
(d) Transfer Agent; Contract Owner Administrative Services Agreement;
Distribution and Service Plan, Fund Accountant; Legal Counsel
(e) Not applicable
(f) Not applicable
(g) Not applicable
(h) Administrator; Transfer Agent; Custodian; Independent Accountant;
Legal Counsel
16(a) Portfolio Transactions
(b) Not applicable
(c) Portfolio Transactions
(d) Not applicable
(e) Not applicable
</TABLE>
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<TABLE>
<S> <C>
17(a) Additional Information - Description of Shares
(b) Not applicable
18(a) Additional Purchase and Redemption Information;
Purchasing and Redeeming Shares
(b) Not applicable
(c) Valuation of Portfolio Securities for the Investment Quality Bond Fund;
Valuation of Portfolio
Securities for the Equity Funds
(d) Additional Purchase and Redemption Information
19(a) Taxes
(b) Taxes
20(a) Advisory and Other Contracts - Distributor
(b) Not applicable
(c) Not applicable
21(a) Not applicable
(b) Performance
22(a) Not applicable
(b) Not applicable
(c) Not applicable
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this Registration
Statement.
<PAGE> 5
PRE-EFFECTIVE AMENDMENT #1
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not
an offer to sell these securities and is not soliciting an offer to
buy these securities in any state where the offer or sale is
not permitted.
LOGO (R)
PROSPECTUS
THE VICTORY VARIABLE INSURANCE FUNDS
- INVESTMENT QUALITY BOND FUND
- DIVERSIFIED STOCK FUND
- SMALL COMPANY OPPORTUNITY FUND
CLASS A SHARES
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED ANY FUND'S SECURITIES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
May ____, 1999
<PAGE> 6
TABLE OF CONTENTS
RISK/RETURN SUMMARY FOR EACH OF THE FUNDS
An analysis which includes investment objective,
principal strategies, and principal risks
Investment Quality Bond Fund
Diversified Stock Fund
Small Company Opportunity Fund
Q&A -- IMPORTANT CONSIDERATIONS
RISK FACTORS
SHARE PRICE
DIVIDENDS, DISTRIBUTIONS, AND TAXES
INVESTING IN THE VICTORY VARIABLE INSURANCE FUNDS
Purchases
Redemptions
ORGANIZATION AND MANAGEMENT OF THE FUNDS
OTHER SECURITIES AND INVESTMENT PRACTICES
-----------------
KEY TO FUND INFORMATION
[ICON 1]
OBJECTIVE AND STRATEGY: The goals and the strategies that a Fund plans to use
in pursuing its investment objective.
[ICON 2]
RISK FACTORS The risks associated with a Fund's investment
strategies.
[ICON 3]
EXPENSES Each Fund's ongoing expenses.
SHARES OF THE FUND ARE:
- NOT INSURED BY THE FDIC; [FDIC ICON]
- NOT DEPOSITS OR OTHER OBLIGATIONS OF KEYBANK OR ANY OF ITS AFFILIATES;
[BANK ICON]
- SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE AMOUNT
INVESTED.
<PAGE> 7
RISK/RETURN SUMMARY
INVESTMENT QUALITY BOND FUND
[ICON 1]
INVESTMENT OBJECTIVE: The Investment Quality Bond Fund seeks to provide
a high level of income.
[ICON 1]
PRINCIPAL INVESTMENT STRATEGIES
The Investment Quality Bond Fund pursues its investment objective by investing
primarily in investment-grade bonds issued by corporations and the U.S.
Government and its agencies or instrumentalities.
"Investment grade" obligations in which the Investment Quality Bond Fund may
invest are those rated within the top four rating categories by a nationally
recognized statistical rating organization (NRSRO), such as Standard & Poor's
(S&P), Fitch, or Moody's. NRSROs assign credit ratings to securities based on
the issuer's ability to make principal and interest payments.
Under normal conditions, the Investment Quality Bond Fund will invest at least
80% of its total assets in the following securities:
- Investment grade corporate securities, asset-backed securities,
convertible securities and exchangeable debt securities
- Mortgage-related securities issued by governmental agencies and
non-governmental entities
- Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities
- Commercial paper
Important Characteristics of the Investment Quality Bond Fund's Investments:
- QUALITY: All instruments will be rated, at the time of purchase,
within the four highest rating categories by S&P, Fitch, Moody's,
or another NRSRO, or, if unrated, be of comparable quality. For
more information on ratings, see the Appendix to the Statement of
Additional Information (SAI).
- MATURITY: The dollar-weighted effective average maturity of the
Investment Quality Bond Fund will range from 5 to 15 years.
Individual assets held by the Fund may vary from the average
maturity of the Fund.
Under certain market conditions, the Fund's portfolio manager may go outside
these boundaries.
Up to 20% of the Investment Quality Bond Fund's total assets may be invested in
preferred and convertible preferred stocks, and separately traded interest and
principal component parts of U.S. Treasury obligations. Up to 35% of the Fund's
total assets may be invested in high quality, short-term debt.
The Investment Quality Bond Fund may invest in foreign securities and also may,
but is not required to, use derivative instruments, including futures and
options. Please see the definition of a derivative instrument in the "Other
Securities and Investment Practices" section at the end of this Prospectus.
<PAGE> 8
[ICON 2]
PRINCIPAL RISKS
The Investment Quality Bond Fund is subject to the following principal risks,
more fully described in "Risk Factors." The Fund's net asset value, yield and/or
total return Fund's net asset value, yield and/or total return may be adversely
affected if any of the following occurs:
- The market value of securities acquired by the Investment Quality
Bond Fund declines
- A particular strategy does not produce the intended result or the
portfolio manager does not execute the strategy effectively
- Interest rates rise
- An issuer's credit quality is downgraded
- The Investment Quality Bond Fund must reinvest interest or sale
proceeds at lower rates
- The rate of inflation increases
- The average life of a mortgage-related security is shortened or
lengthened
- Foreign securities experience more volatility than their domestic
counterparts, in part because of higher political and economic
risks, lack of reliable information, and the risks that a foreign
government may take over assets
- Hedges created by using derivative instruments, including futures
or options contracts, do not respond to economic or market
conditions as expected
An investment in the Investment Quality Bond Fund is not a deposit of KeyBank or
any of its affiliates and is not insured or guaranteed by the FDIC or any other
government agency.
4
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RISK/RETURN SUMMARY
DIVERSIFIED STOCK FUND
[ICON 1]
INVESTMENT OBJECTIVE: The Diversified Stock Fund seeks to provide long-term
growth of capital.
[ICON 1]
PRINCIPAL INVESTMENT STRATEGIES
The Diversified Stock Fund pursues its investment objective by investing
primarily in equity securities and securities convertible into common stocks
traded on U.S. exchanges and issued by large, established companies.
Key Asset Management Inc. (KAM or the Adviser) seeks to invest in both growth
and value securities. In making investment decisions, the Adviser may consider
cash flow, book value, dividend yield, growth potential, quality of management,
adequacy of revenues, earnings, capitalization, relation to historical earnings,
the value of the issuer's underlying assets, and expected future relative
earnings growth. The Adviser will pursue investments that provide above average
dividend yield or potential for appreciation.
Under normal market conditions, the Diversified Stock Fund:
- - Will invest at least 80% of its total assets in equity securities of large,
established companies and securities convertible or exchangeable into common
stock, including:
- Growth stocks, which are stocks of companies that the Adviser
believes will regularly experience earnings growth; and
- Value stocks, which are stocks that the Adviser believes are
intrinsically worth more than their market value.
- - May invest up to 20% of its total assets in:
- Preferred stocks
- Investment-grade corporate debt securities
- Short-term debt obligations
- U.S. Government obligations
The Diversified Stock Fund may, but is not required to, use derivative
instruments, including futures and options. Please see the definition of a
derivative instrument in the "Other Securities and Investment Practices" section
at the end of this Prospectus.
5
<PAGE> 10
[ICON 2]
PRINCIPAL RISKS
The Diversified Stock Fund is subject to the following principal risks, more
fully described in "Risk Factors." The Fund's net asset value, yield and/or
total return Fund's net asset value, yield and/or total return may be adversely
affected if any of the following occurs:
- The market value of securities acquired by the Diversified Stock Fund
declines
- Growth stocks decline in price because the companies'
earnings growth does not meet expectations
- Value stocks decline in price faster than growth stocks and
other types of stocks
- A particular strategy does not produce the intended result or the
portfolio manager does not execute the strategy effectively
- A company's earnings do not increase as expected
- Hedges created by using derivative instruments, including futures or
options contracts, do not respond to economic or market conditions as
expected.
An investment in the Diversified Stock Fund is not a deposit of KeyBank or any
of its affiliates and is not insured or guaranteed by the FDIC or any other
government agency.
6
<PAGE> 11
RISK/RETURN SUMMARY
SMALL COMPANY OPPORTUNITY FUND
[ICON 1]
INVESTMENT OBJECTIVE: The Small Company Opportunity Fund seeks to provide
capital appreciation.
[ICON 1]
PRINCIPAL INVESTMENT STRATEGIES
The Small Company Opportunity Fund invests primarily in common stocks of smaller
companies that show the potential for high earnings growth in relation to their
price-earnings ratio. Of the 5,000 companies with the largest market
capitalizations, the Adviser considers those in the lower 80% to be "small
companies." Currently, the upper end of market capitalizations of small
companies is approximately $1.2 billion. The Adviser uses a computer model to
assist in selecting securities that appear favorably priced.
Under normal market conditions, the Small Company Opportunity Fund:
- Will invest at least 80% of its total assets in equity securities
of small companies. These equity investments include:
- Common stock
- Convertible preferred stock
- Debt convertible or exchangeable into equity securities
- May invest up to 20% of its total assets in:
- Equity securities of larger companies (those with market
capitalizations in the top 20% of the 5,000 largest U.S.
companies)
- Investment-grade debt securities
- Preferred stocks
- Short-term debt obligations
- Repurchase agreements
[ICON 2]
PRINCIPAL RISKS
The Small Company Opportunity Fund is subject to the following principal risks,
more fully described in "Risk Factors." The Fund's net asset value, yield and/or
total return may be adversely affected if any of the following occurs:
- The market value of securities acquired by the Small Company
Opportunity Fund declines
- Value stocks decline in price faster than growth stocks and
other types of stocks
- Smaller, less seasoned companies lose market share or profits
to a greater extent than larger, established companies as a
result of deteriorating economic conditions
- A particular strategy does not produce the intended result or the
portfolio manager does not execute the strategy effectively
7
<PAGE> 12
- A company's earnings do not increase as expected
An investment in the Small Company Opportunity Fund is not a deposit of KeyBank
or any of its affiliates and is not insured or guaranteed by the FDIC or any
other government agency.
By itself, the Small Company Opportunity Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
Q&A -- IMPORTANT CONSIDERATIONS
You cannot buy shares of the Victory Variable Insurance Funds directly, but only
through variable annuity or variable life insurance contracts (contracts) that
are offered by the segregated asset accounts (separate accounts) of certain life
insurance companies (participating insurance companies).
The Victory Variable Insurance Funds offer Class A Shares. You are encouraged to
read this Prospectus in conjunction with the accompanying separate account
prospectus.
In choosing a Fund as an investment for your contract, please keep in mind the
following considerations.
WHAT ARE THE GENERAL INVESTMENT CHARACTERISTICS OF EACH FUND?
- Diversified investment portfolio
- Appropriate for achieving long-term goals, like saving for
retirement
- Seeks potential growth over time
- Fluctuating net asset value (NAV) per share
WHAT ARE THE PARTICULAR INVESTMENT CHARACTERISTICS OF THE FUNDS?
- INVESTMENT QUALITY BOND FUND: Seeks to generate a high level of
income by investing in investment grade debt securities.
- DIVERSIFIED STOCK FUND: Assumes more short-term risk for
potentially higher long-term gains.
- SMALL COMPANY OPPORTUNITY FUND: Assumes the added risks
associated with small company stocks in return for the
possibility of long-term rewards.
THE FUNDS MAY NOT BE AN APPROPRIATE SELECTION FOR CONTRACT OWNERS WHO:
+ are not willing to take any risk that they may lose money on
their investment
+ want absolute stability of their investment principal
+ want to invest in a particular sector or in particular
industries, countries, or regions
****KEEP IN MIND THAT:
+ NO FUND IS A COMPLETE INVESTMENT PROGRAM.
+ A FUND COULD LOSE MONEY, BUT IT ALSO HAS THE POTENTIAL TO
MAKE MONEY.****
8
<PAGE> 13
RISK FACTORS
****It is important to keep in mind one basic principle of investing: in
general, the greater the risk, the greater the potential reward. The reverse is
also generally true: the lower the risk, the lower the potential reward.****
This Prospectus describes the principal risks that are associated with the
Funds' investment strategies. The "Other Securities and Investment Practices"
section in this Prospectus provides additional information on the securities
mentioned in the Risk/Return Summary for each of the Funds. As with any mutual
fund, there is no guarantee that a Fund will earn income or show a positive
total return over time. A Fund's price, yield, and total return will fluctuate.
The value of a Fund's shares may decline if the Fund's investments do not
perform well.
****By matching your investment objective with a comfortable level of risk, you
can create your own customized investment plan.****
This table summarizes the principal risks, described in the following pages, to
which the Funds are subject.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT QUALITY BOND SMALL COMPANY OPPORTUNITY
FUND DIVERSIFIED STOCK FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market risk and manager risk x x x
- ---------------------------------------------------------------------------------------------------------------------------
Debt security risks x
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage-related security risk x
- ---------------------------------------------------------------------------------------------------------------------------
Foreign issuer risk x
- ---------------------------------------------------------------------------------------------------------------------------
Equity risk x x
- ---------------------------------------------------------------------------------------------------------------------------
Futures and options risk x x
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
GENERAL RISKS:
- - MARKET RISK is the risk that the market value of a security will fluctuate,
depending on the supply and demand for that type of security. As a result of
this fluctuation, a security may be worth more or less than the price a Fund
originally paid for it or less than the security was worth at an earlier
time. Market risk may affect a single security, an industry, a sector of the
economy, or the entire market and is common to all investments.
- - MANAGER RISK is the risk that a Fund's portfolio manager may use a strategy
that does not produce the intended result. Manager risk also refers to the
possibility that the portfolio manager may fail to execute a Fund's
investment strategy effectively and, thus, fail to achieve its investment
objective.
9
<PAGE> 14
RISKS ASSOCIATED WITH DEBT SECURITIES:
- - INTEREST RATE RISK. The value of a debt security typically changes in the
opposite direction from a change in interest rates. When interest rates go
up, the value of a fixed-rate security typically goes down. When interest
rates go down, the value of these securities typically goes up. Generally,
the market values of securities with longer maturities are more sensitive to
changes in interest rates.
- - INFLATION RISK is the risk that inflation will erode the purchasing power of
the cash flows generated by debt securities. Fixed-rate debt securities are
more susceptible to this risk than floating-rate debt securities or equity
securities that have a record of dividend growth.
- - REINVESTMENT RISK is the risk that when interest rates are declining, new
assets must be invested at a lower interest rate. However, to some extent,
gains from declining interest rates may compensate for lower reinvestment
rates.
- - CREDIT (OR DEFAULT) RISK is the risk that the issuer of a debt security will
be unable to make timely payments of interest or principal. Even in the case
of high-quality securities, the interest or principal payments may not be
insured or guaranteed on all securities. Credit risk is measured by NRSROs
such as S&P, Fitch, or Moody's.
RISKS ASSOCIATED WITH MORTGAGE-RELATED SECURITIES:
- - PREPAYMENT RISK. Prepayments of principal on mortgage-related securities
affect the average life of a pool of mortgage-related securities. The level
of interest rates and other factors may affect the frequency of mortgage
prepayments. In periods of rising interest rates, the prepayment rate tends
to decrease, lengthening the average life of a pool of mortgage-related
securities. In periods of falling interest rates, the prepayment rate tends
to increase, shortening the average life of a pool of mortgage-related
securities. Prepayment risk is the risk that, because prepayments generally
occur when interest rates are falling, the Investment Quality Bond Fund may
have to reinvest the proceeds from prepayments at lower interest rates.
- - EXTENSION RISK is the risk that anticipated prepayments on principal may not
occur, typically because of a rise in interest rates, and the expected
maturity of the security will increase. During periods of rapidly rising
interest rates, the effective average maturity of a security may be extended
past what the Adviser anticipated that it would be. The market value of
securities with longer maturities tend to be more volatile.
RISKS ASSOCIATED WITH FOREIGN SECURITIES:
- - FOREIGN ISSUER RISK. Compared to U.S. and Canadian companies, there generally
is less publicly available information about foreign companies and there may
be less governmental regulation and supervision of foreign stock exchanges,
brokers, and listed companies. Foreign issuers may not be subject to the
uniform accounting, auditing, and financial reporting standards and practices
used by domestic issuers. In addition, foreign securities markets may be less
liquid, more volatile, and less subject to governmental supervision than in
the U.S. Investments in foreign countries could be affected by factors not
present in the U.S., including expropriation, confiscation of property, and
difficulties in enforcing contracts.
10
<PAGE> 15
RISK ASSOCIATED WITH EQUITY SECURITIES:
- - EQUITY RISK is the risk that the value of the security will fluctuate in
response to changes in earnings or other conditions affecting the issuer's
profitability or as a result of a general market decline. Unlike debt
securities, which have preference to a company's earnings and cash flow in
case of liquidation, equity securities are entitled to the residual value
after the company meets its other obligations. For example, in the event of
bankruptcy, holders of debt securities have priority over holders of equity
securities to a company's assets.
RISK ASSOCIATED WITH FUTURES AND OPTIONS CONTRACTS:
- - CORRELATION RISK. Futures and options contracts can be used in an effort to
hedge against certain risks. Generally, an effective hedge generates an
offset to gains or losses of other investments made by a Fund. Correlation
risk is the risk that a hedge created using futures or options contracts (or
any derivative, for that matter) does not, in fact, respond to economic or
market conditions in the manner the portfolio manager expected. In such a
case, the futures or options contract hedge may not generate gains sufficient
to offset losses and may actually generate losses.
SHARE PRICE
Each Fund's share price, called its "net asset value" (NAV), is calculated each
business day at the close of the New York Stock Exchange, Inc. (the NYSE), which
is normally at 4:00 p.m. Eastern Time. A separate account buys and redeems
shares at the next share price calculated after your instructions are received
and accepted by an authorized representative of your participating insurance
company. A business day is a day on which the Federal Reserve Bank of Cleveland
and the NYSE are open or any day in which enough trading has occurred in the
securities held by a Fund to materially affect the NAV. A separate account may
not be able to buy or redeem shares on certain holidays when the Federal Reserve
Bank of Cleveland is closed, but the NYSE and other financial markets are open.
A Fund's NAV may change on days when separate accounts will not be able to buy
or redeem the Fund's shares if a Fund has portfolio securities primarily listed
on foreign exchanges that trade on weekends or other days when a Fund does not
price its shares.
The Funds value their investments based on market value. When market quotations
are not readily available, the Funds value their investments based on fair value
methods approved by the Funds' Board of Trustees. Each Fund calculates its NAV
by adding up the total value of its investments and other assets, subtracting
its liabilities, and then dividing that figure by the number of its outstanding
shares.
NAV = Total Assets - Liabilities
--------------------------
Number of Shares Outstanding
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Each Fund expects to distribute substantially all of its ordinary income and
capital gains each year. Ordinarily, each Fund declares and pays dividends from
its net investment income quarterly. Capital gains distributions, if any, from
the Funds will be made annually. In addition, a Fund may occasionally be
required to make supplemental dividend or capital gains distributions at some
other time during the year.
11
<PAGE> 16
All dividend and capital gains distributions made by each Fund will be
automatically reinvested in additional shares of the Fund.
IMPORTANT INFORMATION ABOUT TAXES
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the Code), so that it will not be
subject to federal income tax on its earnings and capital gains that are
distributed to its shareholders. In addition, each Fund intends to comply with
the diversification requirements of the Code and Treasury Regulations in order
to maintain the tax-deferred status of the contracts.
Shares of a Fund must be purchased through the contracts. As a result, it is
anticipated that any dividend or capital gains distribution from a Fund will be
exempt from current taxation if left to accumulate within a contract.
Section 817(h) of the Code requires that investments of a separate account
underlying a contract (or the investments of a regulated investment company, the
shares of which are owned by the separate account) must be "adequately
diversified" in order for the contract to be treated as an annuity or life
insurance contract for tax purposes. Each Fund intends to comply with Section
817(h) and the Treasury Regulations promulgated thereunder. If a separate
account underlying a contract were not in compliance with these Treasury
Regulations, the contract owner would be subject to tax on the earnings
attributable to the contract.
This discussion of federal income tax consequences is based on tax laws and
regulations in effect as of the date of this Prospectus, and may change as a
result of legislative, administrative or judicial action. As this discussion is
for general information only, you also should review the more detailed
discussion of federal income tax considerations that is contained in the
separate account prospectus and the SAI.
**** YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISER REGARDING THE TAX CONSEQUENCES
OF YOUR INVESTMENT IN THE SEPARATE ACCOUNT, INCLUDING THE APPLICATION OF STATE
AND LOCAL TAXES WHICH MAY DIFFER FROM THE FEDERAL INCOME TAX CONSEQUENCES
DESCRIBED ABOVE. ****
INVESTING IN THE VICTORY VARIABLE INSURANCE FUNDS
The Victory Variable Insurance Funds are designed as an investment exclusively
for contracts that are offered by the separate accounts of participating
insurance companies. The participating insurance company will buy and redeem
shares according to your instructions, as provided in the contract, and will
redeem shares as needed to provide benefits under the contract.
Shares of the Victory Variable Insurance Funds may be offered in the future to
other separate accounts established by other insurance companies. Although the
Victory Variable Insurance Funds currently do not foresee any conflicts of
interest between owners of variable annuity contracts and variable life
insurance contracts, it is possible, due to differences in tax treatment or
other considerations, that the interests of these two groups for which the Funds
serve as investment vehicles may conflict. The Victory Variable Insurance Funds'
Board of Trustees and each insurance company whose separate accounts invest in
the Funds are required to monitor the Funds' operations to identify any material
conflict between the interests of holders of annuities and life insurance
contracts and to determine what action, if any, should be taken to resolve the
conflict. In the event of a conflict, an insurance company might
12
<PAGE> 17
redeem its investment of one or more separate accounts in a Victory Variable
Insurance Fund's shares. If this happens, the Fund may have to sell securities
at unfavorable prices.
PURCHASES
Shares of the Funds may be purchased only through contracts offered through
participating insurance companies. Please refer to the separate account
prospectus for information on how the participating insurance company buys and
redeems shares.
Insurance company separate accounts invest in a Fund based upon the current net
asset value of such Fund. The Victory Variable Insurance Funds' Transfer Agent
processes orders to buy or redeem shares of a Fund at the Fund's net asset value
per share. The value of your contract's investment in a Fund also will be based
upon premium payments, surrender and transfer requests, and any other
transaction requests from contract and policy owners, annuitants, and
beneficiaries. In order to calculate the value of your investment, you would
have to determine the number of contract units you own along with the "accrued
unit value" of your contract. Any orders to buy or redeem Fund shares that are
based on actions by participating insurance companies or persons other than
contract owners, annuitants, and beneficiaries will be executed at the Fund's
net asset value per share next computed after the Distributor receives the
order.
REDEMPTIONS
Shares of a Fund may be redeemed by instructing your participating insurance
company to terminate your contract's investment in the Fund. Please refer to the
instructions provided in the prospectus for the separate account. The separate
account may redeem shares on any business day at the NAV that is calculated
after the separate account places its order. The sale price of shares will be
the Fund's net asset value per share next computed after the separate account
receives your transaction request.
A Fund may suspend the right of redemption in the following circumstances:
- - During non-routine closings of the NYSE
- - When the Securities and Exchange Commission (the SEC) determines that (a)
trading on the NYSE is restricted or (b) an emergency prevents the sale or
valuation of the Fund's securities
- - When the SEC orders a suspension to protect the Fund's shareholders.
Each Fund will pay redemptions by any one separate account during any 90-day
period in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Each
Fund reserves the right to pay the remaining portion "in kind," that is, in
portfolio securities rather than cash.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
ABOUT THE VICTORY VARIABLE INSURANCE FUNDS
Each Fund is a series of The Victory Variable Insurance Funds, a group of three
distinct investment portfolios, organized as a Delaware business trust.
The Board of Trustees of The Victory Variable Insurance Funds has the overall
responsibility for the management of the Funds.
13
<PAGE> 18
FEES AND EXPENSES
The Funds incur annual operating expenses which include investment advisory,
administrative, and distribution expenses. You also should review the fee tables
in the separate account prospectus for your contract.
THE INVESTMENT ADVISER
Each Fund has an Advisory Agreement, which is one of its most important
contracts. Key Asset Management Inc. (KAM), a New York corporation registered as
an investment adviser with the SEC, is the Adviser to each Fund. KAM, a
subsidiary of KeyCorp, oversees the operations of the Funds according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $75 billion for a limited number of
individual and institutional clients. KAM also serves as the investment adviser
of The Victory Portfolios, a registered investment company currently offering
more than 30 money market, bond and equity mutual funds, with approximately $18
billion in total assets. KAM's address is 127 Public Square, Cleveland, Ohio
44114.
[ICON 3]
Each Fund will pay KAM a monthly advisory fee at an annual rate based on its
average daily net assets as follows:
Investment Quality Bond Fund - 0.20%
Diversified Stock Fund - 0.30%
Small Company Opportunity Fund - 0.30%
CONTRACT OWNER ADMINISTRATIVE SERVICES AGREEMENT
The Victory Variable Insurance Funds have adopted a Contract Owner
Administrative Services Agreement for Class A Shares of the Funds. A contract
owner servicing agent performs a number of services for its customers who hold
contracts offered by separate accounts that invest in the Funds, such as
establishing and maintaining accounts and records, processing additional
contract units attributable to Fund dividend payments, arranging for bank wires,
assisting in transactions, and changing account information. For these services,
Class A Shares of each Fund pay a fee at an annual rate of up to 0.20% of its
average daily net assets serviced by the agent. The Funds may enter into these
agreements with KeyCorp and its affiliates, and with other financial
institutions that provide such services. Contract owner servicing agents may
waive all or a portion of their fee.
DISTRIBUTION AND SERVICE PLAN
The Victory Variable Insurance Funds have adopted a plan consistent with Rule
12b-1 under the Investment Company Act of 1940, as amended, on behalf of each
Fund's Class A Shares (the Plan) to allow the Adviser and the Distributor to
make certain payments that might be considered indirect payment by the Funds of
distribution expenses otherwise prohibited by Rule 12b-1. Class A Shares of the
Funds do not pay expenses under the Plan.
14
<PAGE> 19
THE ADMINISTRATOR
The Funds pay BISYS Funds Service Ohio, Inc. (BISYS), the Funds' administrator,
an annual fee of 0.05% of each Fund's average daily net assets to supervise all
operations of the Funds other than those performed by the Adviser. Under a
Sub-Administration Agreement, BISYS pays KAM a fee at an annual rate of up to
0.05% of each Fund's average daily net assets to perform some of the
administrative duties for the Funds.
PORTFOLIO MANAGEMENT
Investment Quality Bond Fund. Richard T. Heine has been the Portfolio Manager of
the Investment Quality Bond Fund since its inception. Mr. Heine is a Portfolio
Manager and Director with KAM, has managed the Balanced Fund and the Investment
Quality Bond Fund, two series of The Victory Portfolios, since 1993, and manages
other investment accounts advised by KAM.
Diversified Stock Fund. Lawrence G. Babin has been the Portfolio Manager of the
Diversified Stock Fund since its inception. Mr. Babin is a Chartered Financial
Analyst and Portfolio Manager and Managing Director of KAM, has managed the
Diversified Stock Fund, a series of The Victory Portfolios, since October 1989,
and manages other investment accounts advised by KAM.
Small Company Opportunity Fund. William J. Leugers, Jr., Daniel R. Shick and
Gary H. Miller have been the Co-Portfolio Managers of the Small Company
Opportunity Fund since its inception, and together are primarily responsible for
the day-to-day management of the Fund's portfolio. They are Portfolio Managers
and Managing Directors of the Gradison Division of McDonald Investments Inc.
(Gradison McDonald), an affiliate of KAM, and also have managed the Established
Value Fund and Small Company Opportunity Fund, two series of The Victory
Portfolios, and their predecessor funds, Mr. Leugers since 1984, Mr. Shick since
1993 and Mr. Miller since 1998. Mr. Miller served as a Portfolio Trader with
Gradison McDonald from 1993 to 1998.
CODE OF ETHICS
The Fund and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons of the Funds must conform.
Investment personnel must refrain from certain trading practices and are
required to report certain personal investment activities. Violations of the
Code of Ethics can result in penalties, suspension, or termination of
employment.
BANKING LAWS
The Adviser is a subsidiary of a bank holding company. Banking laws, including
the Glass-Steagall Act, currently prevent a bank holding company or its
affiliates from sponsoring, organizing, or controlling a registered, open-end
investment company. However, bank holding company subsidiaries may act as an
investment adviser, transfer agent, custodian, or contract owner servicing
agent. They also may pay third parties for performing these functions. Should
these laws change in the future, the Trustees would consider selecting another
qualified firm so that all services would continue.
15
<PAGE> 20
YEAR 2000 ISSUES
Like other mutual funds, each of the Funds could be adversely affected if the
computer systems used by its service providers, including contract owner
servicing agents and participating insurance companies, are unable to recognize
dates after 1999. This risk may become greater as it relates to investment in
foreign countries. The Funds' service providers have been actively updating
their systems to be able to process Year 2000 data. However, there can be no
assurance that these steps will be adequate to avoid a temporary service
disruption or any adverse impact on the Funds. In addition, an issuer's failure
to process accurately Year 2000 data may cause that issuer's securities to
decline in value or delay the payment of interest to a Fund.
****The Funds are supervised by the Board of Trustees who monitor the services
provided to contract owners.****
16
<PAGE> 21
OTHER SECURITIES AND INVESTMENT PRACTICES
The following table lists the types of securities some or all of the Funds may
buy under normal market conditions. All Funds will not buy all of the securities
listed below.
For cash management or for temporary defensive purposes in response to market
conditions, each Fund may hold all of its assets in cash or short-term money
market instruments. This may reduce the benefit from any upswing in the market
and may cause a Fund to fail to meet its investment objective. For more
information on ratings and detailed descriptions of each of the investments, see
the SAI.
- --------------------------------------------------------------------------------
PREFERRED STOCK. A class of stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets.
- --------------------------------------------------------------------------------
U.S. CORPORATE DEBT OBLIGATIONS. Debt instruments issued by U.S. public
corporations. They may be secured or unsecured.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES. Notes and bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Some are direct obligations of
the U.S. Treasury; others are obligations only of the U.S. agency.
- --------------------------------------------------------------------------------
SHORT-TERM DEBT OBLIGATIONS. Includes bankers' acceptances, certificates of
deposit, prime quality commercial paper, Eurodollar obligations, variable and
floating rate notes, cash, and cash equivalents.
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Securities that are bought for
delivery at a later time. The market value may change before the delivery date
and the value is included in the NAV of a Fund.
- --------------------------------------------------------------------------------
+RECEIPTS. Separately traded interest or principal components of U.S.
Government securities.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. An agreement involving a Fund's purchase of a security
and the seller's agreement to repurchase a security at a stated price plus
interest. The seller's obligation is secured by the instrument. Subject to an
exemptive order from the SEC, the Adviser may combine repurchase transactions
among one or more Victory Funds into a single transaction.
- --------------------------------------------------------------------------------
+FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Contracts involving the
right or obligation to deliver or receive assets or money depending on the
performance of one or more assets or a securities index. To reduce the effects
of leverage, liquid assets equal to the contract commitment are set aside to
cover the commitment. The Funds may invest in futures in an effort to hedge
against market risk or as an asset substitution. The Funds do not intend to
invest in these instruments for leverage purposes.
- --------------------------------------------------------------------------------
+OPTIONS. A Fund may write, or sell, covered call options on securities that it
owns or on an index to hedge its position or to generate additional income.
The Funds do not intend to invest in these instruments for leverage purposes.
- --------------------------------------------------------------------------------
SECURITIES LENDING. To generate additional income, a Fund may lend its
portfolio securities. A Fund will receive collateral for the value of the
security plus any interest due. A Fund only will enter into securities lending
arrangements with entities that the Adviser has determined are creditworthy.
Subject to an exemptive order from the SEC, Key Trust Company of Ohio, N.A.,
the Funds' custodian and lending agent, may earn a fee based on the amount of
income earned on the investment of collateral.
- --------------------------------------------------------------------------------
CONVERTIBLE OR EXCHANGEABLE CORPORATE DEBT OBLIGATIONS. Debt instruments which
may be exchanged or converted to other securities.
- --------------------------------------------------------------------------------
ZERO COUPON BONDS. These securities are bought at a discount from face value.
The bond's face value is received at maturity, with no interest payments
before then. These securities may be subject to greater risk of price
fluctuation than securities that periodically pay interest.
- --------------------------------------------------------------------------------
17
<PAGE> 22
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES. Debt securities backed by loans or accounts
receivable originated by banks, credit card companies, or other providers of
credit. These securities may be enhanced by a bank letter of credit or by
insurance coverage provided by a third party.
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES. Instruments secured by a mortgage or pools of
mortgages.
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS. Debt obligations that are secured by
mortgage-backed certificates. Some are issued by U.S. government agencies and
instrumentalities.
- --------------------------------------------------------------------------------
FOREIGN DEBT SECURITIES. Debt securities of foreign issuers including
international bonds traded in the United States and abroad denominated in U.S.
dollars.
- --------------------------------------------------------------------------------
YANKEE SECURITIES. Debt instruments issued by non-U.S. issuers and denominated
in U.S. dollars.
- --------------------------------------------------------------------------------
DOLLAR WEIGHTED EFFECTIVE AVERAGE MATURITY. This is one measure of the
sensitivity of a debt security's value to changes in interest rates. Longer
term debt securities are usually more volatile than shorter term debt
securities because their prices are generally more sensitive to interest rate
changes. Therefore, the NAV of a fund with a longer dollar weighted effective
average maturity may fluctuate more.
- --------------------------------------------------------------------------------
+ VARIABLE & FLOATING RATE SECURITIES. The interest rate offered by a variable
rate security adjusts (resets) on particular dates (such as the last day of a
month or calendar quarter). The interest rate offered by a floating rate
security adjusts whenever a specified interest rate (such as a bank's prime
lending rate) changes. Upon adjustment, the market value of a variable or
floating rate security can reasonably be expected to equal its amortized cost.
Some of these securities may be illiquid.
- --------------------------------------------------------------------------------
U.S. EQUITY SECURITIES. Can include common stock and securities convertible
into stock of U.S. corporations.
- --------------------------------------------------------------------------------
EQUITY SECURITIES OF FOREIGN COMPANIES TRADED ON U.S. EXCHANGES. Can include
common stock, preferred stock, and securities convertible into stock. Also may
include American Depositary Receipts (ADRs) and Global Depositary Receipts
(GDRs).
- --------------------------------------------------------------------------------
+ DERIVATIVE INSTRUMENTS: Indicates a "derivative instrument," whose value is
linked to, or derived from another security, instrument, or index. Each Fund
may, but is not required to, use derivative instruments for any of the following
reasons:
- - To hedge against adverse changes in the market value of securities
- - As a temporary substitute for purchasing or selling securities
- - In limited situations, to attempt to profit from anticipated market
developments
18
<PAGE> 23
- - STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more details describing the Funds and its policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
- - ANNUAL AND SEMI-ANNUAL REPORTS
Describes each Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected each
Fund's performance during its last fiscal year.
- - HOW TO OBTAIN INFORMATION
BY TELEPHONE: Call your participating insurance company or Victory Funds at
800-539-FUND (800-539-3863).
You also may obtain copies of materials from the SEC's Public Reference Room in
Washington, D.C. (call 800-SEC-0330 for information on the operation of the
SEC's Public Reference Room.)
By mail: You may write to your participating insurance company or you may write
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549-6009 and pay the costs of duplication.
ON THE INTERNET: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at HTTP://WWW.SEC.GOV.
If you would like to receive copies of the annual and semi-annual reports (when
they become available) and/or the SAI at no charge, please call the Funds at
800-539-FUND.
The securities described in this Prospectus and the SAI are not offered in any
state in which they may not lawfully be sold. No sales representative, dealer,
or other person is authorized to give any information or make any representation
other than those contained in this Prospectus and the SAI.
Investment Company Act File No. 811-8979
VF-VVIA-PRO (5/99)
<PAGE> 24
The information in this Statement of Additional Information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This SAI is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale
is not permitted.
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY VARIABLE INSURANCE FUNDS
Investment Quality Bond Fund
Diversified Stock Fund
Small Company Opportunity Fund
May ___, 1999
This Statement of Additional Information ("SAI") is not a prospectus, but should
be read in conjunction with the Class A Share prospectus of The Victory Variable
Insurance Funds (the "Prospectus"), which is dated May ___, 1999 as amended or
supplemented from time to time. This SAI is incorporated by reference in its
entirety into the Prospectus. Copies of the Prospectus may be obtained by
writing The Victory Variable Insurance Funds at P.O Box 8527, Boston, MA
02266-8527, or by calling toll free 800-539-FUND or 800-539-3863.
INVESTMENT ADVISER AND SUB-ADMINISTRATOR
Key Asset Management Inc.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc.
DISTRIBUTOR
BISYS Fund Services Limited Partnership
TRANSFER AGENT
State Street Bank and Trust Company
DIVIDEND DISBURSING AGENT
AND SERVICING AGENT
Boston Financial Data Services, Inc.
CUSTODIAN
Key Trust Company of Ohio, N.A.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
COUNSEL
Kramer Levin Naftalis & Frankel LLP
1
<PAGE> 25
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS.............................................
FUNDAMENTAL RESTRICTIONS OF THE FUNDS.....................................................................
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS.................................................................
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST.................................................................
U.S. Corporate Debt Obligations..................................................................
Temporary Defensive Measures -- Short-Term Obligations...........................................
Short-Term Corporate Obligations.................................................................
Demand Features..................................................................................
Bankers' Acceptances.............................................................................
Certificates of Deposit..........................................................................
Eurodollar Certificates of Deposit...............................................................
Yankee Certificates of Deposit...................................................................
Eurodollar Time Deposits.........................................................................
Canadian Time Deposits...........................................................................
Commercial Paper.................................................................................
International Bonds..............................................................................
Foreign Debt Securities..........................................................................
Repurchase Agreements............................................................................
Reverse Repurchase Agreements....................................................................
Short-Term Funding Agreements....................................................................
Variable Amount Master Demand Notes..............................................................
Variable Rate Demand Notes.......................................................................
Variable and Floating Rate Notes.................................................................
Extendible Debt Securities.......................................................................
Receipts.........................................................................................
Zero-Coupon Bonds................................................................................
Loans and Other Direct Debt Instruments..........................................................
Securities of Other Investment Companies.........................................................
U.S. Government Obligations......................................................................
When-Issued Securities...........................................................................
Delayed-Delivery Transactions....................................................................
Mortgage-Backed Securities.......................................................................
In General..............................................................................
U.S. Government Mortgage-Backed Securities..............................................
GNMA Certificates.......................................................................
FHLMC Securities........................................................................
FNMA Securities.........................................................................
Collateralized Mortgage Obligations.....................................................
Non-Government Mortgage-Backed Securities...............................................
Asset-Backed Securities..........................................................................
Real Estate Investment Trusts....................................................................
Preferred Stock..................................................................................
Convertible Securities...........................................................................
Futures and Options..............................................................................
Futures Contracts.......................................................................
Restrictions on the Use of Futures Contracts............................................
Risk Factors in Futures Transactions....................................................
Options.................................................................................
Puts....................................................................................
Illiquid Investments.............................................................................
Restricted Securities............................................................................
</TABLE>
2
<PAGE> 26
<TABLE>
<CAPTION>
<S> <C>
Securities Lending Transactions..................................................................
Short Sales Against-the-Box......................................................................
Investment-Grade and High Quality Securities.....................................................
Participation Interests..........................................................................
Warrants.........................................................................................
Foreign Investments..............................................................................
VALUATION OF PORTFOLIO SECURITIES FOR THE INVESTMENT QUALITY BOND FUND ...................................
VALUATION OF PORTFOLIO SECURITIES FOR THE EQUITY FUNDS....................................................
PERFORMANCE ..............................................................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................................................
DIVIDENDS AND DISTRIBUTIONS...............................................................................
TAXES.....................................................................................................
TRUSTEES AND OFFICERS.....................................................................................
ADVISORY AND OTHER CONTRACTS..............................................................................
ADDITIONAL INFORMATION....................................................................................
APPENDIX..................................................................................................
</TABLE>
3
<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
The Victory Variable Insurance Funds (the "Trust") is an open-end management
investment company consisting of three series (each a "Fund") of units of
beneficial interest ("shares"). The outstanding shares represent interests in
the Investment Quality Bond Fund (sometimes referred to as the "Bond Fund"), the
Diversified Stock Fund and the Small Company Opportunity Fund. Each Fund is a
diversified mutual fund. This SAI relates to the Class A shares of the Funds.
Much of the information contained in this SAI expands on subjects discussed in
the Prospectus. Capitalized terms not defined herein are used as defined in the
Prospectus. No investment in shares of a Fund should be made without first
reading the Prospectus.
INVESTMENT OBJECTIVES AND INVESTMENT POLICIES AND LIMITATIONS
Each Fund's investment objective is fundamental and may not be changed without a
vote of the holders of a majority of the Fund's outstanding voting securities.
There can be no assurance that a Fund will achieve its investment objective.
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies and limitations supplement the Funds' investment policies
set forth in the Prospectus. The Funds' investments in the following securities
and other financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this SAI.
Unless otherwise noted in the Prospectus or this SAI, a Fund may invest no more
than 5% of its total assets in any of the securities or financial instruments
described below (unless the context of the Prospectus or this SAI requires
otherwise).
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any security or
other asset, or sets forth a policy regarding quality standards, such standard
or percentage limitation will be determined immediately after and as a result of
the Fund's acquisition of such security or other asset except in the case of
borrowing (or other activities that may be deemed to result in the issuance of a
"senior security" under the Investment Company Act of 1940, as amended (the
"1940 Act")). Accordingly, any subsequent change in values, net assets, or other
circumstances will not be considered when determining whether the investment
complies with a Fund's investment policies and limitations. If the value of a
Fund's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Trustees will consider what actions, if any, are
appropriate to maintain adequate liquidity.
The investment policies of a Fund may be changed without an affirmative vote of
the holders of a majority of that Fund's outstanding voting securities unless
(1) a policy expressly is deemed to be a fundamental policy of the Fund or (2) a
policy expressly is deemed to be changeable only by such majority vote. A Fund
may, following notice to its shareholders, take advantage of other investment
practices which presently are not contemplated for use by the Fund or which
currently are not available but which may be developed to the extent such
investment practices are both consistent with the Fund's investment objective
and legally permissible for the Fund. Such investment practices, if they arise,
may involve risks which exceed those involved in the activities described in a
Fund's Prospectus.
The following sections list each Fund's investment objective and its investment
policies, limitations, and restrictions. The securities in which the Funds can
invest and the risks associated with these securities are discussed in the
section "Instruments in Which the Funds Can Invest." When this SAI refers to
only the Diversified Stock Fund and the Small Company Opportunity Fund, they
will be called the "Equity Funds."
<PAGE> 28
FUNDAMENTAL RESTRICTIONS OF THE FUNDS
- -------------------------------------
The following Fundamental Restrictions may not be changed with respect to a Fund
without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Such majority is defined as the lesser of (a) 67% or more of
the shares of the Fund present at a meeting at which the holders of more than
50% of the outstanding shares of the Fund are represented in person or by proxy,
or (b) more than 50% of the outstanding shares of the Fund.
1. SENIOR SECURITIES
No Fund may:
Issue any senior security (as defined in the 1940 Act), except that (a) each
Fund may engage in transactions that may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) each Fund may acquire
other securities, the acquisition of which may result in the issuance of a
senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; (c) subject to the restrictions set forth
below, the Fund may borrow money as authorized by the 1940 Act.
2. UNDERWRITING
The Funds may not:
Underwrite securities issued by others, except to the extent that the Fund may
be considered an underwriter within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in the disposition of restricted securities.
3. BORROWING
Each Fund may not:
Borrow money, except that (a) each Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3 % of the Fund's total
assets; and (b) each Fund may borrow money for temporary or emergency purposes
in an amount not exceeding 5% of the value of its total assets at the time when
the loan is made. Any borrowings representing more than 5% of a Fund's total
assets must be repaid before the Fund may make additional investments.
4. LENDING
Each Fund may not:
Lend any security or make any other loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
2
<PAGE> 29
NON-FUNDAMENTAL RESTRICTIONS OF THE FUNDS
- -----------------------------------------
1. ILLIQUID SECURITIES
Each Fund:
Will not invest more than 15% of its net assets in illiquid securities. Illiquid
securities are securities that are not readily marketable or cannot be disposed
of promptly within seven days and in the usual course of business at
approximately the price at which the Fund has valued them. Such securities
include, but are not limited to, time deposits and repurchase agreements with
maturities longer than seven days. Securities that may be resold under Rule
144A, securities offered pursuant to Section 4(2) of, or securities otherwise
subject to restrictions or limitations on resale under the Securities Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Asset Management Inc., the Funds' investment adviser ("KAM" or
the "Adviser"), determines whether a particular security is deemed to be liquid
based on the trading markets for the specific security and other factors.
2. SHORT SALES AND PURCHASES ON MARGIN
Each Fund:
Will not make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction will not
be applied to limit the use of options, futures contracts and related options,
in the manner otherwise permitted by the investment restrictions, policies, and
investment program of the Fund.
3. OTHER INVESTMENT COMPANIES
Each Fund:
May invest up to 5% of their total assets in the securities of any one
investment company, but may not own more than 3% of the securities of any one
investment company or invest more than 10% of its total assets in the securities
of other investment companies.
The Funds may not:
Purchase the securities of any registered open-end investment company or
registered unit investment trust in reliance on Section 12(d)(1)(G) or Section
12(d)(1)(F) of the 1940 Act, which permits operation as a "fund of funds."
4. REAL ESTATE
Each Fund may not:
Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent each Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Funds in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not excluded.
3
<PAGE> 30
5. COMMODITIES
Each Fund may not:
Purchase or sell physical commodities unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Funds from
purchasing or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
6. CONCENTRATION
Each Fund may not:
Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
INSTRUMENTS IN WHICH THE FUNDS CAN INVEST
- -----------------------------------------
The following table lists some of the types of securities each of the Funds may
choose to purchase under normal market conditions. Unless otherwise stated, the
indicated percentage relates to a Fund's total assets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENTS COMMON TO EACH FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock - 20% When-Issued and - 33 1/3%
Delayed-Delivery
Securities
- -------------------------------------------------------------------------------------------------------------
Receipts - 20% Illiquid Securities - 15% of net assets
- -------------------------------------------------------------------------------------------------------------
Futures Contracts and - 5% in margins and Securities Lending - 33 1/3%
Options on Futures premiums; 33-1/3%
Contracts subject to futures
or options on futures
- -------------------------------------------------------------------------------------------------------------
U.S. Corporate Debt - Bond Fund: no limit; U.S. Government - Bond Fund: no
Obligations Securities limit;
Equity Funds: 20%
Equity Funds: 20%
- -------------------------------------------------------------------------------------------------------------
Short-Term Debt - Bond Fund: 35%; Repurchase - Bond Fund: 35%;
Obligations Agreements
Equity Funds: 20% Equity Funds: 20%
- -------------------------------------------------------------------------------------------------------------
Restricted Securities - Bond Fund: no limit; Convertible or - Bond Fund: no
Exchangeable limit;
Equity Funds: 20% Corporate Debt
Obligations Equity Funds: 80%
to 100% (included in
limit for U.S. equity
securities)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 31
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENTS OF THE INVESTMENT QUALITY BOND FUND ONLY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Debt Securities - 20% Asset Backed - No limit
Securities
- -------------------------------------------------------------------------------------------------------------
Mortgage-Backed - No limit Collateralized - No limit
Securities Mortgage Obligations
- -------------------------------------------------------------------------------------------------------------
Zero Coupon Bonds - 20% Variable & Floating - No limit
Rate Securities
- -------------------------------------------------------------------------------------------------------------
Yankee Securities - 20% Tax, Revenue and - No limit
Bond Anticipation
Notes
- -------------------------------------------------------------------------------------------------------------
Dollar Weighted - 5 - 15 years
Effective Average
Maturity
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENTS OF THE EQUITY FUNDS ONLY
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Equity Securities of Foreign Companies - Diversified Stock Fund: 10%
Traded on U.S. Exchanges
- Small Company Opportunity Fund: 5%
- -------------------------------------------------------------------------------------------------------------
Warrants - 10%
- -------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 25%
- -------------------------------------------------------------------------------------------------------------
Options - 25% in covered calls
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The instruments in which the Funds can invest, according to their investment
policies and limitations, are described below.
The following paragraphs provide a brief description of the types of securities
in which the Funds may invest in accordance with their investment objective,
policies, and limitations, including transactions the Funds may make and
strategies they may adopt. The following also contains a brief description of
the risk factors related to those strategies. The Funds may, following notice to
their shareholders, take advantage of other investment practices which presently
are not contemplated for use by the Funds or which currently are not available
but which may be developed, to the extent such investment practices are both
consistent with a Fund's investment objective and are legally permissible for
the Fund. Such investment practices, if they arise, may involve risks which
exceed those involved in the activities described in the Prospectus and this
SAI.
U.S. CORPORATE DEBT OBLIGATIONS. U.S. Corporate Debt Obligations include bonds,
debentures, and notes. Debentures represent unsecured promises to pay, while
notes and bonds may be secured by mortgages on real property or security
interests in personal property. Bonds include, but are not limited to, debt
instruments with maturities of approximately one year or more, debentures,
mortgage-related securities, stripped government securities, and zero coupon
obligations. Bonds, notes, and debentures in which the Funds may invest may
differ in interest rates, maturities, and times of issuance. The market value of
a Fund's fixed income investments will change in response to interest rate
changes and other factors. During periods of falling interest rates, the values
of outstanding fixed income securities generally rise. Conversely, during
periods of rising interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities tend to produce
higher yields, the price of longer maturity securities are also subject to
greater market fluctuations as a result of changes in interest rates.
5
<PAGE> 32
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal also affect
the value of these investments. Except under conditions of default, changes in
the value of a Fund's securities will not affect cash income derived from these
securities but will affect the Fund's net asset value.
TEMPORARY DEFENSIVE MEASURES -- SHORT-TERM OBLIGATIONS. These include high
quality, short-term obligations such as domestic and foreign commercial paper
(including variable-amount master demand notes), bankers' acceptances,
certificates of deposit and demand and time deposits of domestic and foreign
branches of U.S. banks and foreign banks, and repurchase agreements. (See
"Foreign Securities" for a description of risks associated with investments in
foreign securities.) Each Fund may hold up to 100% of its assets in these
instruments for temporary defensive purposes, which may result in performance
that is inconsistent with its investment objective.
SHORT-TERM CORPORATE OBLIGATIONS. Corporate obligations are bonds issued by
corporations and other business organizations in order to finance their
long-term credit needs. Corporate bonds in which a Fund may invest generally
consist of those rated in the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO") that possess many favorable
investment attributes. In the lower end of this category, credit quality may be
more susceptible to potential future changes in circumstances.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
BANKERS' ACCEPTANCES. Bankers' Acceptances are negotiable drafts or bills of
exchange typically drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' Acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements).
CERTIFICATES OF DEPOSIT. Certificates of Deposit are negotiable certificates
issued against funds deposited in a commercial bank or a savings and loan
association for a definite period of time and earning a specified return.
Certificates of Deposit and demand and time deposits invested in by a Fund will
be those of domestic and foreign banks and savings and loan associations, if (a)
at the time of purchase such financial institutions have capital, surplus, and
undivided profits in excess of $100 million (as of the date of their most
recently published financial statements) or (b) the principal amount of the
instrument is insured in full by the Federal Deposit Insurance Corporation (the
"FDIC") or the Savings Association Insurance Fund.
EURODOLLAR CERTIFICATES OF DEPOSIT are U.S. dollar-denominated certificates of
deposit issued by branches of foreign and domestic banks located outside the
United States.
YANKEE CERTIFICATES OF DEPOSIT are certificates of deposit issued by a U.S.
branch of a foreign bank denominated in U.S. dollars and held in the United
States.
EURODOLLAR TIME DEPOSITS are U.S. dollar-denominated deposits in a foreign
branch of a U.S. bank or a foreign bank.
6
<PAGE> 33
CANADIAN TIME DEPOSITS are U.S. dollar-denominated certificates of deposit
issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper is unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Funds will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by an NRSRO or, if not rated, found by the
Trustees to present minimal credit risks and to be of comparable quality to
instruments that are rated high quality (i.e., in one of the two top ratings
categories) by an NRSRO that is neither controlling, controlled by, or under
common control with the issuer of, or any issuer, guarantor, or provider of
credit support for, the instruments. For a description of the rating symbols of
each NRSRO see the Appendix to this SAI.
INTERNATIONAL BONDS. International Bonds include Euro and Yankee obligations,
which are U.S. dollar-denominated international bonds for which the primary
trading market is in the United States ("Yankee Bonds"), or for which the
primary trading market is abroad ("Eurodollar Bonds"). International Bonds also
include Canadian and Supranational Agency Bonds (e.g., International Monetary
Fund). (See "Foreign Debt Securities" for a description of risks associated with
investments in foreign securities.)
FOREIGN DEBT SECURITIES. Investments in securities of foreign companies
generally involve greater risks than are present in U.S. investments. Compared
to U.S. and Canadian companies, there generally is less publicly available
information about foreign companies, and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid, and their prices more volatile, than securities of
comparable U.S. companies. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the U.S., which could affect the
liquidity of a Fund's investment. In addition, with respect to some foreign
countries, there is the possibility of nationalization, expropriation, or
confiscatory taxation; limitations on the removal of securities, property, or
other assets of a Fund; there may be political or social instability; there may
be increased difficulty in obtaining legal judgments; or diplomatic developments
which could affect U.S. investments in those countries. The Adviser will take
such factors into consideration in managing a Fund's investments.
REPURCHASE AGREEMENTS. Securities held by a Fund may be subject to Repurchase
Agreements. Under the terms of a Repurchase Agreement, a Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by the Adviser pursuant to guidelines adopted by the Trustees,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest).
If the seller were to default on its repurchase obligation or become insolvent,
a Fund would suffer a loss to the extent that the proceeds from a sale of the
underlying portfolio securities were less than the repurchase price, or to the
extent that the disposition of such securities by the Fund is delayed pending
court action.
REVERSE REPURCHASE AGREEMENTS. A Fund may borrow funds for temporary purposes by
entering into Reverse Repurchase Agreements. These Agreements are considered to
be borrowings under the 1940 Act. Pursuant to such agreement, a Fund would sell
a portfolio security to a financial institution such as a bank and a
broker-dealer, and agree to repurchase such security at a mutually agreed-upon
date and price. At the time a Fund enters into a Reverse Repurchase Agreement,
it will place in a segregated custodial account liquid assets consistent with
the Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest). The collateral will be marked-to-market on a daily
basis, and will be monitored continuously to ensure that such equivalent value
is maintained. Reverse Repurchase
7
<PAGE> 34
Agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which the Fund is obligated to repurchase
the securities.
SHORT-TERM FUNDING AGREEMENTS. A Fund may invest in Short-Term Funding
Agreements (sometimes referred to as "GICs") issued by insurance companies.
Pursuant to such agreements, a Fund makes cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
the Fund, on a monthly basis, guaranteed interest which is based on an index.
The Short-Term Funding Agreement provides that this guaranteed interest will not
be less than a certain minimum rate. Because the principal amount of a
Short-Term Funding Agreement may not be received from the insurance company on
seven days notice or less, the agreement is considered to be an illiquid
investment and, together with other instruments in a Fund which are not readily
marketable, will not exceed 15% of a Fund's net assets. In determining
dollar-weighted average portfolio maturity, a Short-Term Funding Agreement will
be deemed to have a maturity equal to the period of time remaining until the
next readjustment of the guaranteed interest rate.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable Amount Master Demand Notes are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Although there is no secondary market for these notes, a Fund
may demand payment of principal and accrued interest at any time and may resell
the notes at any time to a third party. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of a Variable
Amount Master Demand Note if the issuer defaulted on its payment obligations,
and the Fund could, for this or other reasons, suffer a loss to the extent of
the default. While the notes typically are not rated by credit rating agencies,
issuers of Variable Amount Master Demand Notes must satisfy the same criteria as
set forth above for unrated commercial paper, and the Adviser will monitor
continuously the issuer's financial status and ability to make payments due
under the instrument. Where necessary to ensure that a note is of "high
quality," a Fund will require that the issuer's obligation to pay the principal
of the note be backed by an unconditional bank letter or line of credit,
guarantee or commitment to lend. For purposes of a Fund's investment policies, a
Variable Amount Master Demand Note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of its
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
VARIABLE RATE DEMAND NOTES. Variable Rate Demand Notes are tax-exempt
obligations containing a floating or variable interest rate adjustment formula,
together with an unconditional right to demand payment of the unpaid principal
balance plus accrued interest upon a short notice period, generally not to
exceed seven days. The Funds also may invest in participation Variable Rate
Demand Notes, which provide a Fund with an undivided interest in underlying
Variable Rate Demand Notes held by major investment banking institutions. Any
purchase of Variable Rate Demand Notes will meet applicable diversification and
concentration requirements.
VARIABLE AND FLOATING RATE NOTES. A Variable Rate Note is one whose terms
provide for the readjustment of its interest rate on set dates and which, upon
such readjustment, reasonably can be expected to have a market value that
approximates its par value. A Floating Rate Note is one whose terms provide for
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, reasonably can be expected to have a market value that
approximates its par value. Such notes frequently are not rated by credit rating
agencies; however, unrated Variable and Floating Rate Notes purchased by the
Fund will only be those determined by the Adviser, under guidelines established
by the Trustees, to pose minimal credit risks and to be of comparable quality,
at the time of purchase, to rated instruments eligible for purchase under the
Fund's investment policies. In making such determinations, the Adviser will
consider the earning power, cash flow and other liquidity ratios of the issuers
of such notes (such issuers include financial, merchandising, bank holding and
other companies) and will continuously monitor their financial condition.
Although there may be no active secondary market with respect to a particular
Variable or Floating Rate Note purchased by a Fund, the Fund may resell the note
at any time to a third party. The absence of an active secondary market,
however, could make it difficult for a Fund to
8
<PAGE> 35
dispose of a Variable or Floating Rate Note in the event that the issuer of the
note defaulted on its payment obligations and a Fund could, for this or other
reasons, suffer a loss to the extent of the default. Variable or Floating Rate
Notes may be secured by bank letters of credit.
Variable or Floating Rate Notes may have maturities of more than one year, as
follows:
1. A Variable or Floating Rate Note that is issued or guaranteed by the United
States government or any agency thereof and which has a variable rate of
interest readjusted no less frequently than annually will be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
2. A Variable or Floating Rate Note, the principal amount of which is scheduled
on the face of the instrument to be paid in one year or less, will be deemed by
the Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A Variable or Floating Rate Note that is subject to a demand feature
scheduled to be paid in one year or more will be deemed to have a maturity equal
to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
4. A Variable or Floating Rate Note that is subject to a demand feature will be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where a Fund is entitled
to receive the principal amount of the note either at any time on no more than
30 days' notice or at specified intervals not exceeding one year and upon no
more than 30 days' notice.
EXTENDIBLE DEBT SECURITIES. Extendible Debt Securities are securities that can
be retired at the option of a Fund at various dates prior to maturity. In
calculating average portfolio maturity, a Fund may treat Extendible Debt
Securities as maturing on the next optional retirement date.
RECEIPTS. Receipts are separately traded interest and principal component parts
of bills, notes, and bonds issued by the U.S. Treasury that are transferable
through the Federal book entry system, known as Separately Traded Registered
Interest and Principal Securities ("STRIPS") and Coupon Under Book Entry
Safekeeping ("CUBES"). These instruments are issued by banks and brokerage firms
and are created by depositing Treasury notes and Treasury bonds into a special
account at a custodian bank; the custodian holds the interest and principal
payments for the benefit of the registered owners of the certificates or
receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS").
ZERO-COUPON BONDS. Zero-Coupon Bonds are purchased at a discount from the face
amount because the buyer receives only the right to a fixed payment on a certain
date in the future and does not receive any periodic interest payments. The
effect of owning instruments which do not make current interest payments is that
a fixed yield is earned not only on the original investment but also, in effect,
on accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the Zero-Coupon Bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, Zero-Coupon Bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest currently, which fluctuation increases
in accordance with the length of the period to maturity.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Loans and Other Direct Debt Instruments
are interests in amounts owed by a corporate, governmental, or other borrower to
another party. They may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or
9
<PAGE> 36
services (trade claims or other receivables), or to other parties. Direct Debt
Instruments involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to a Fund in the event of fraud or
misrepresentation. In addition, loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. Direct Debt Instruments may
also include standby financing commitments that obligate a Fund to supply
additional cash to the borrower on demand.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest up to 5% of its
total assets in the securities of any one investment company, but may not own
more than 3% of the securities of any one investment company or invest more than
10% of its total assets in the securities of other investment companies.
U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations are obligations issued
or guaranteed by the U.S. Government, its agencies, and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
WHEN-ISSUED SECURITIES. A Fund may purchase securities on a when-issued basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When a Fund agrees to purchase securities on a when-issued basis, the
custodian will set aside cash or liquid portfolio securities equal to the amount
of the commitment in a separate account. Normally, the custodian will set aside
portfolio securities to satisfy the purchase commitment, and in such a case, the
Fund may be required subsequently to place additional assets in the separate
account in order to assure that the value of the account remains equal to the
amount of the Fund's commitment. It may be expected that a Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. When a Fund
engages in when-issued transactions, it relies on the seller to consummate the
trade. Failure of the seller to do so may result in the Fund incurring a loss or
missing the opportunity to obtain a price considered to be advantageous. The
Funds do not intend to purchase when issued securities for speculative purposes,
but only in furtherance of its investment objective.
DELAYED-DELIVERY TRANSACTIONS. A Fund may buy and sell securities on a
delayed-delivery basis. These transactions involve a commitment by the Fund to
purchase or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security (and more than seven days in the future). Typically, no
interest accrues to the purchaser until the security is delivered. The Fund may
receive fees for entering into delayed delivery transactions.
When purchasing securities on a delayed-delivery basis, a Fund assumes the
rights and risks of ownership, including the risks of price and yield
fluctuations in addition to the risks associated with the Fund's other
investments. Because a Fund is not required to pay for securities until the
delivery date, these delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, the Fund will set
aside cash and appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When the Fund has sold a security on a
delayed-delivery basis, it does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery transaction
fails to deliver or pay for the securities, the Fund could miss a favorable
price or yield opportunity or suffer a loss.
The Fund may renegotiate delayed-delivery transactions after they are entered
into or may sell underlying securities before they are delivered, either of
which may result in capital gains or losses.
MORTGAGE-BACKED SECURITIES--IN GENERAL. Mortgage-Backed Securities are backed by
mortgage obligations including, among others, conventional 30-year fixed rate
mortgage obligations, graduated
10
<PAGE> 37
payment mortgage obligations, 15-year mortgage obligations, and adjustable-rate
mortgage obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal, and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, Mortgage-Backed Securities are often subject to more
rapid prepayment of principal than their stated maturity indicates. In addition,
during periods of falling interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of the pool. Conversely, in
periods of rising interest rates, prepayment rates tend to decrease, lengthening
a pool's average life. Because the prepayment characteristics of the underlying
mortgage obligations vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the yield and price of
the securities.
A Fund may purchase Mortgage-Backed Securities at a premium or at a discount.
Accelerated prepayments have an adverse impact on yields for pass-throughs
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-throughs purchased at a discount. Among the U.S. Government securities
in which a Fund may invest are Government Mortgage-Backed Securities (or
government guaranteed mortgage-related securities). Such guarantees do not
extend to the value of yield of the Mortgage-Backed Securities themselves or of
the Fund's shares.
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES. Certain obligations of certain
agencies and instrumentalities of the U.S. Government are Mortgage-Backed
Securities. Some such obligations, such as those issued by GNMA are supported by
the full faith and credit of the U.S. Treasury; others, such as those of FNMA,
are supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks or FHLMC, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies and instrumentalities if it is not
obligated to do so by law.
The principal governmental (i.e., backed by the full faith and credit of the
U.S. Government) guarantor of Mortgage-Backed Securities is GNMA. GNMA is a
wholly owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks, and mortgage bankers) and pools of FHA-insured
or VA-guaranteed mortgages. Government-related (i.e., not backed by the full
faith and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA
and FHLMC are government-sponsored corporations owned entirely by private
stockholders. Pass-through securities issued by FNMA and FHLMC are guaranteed as
to timely payment of principal and interest by FNMA and FHLMC, respectively, but
are not backed by the full faith and credit of the U.S. Government.
GNMA CERTIFICATES. Certificates of the GNMA are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. GNMA
Certificates that a Fund may purchase are the "modified pass-through" type,
which entitle the holder to receive timely payment of all interest and principal
payments due on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and
11
<PAGE> 38
credit of the U.S. Government. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The estimated average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures usually will
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.
FHLMC SECURITIES. The FHLMC was created in 1970 to promote development of a
nationwide secondary market in conventional residential mortgages. The FHLMC
issues two types of mortgage pass-through securities ("FHLMC Certificates"),
mortgage participation certificates, and collateralized mortgage obligations
("CMOs"). Participation Certificates resemble GNMA Certificates in that each
Participation Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. The FHLMC guarantees
timely monthly payment of interest on PCs and the ultimate payment of principal.
Recently introduced FHLMC Gold Participation Certificates guarantee the timely
payment of both principal and interest.
FHLMC CMOs are backed by pools of agency mortgage-backed securities and the
timely payment of principal and interest of each tranche is guaranteed by the
FHLMC. The FHLMC guarantee is not backed by the full faith and credit of the
U.S. Government.
FNMA SECURITIES. The FNMA was established in 1938 to create a secondary market
in mortgages insured by the FHA, but has expanded its activity to the secondary
market for conventional residential mortgages. FNMA primarily issues two types
of mortgage-backed securities, guaranteed mortgage pass-through certificates
("FNMA Certificates") and CMOs. FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest and principal on FNMA Certificates and CMOs. The FNMA
guarantee is not backed by the full faith and credit of the U.S. Government.
COLLATERALIZED MORTGAGE OBLIGATIONS. Mortgage-Backed Securities in which a Fund
may invest may also include CMOs. CMOs are securities backed by a pool of
mortgages in which the principal and interest cash flows of the pool are
channeled on a prioritized basis into two or more classes, or tranches, of
bonds.
NON-GOVERNMENTAL MORTGAGE-BACKED SECURITIES. A Fund may invest in
mortgage-related securities issued by non-governmental entities. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional residential mortgage loans. Such issuers also may be the
originators of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are not direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool, and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers, thereof
will be considered in determining whether a Non-Governmental Mortgage-Backed
Security meets a Fund's investment quality standards. There can be no assurance
that the private insurers can meet their obligations under the policies. A Fund
may buy Non-Governmental Mortgage-Backed Related Securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the poolers, the Adviser determines that the securities meet the Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. A Fund will not purchase mortgage-related securities or any other
assets which in the opinion of the Adviser are illiquid if, as a result, more
than 15% of the value of the Fund's net assets will be invested in illiquid
securities.
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A Fund may purchase mortgage-related securities with stated maturities in excess
of 10 years. Mortgage-related securities include CMOs and participation
certificates in pools of mortgages. The average life of mortgage-related
securities varies with the maturities of the underlying mortgage instruments,
which have maximum maturities of 40 years. The average life is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities as the result of mortgage prepayments. The rate of such
prepayments, and hence the average life of the certificates, will be a function
of current market interest rates and current conditions in the relevant housing
markets. The impact of prepayment of mortgages is described under "Government
Mortgage-Backed Securities." Estimated average life will be determined by the
Adviser. Various independent mortgage-related securities dealers publish
estimated average life data using proprietary models, and in making such
determinations, the Adviser will rely on such data except to the extent such
data are deemed unreliable by the Adviser. The Adviser might deem data
unreliable which appeared to present a significantly different estimated average
life for a security than data relating to the estimated average life of
comparable securities as provided by other independent mortgage-related
securities dealers.
ASSET-BACKED SECURITIES. Asset-backed securities are debt securities backed by
pools of automobile or other commercial or consumer finance loans. The
collateral backing asset-backed securities cannot be foreclosed upon. These
issues are normally traded over-the-counter and typically have a short to
intermediate maturity structure, depending on the paydown characteristics of the
underlying financial assets which are passed through to the security holder.
REAL ESTATE INVESTMENT TRUSTS. Each Fund may invest in real estate investment
trusts ("REITs"), which are pooled investment vehicles that invest primarily in
income-producing real estate or real estate-related loans or interests. Like
regulated investment companies such as the Trust, a REIT is not taxed on income
distributed to its shareholders if the REIT complies with the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). By
investing in a REIT, a Fund will indirectly bear its proportionate share of any
expenses paid by the REIT in addition to Fund expenses.
There are three general categories of REITs: equity, mortgage and hybrid REITs.
Equity REITs, which invest the majority of their assets directly in real
property, derive their income primarily from rents and may also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs,
which invest primarily in real estate mortgages, derive their income primarily
from interest payments on those mortgages. Hybrid REITs combine the
characteristics of both equity and mortgage REITs.
A REIT's market price may be affected by changes in the value of the underlying
property that it owns or by the credit quality of borrowers to whom the REIT
lends money. REITs are dependent on property management skills, are not
diversified (except as the Code requires), are heavily dependent on cash flow,
and are subject to borrower default, self-liquidation, failing to qualify for
tax exemption under the Code and/or registration exemption under the 1940 Act.
PREFERRED STOCK. Each Fund may invest in preferred stock issued by domestic and
foreign corporations. Preferred stocks are instruments that combine qualities
both of equity and debt securities. Individual issues of preferred stock will
have those rights and liabilities that are spelled out in the governing
document. Preferred stocks usually pay a fixed dividend per quarter (or annum)
and are senior to common stock in terms of liquidation and dividends rights.
Preferred stocks typically do not have voting rights.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible debt and convertible
preferred stock. These securities may be converted at either a stated price or
rate into underlying shares of common stock. As a result, an investor in
convertible securities may benefit from increases in the underlying common
stock's market price. Convertible securities provide higher yields than the
underlying common stock, but typically offer lower yields than comparable
non-convertible securities. The value of convertible securities fluctuates in
relation to changes in interest rates like bonds and also fluctuates in relation
to the underlying stock's price.
FUTURES AND OPTIONS
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FUTURES CONTRACTS. The Funds may enter into futures contracts, options on
futures contracts, and stock index futures contracts and options thereon for the
purposes of remaining fully invested and reducing transaction costs. Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a specific security, class of securities, or an index
at a specified future time and at a specified price. A stock index futures
contract is a bilateral agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
The Funds may enter into contracts for the future delivery of securities and
futures contracts based on a specific security, class of securities or an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
Although futures contracts (other than those relating to indexes) by their terms
call for actual delivery and acceptance of the underlying securities, in most
cases the contracts are closed out before the settlement date without the making
or taking of delivery. Closing out an open futures position is done by taking an
opposite position (buying a contract which has previously been "sold," or
"selling" a contract previously purchased) in an identical contract to terminate
the position. The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period. Brokerage commissions are
incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a futures commission merchant or custodian to
initiate and maintain open positions in futures contracts. A margin deposit is
intended to assure completion of the contract (delivery or acceptance of the
underlying security) if it is not terminated prior to the specified delivery
date. Minimal initial margin requirements are established by the futures
exchange and may be changed. Futures commission merchants may establish deposit
requirements which are higher than the exchange minimums. Initial margin
deposits on futures contracts are customarily set at levels much lower than the
prices at which the underlying securities are purchased and sold, typically
ranging upward from less than 5% of the value of the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Funds
expect to earn interest income on its margin deposits.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, a Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, a
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for a Fund than might later be available in the market when it effects
anticipated purchases.
The Funds may sell futures contracts to protect securities it owns against price
declines or purchase contracts to protect against an increase in the price of
securities it intends to purchase. A Fund may also enter into such transactions
in order to terminate existing positions.
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The Funds' ability to use futures trading effectively depends on several
factors. First, it is possible that there will not be a perfect price
correlation between a futures contract and its underlying stock index. Second,
it is possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Fund could lose more than the original margin deposit required to
initiate a futures transaction.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities. A Fund
may lose the expected benefit of futures transactions if interest rates,
exchange rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if a
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting a Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Funds will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
or as a substitute for the underlying securities to gain market exposure to the
extent that, immediately thereafter, the sum of its initial margin deposits on
open contracts exceeds 5% of the market value of a Fund's total assets. In
addition, a Fund will not enter into futures contracts to the extent that the
value of the futures contracts held would exceed 1/3 of the Fund's total assets.
The Trust need not register with the CFTC as a Commodities Pool Operator.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the SEC. Under those requirements, where a Fund has a long position in a
futures contract, it may be required to establish a segregated account (not with
a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if a Fund "covers" a long position. For example, instead of
segregating assets, a Fund, when holding a long position in a futures contract,
could purchase a put option on the same futures contract with a strike price as
high or higher than the price of the contract held by a Fund. In addition, where
a Fund takes short positions, or engages in sales of call options, it need not
segregate assets if it "covers" these positions. For example, where a Fund holds
a short position in a futures contract, it may cover by owning the instruments
underlying the contract. A Fund may also cover such a position by holding a call
option permitting it to purchase the same futures contract at a price no higher
than the price at which the short position was established. Where a Fund sells a
call option on a futures contract, it may cover either by entering into a long
position in the same contract at a price no higher than the strike price of the
call option or by owning the instruments underlying the futures contract. A Fund
could also cover this position by holding a separate call option permitting it
to purchase the same futures contract at a price no higher than the strike price
of the call option sold by a Fund.
In addition, the extent to which a Fund may enter into transactions involving
futures contracts may be limited by the Code's requirements for qualification as
a registered investment company and a Fund's intention to qualify as such.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if a Fund has
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insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on the ability to effectively hedge them. A Fund
will minimize the risk that they will be unable to close out a futures contract
by only entering into futures contracts which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Funds are only for hedging purposes, the
Adviser does not believe that the Funds are subject to the risks of loss
frequently associated with futures transactions. The Funds would presumably have
sustained comparable losses if, instead of the futures contract, it had invested
in the underlying financial instrument and sold it after the decline.
Use of futures transactions by the Funds involve the risk of imperfect or no
correlation where the securities underlying futures contract have different
maturities than the portfolio securities being hedged. It is also possible that
the Funds could both lose money on futures contracts and also experience a
decline in the value of its portfolio securities. There is also the risk of loss
by the Funds of margin deposits in the event of bankruptcy of a broker with whom
the Funds have open positions in a futures contract or related option.
OPTIONS. The Funds may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. A Fund must
at all times have in its portfolio the securities which it may be obligated to
deliver if the option is exercised. The risk of writing uncovered call options
is that the writer of the option may be forced to acquire the underlying
security at a price in excess of the exercise price of the option, that is, the
price at which the writer has agreed to sell the underlying security to the
purchaser of the option. A Fund may write call options in an attempt to realize
a greater level of current income than would be realized on the securities
alone. A Fund may also write call options as a partial hedge against a possible
stock market decline. In view of their investment objective, a Fund generally
would write call options only in circumstances where the Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, a Fund receives a premium for undertaking the obligation to sell
the underlying security at a fixed price during the option period, if the option
is exercised. So long as a Fund remains obligated as a writer of a call option,
it forgoes the opportunity to profit from increases in the market price of the
underlying security above the exercise price of the option, except insofar as
the premium represents such a profit. A Fund retains the risk of loss should the
value of the underlying security decline. A Fund may also enter into "closing
purchase transactions" in order to terminate its obligation as a writer of a
call option prior to the expiration of the option. Although the writing of call
options only on national securities exchanges increases the likelihood of a
Fund's ability to make closing purchase transactions, there is no assurance that
a Fund will be able to effect such transactions at any particular time or at any
acceptable price. The writing of call options could result in increases in a
Fund's portfolio turnover rate, especially during periods when market prices of
the underlying securities appreciate.
PUTS. A put is a right to sell a specified security (or securities) within a
specified period of time at a specified exercise price. A Fund may sell,
transfer, or assign a put only in conjunction with the sale,
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transfer, or assignment of the underlying security or securities. The amount
payable to a Fund upon its exercise of a "put" is normally (i) a Fund's
acquisition cost of the securities (excluding any accrued interest which a Fund
paid on the acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Fund owned the
securities, plus (ii) all interest accrued on the securities since the last
interest payment date during that period.
Puts may be acquired by a Fund to facilitate the liquidity of its portfolio
assets. Puts may also be used to facilitate the reinvestment of a Fund's assets
at a rate of return more favorable than that of the underlying security. Puts
may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of a Fund's assets. See "Variable and Floating Rate Notes"
and "Valuation" in this SAI.
A Fund generally will acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for puts either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities). The Funds intends to enter into puts only with dealers, banks, and
broker-dealers which, in the Adviser's opinion, present minimal credit risks.
Each Fund may write put options from time to time. Such options may be listed on
a national securities exchange and issued by the Options Clearing Corporation or
traded over-the-counter. A Fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the secondary
market at its current price. If the secondary market is not liquid for a put
option a Fund has written, however, the Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price changes,
and must continue to set aside assets to cover its position. Upon the exercise
of an option, the Fund is not entitled to the gains, if any, on securities
underlying the options. Each Fund also may purchase index put and call options
and write index options. Through the writing or purchase of index options, the
Fund can achieve many of the same objectives as through the use of options on
individual securities. Utilizing options is a specialized investment technique
that entails a substantial risk of a complete loss of the amounts paid as
premiums to writers of options.
ILLIQUID INVESTMENTS. Illiquid investments are investments that cannot be sold
or disposed of, within seven business days, in the ordinary course of business
at approximately the prices at which they are valued.
Under the supervision of the Trust's Board of Trustees (the "Board"), the
Adviser determines the liquidity of the Funds' investments and, through reports
from the Adviser, the Trustees monitor investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Adviser may consider
various factors, including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Funds' rights and obligations
relating to the investment).
Investments currently considered by a Fund to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, over the counter options, non-government stripped fixed-rate
mortgage-backed securities, and Restricted Securities.
Also, the Adviser may determine some securities to be illiquid.
However, with respect to over-the-counter options a Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending on
the assets held to cover the option and the nature and terms of any agreement a
Fund may have to close out the option before expiration.
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In the absence of market quotations, illiquid investments are priced at fair
value as determined in good faith by a committee appointed by the Trustees.
If through a change in values, net assets, or other circumstances, more than 15%
of a Fund's net assets were invested in illiquid securities, the Fund would seek
to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES. Restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act, or in a registered public offering.
Where registration is required, a Fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the time
it decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a Fund
might obtain a less favorable price than prevailed when it decided to seek
registration of the shares.
SECURITIES LENDING TRANSACTIONS. The Funds may from time to time lend securities
from their portfolio to broker-dealers, banks, financial institutions and
institutional borrowers of securities and receive collateral in the form of cash
or U.S. Government Obligations. Generally, a Fund must receive initial
collateral equal to 102% of the market value of the loaned securities, plus any
interest due in the form of cash or U.S. Government Obligations. The Funds will
not lend portfolio securities to: (a) any "affiliated person" (as that term is
defined in the 1940 Act)) of any Fund; (b) any affiliated person of the
Investment Adviser; or (c) any affiliated person of such an affiliated person.
This collateral must be valued daily and should the market value of the loaned
securities increase, the borrower must furnish additional collateral to a Fund
sufficient to maintain the value of the collateral equal to at least 100% of the
value of the loaned securities. During the time portfolio securities are on
loan, the borrower will pay the Fund any dividends or interest paid on such
securities plus any interest negotiated between the parties to the lending
agreement. Loans will be subject to termination by the Funds or the borrower at
any time. While a Fund will not have the right to vote securities on loan, they
intend to terminate loans and regain the right to vote if that is considered
important with respect to the investment. A Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees.
The Funds will limit their securities lending to 33 1/3% of total assets.
SHORT SALES AGAINST-THE-BOX. The Funds will not make short sales of securities,
other than short sales "against-the-box." In a short sale against-the-box, a
Fund sells a security that it owns, or a security equivalent in kind and amount
to the security sold short that the Fund has the right to obtain, for delivery
at a specified date in the future. A Fund will enter into short sales
against-the-box to hedge against unanticipated declines in the market price of
portfolio securities. If the value of the securities sold short increases prior
to the scheduled delivery date, a Fund loses the opportunity to participate in
the gain.
INVESTMENT GRADE AND HIGH QUALITY SECURITIES. The Funds may invest in
"investment grade" obligations, which are those rated at the time of purchase
within the four highest rating categories assigned by an NRSRO or, if unrated,
are obligations that the Adviser determines to be of comparable quality. The
applicable securities ratings are described in the Appendix. "High-quality"
short-term obligations are those obligations which, at the time of purchase, (1)
possess a rating in one of the two highest ratings categories from at least one
NRSRO (for example, commercial paper rated "A-1" or "A-2" by Standard & Poor's
("S&P") or "P-1" or "P-2" by Moody's Investors Service, Inc. ("Moody's")) or (2)
are unrated by an NRSRO but are determined by the Adviser to present minimal
credit risks and to be of comparable quality to rated instruments eligible for
purchase by the Funds under guidelines adopted by the Board.
PARTICIPATION INTERESTS. The Funds may purchase interests in securities from
financial institutions such as commercial and investment banks, savings and loan
associations and insurance companies. These interests may take the form of
participation, beneficial interests in a trust, partnership interests or any
other form of
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indirect ownership. The Funds invest in these participation interests, in order
to obtain credit enhancement or demand features that would not be available
through direct ownership of the underlying securities.
WARRANTS. Warrants are securities that give a Fund the right to purchase equity
securities from the issuer at a specified price (the strike price) for a limited
period of time, which strike price is usually higher than the current market
price at the time of issuance. Because the market price of warrants typically is
much lower than the current market price of the underlying securities, they are
subject to greater price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities and may offer greater
potential for capital appreciation as well as capital loss.
FOREIGN INVESTMENTS. A Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including securities
purchased on foreign securities exchanges. Such investment may subject the Fund
to significant investment risks that are different from, and additional to,
those related to investments in obligations of U.S. domestic issuers or in U.S.
securities markets.
Foreign securities markets generally have less trading volume and less liquidity
than U.S. markets, and prices on some foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets, or other government
intervention. There may be a greater possibility of default by foreign
governments or foreign government-sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
There is no assurance that the Adviser will be able to anticipate these
potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
A Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Preferred stocks are instruments that combine qualities both of equity and debt
securities. Individual issues of preferred stock will have those rights and
liabilities that are spelled out in the governing document. Preferred stocks
usually pay a fixed dividend per quarter (or annum) and are senior to common
stock in terms of liquidation and dividends rights, and preferred stocks
typically do not have voting rights.
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VALUATION OF PORTFOLIO SECURITIES FOR THE INVESTMENT QUALITY BOND FUND
Investment securities held by the Investment Quality Bond Fund are valued on the
basis of security valuations provided by an independent pricing service,
approved by the Trustees, which determines value by using information with
respect to transactions of a security, quotations from dealers, market
transactions in comparable securities, and various relationships between
securities. Specific investment securities which are not priced by the approved
pricing service will be valued according to quotations obtained from dealers who
are market makers in those securities. Investment securities with less than 60
days to maturity when purchased are valued at amortized cost which approximates
market value. Investment securities not having readily available market
quotations will be priced at fair value using a methodology approved in good
faith by the Board.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the New York Stock Exchange, Inc. (the
"NYSE"). The values of such securities used in computing the net asset value of
the Investment Quality Bond Fund's shares are determined at such times.
Occasionally, events affecting the values of such securities may occur between
the times at which such values are determined and the close of the NYSE which
will not be reflected in the computation of the Investment Quality Bond Fund's
net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at their fair
value as determined in good faith by or under the supervision of the Board.
VALUATION OF PORTFOLIO SECURITIES FOR THE EQUITY FUNDS.
Each equity security held by an Equity Fund is valued at its last sales price on
the exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the last available bid quotation on
that day. Exchange listed convertible debt securities are valued at the bid
obtained from broker-dealers or a comparable alternative, such as Bloomberg or
Reuters, based upon pricing procedures approved by the Board. Each security
traded in the over-the-counter market (but not including securities reported on
the Nasdaq National Market System) is valued at the bid based upon quotes
furnished by market makers for such securities. Each security reported on the
Nasdaq National Market System is valued at the sales price on the valuation date
or absent a last sales price, at the fair market value on that day, as
established by an independent pricing service. Non-convertible debt securities
are valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Boards. Short-term obligations having 60
days or less to maturity are valued on the basis of amortized cost. For purposes
of determining net asset value per share, futures and options contracts
generally will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in corporate bonds, U.S. Government securities and money
market instruments is substantially completed each day at various times prior to
the close of the NYSE. The values of such securities used in computing the net
asset value of each Equity Fund's shares are determined at such times.
PERFORMANCE
From time to time, the "standardized yield," "distribution return," "dividend
yield," "average annual total return" and "total return," of an investment in
Fund shares may be advertised. An explanation of how yields and total returns
are calculated and the components of those calculations are set forth below.
20
<PAGE> 47
Yield and total return information may be useful to contract owners in reviewing
a Fund's performance. A Fund's advertisement of its performance must, under
applicable SEC rules, include the average annual total returns for a Fund for
the 1, 5, and 10-year period as of the most recently ended calendar quarter.
This enables a contract owner to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for comparison
with other investments. A Fund's shares are not insured; their yield and total
return are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, shares of a Fund may be worth more or less than their original cost.
Yield and total return for any given past period are not a prediction or
representation by the Trust of future yields or rates of return on its shares.
The yield and total returns of shares of the Funds are affected by portfolio
quality, portfolio maturity, the type of investments the Funds hold, and
operating expenses. Class A Shares are subject to an annual contract owner
administrative services fee of up to 0.20% of average daily net assets.
STANDARDIZED YIELD. The "yield" (referred to as "standardized yield") of the
Funds for a given 30-day period is calculated using the following formula set
forth in rules adopted by the SEC that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)(6) - 1]
----
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period, adjusted for undistributed net investment income.
A Fund's standardized yield for a 30-day period may differ from its yield for
any other period. The SEC formula assumes that the standardized yield for a
30-day period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This standardized yield is not based on
actual distributions paid by a Fund in the 30-day period, but is a hypothetical
yield based upon the net investment income from a Fund's portfolio investments
calculated for that period. The standardized yield may differ from the "dividend
yield," described below.
DIVIDEND YIELD AND DISTRIBUTION RETURNS. From time to time a Fund may quote a
"dividend yield" or a "distribution return." Dividend yield is based on a Fund's
dividends derived from net investment income during a one-year period.
Distribution return includes dividends derived from net investment income and
from net realized capital gains declared during a one-year period. The "dividend
yield" is calculated as follows:
Dividend Yield = Dividends for a Period of One-Year
----------------------------------
Maximum. Offering Price (last day of period)
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a Fund's return, including the effect of reinvesting dividends and
net capital gain distributions (if any), and any change in the net asset value
per share of a Fund over the period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical historical
investment in a Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. For example, a
cumulative total return of 100% over ten years would produce an average annual
total return of 7.18%, which is the steady annual rate of return that would
equal 100% growth on an annually compounded basis in ten years. While average
annual total returns (or "annualized total return") are a convenient means of
21
<PAGE> 48
comparing alternative choices to fund a variable contract, contract owners
should realize that performance for a Fund is not constant over time, but
changes from year to year, and that average annual total returns represent
averaged figures as opposed to the actual year-to-year performance of a Fund.
When using total return and yield to compare a Fund with other variable contract
investment vehicles, contract owners should take into consideration permitted
portfolio composition methods used to value portfolio securities and computing
offering price.
TOTAL RETURNS. The "average annual total return" of a Fund is an average annual
compounded rate of return for each year in a specified number of years. The
average annual rate of return ("T" in the formula below) is based on the change
in value of a hypothetical initial investment of $1,000 ("P") held for a number
of years ("n") to achieve an Ending Redeemable Value ("ERV"), according to the
following formula:
P (1+T)(n) = ERV
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
Total returns also assume that all dividends and net capital gains distributions
during the period are reinvested to buy additional shares at net asset value per
share, and that the investment is redeemed at the end of the period.
A Fund's total return should be distinguished from the rate of return of the
corresponding separate account. The separate account's return reflects the
deduction of additional insurance charges, including mortality and expense risk
charges, resulting in a lower rate of return. Because a Fund's yield or total
return do not reflect these additional charges, this performance information
should not be compared with that of mutual funds that are sold directly to the
public. A Fund's performance information will only be included in sales
literature if comparable performance figures for the corresponding separate
account are also included. Contract owners should consult the separate account
prospectus for further information.
OTHER PERFORMANCE COMPARISONS.
From time to time a Fund may publish the ranking of its performance or the
performance of its shares by Lipper, Inc., a widely-recognized independent
mutual fund monitoring service. Lipper monitors the performance of regulated
investment companies, including the Funds, and ranks the performance of the
Funds against all other funds in similar categories, for both equity and fixed
income funds. The Lipper performance rankings are based on total return that
includes the reinvestment of capital gains distributions and income dividends
but does not take sales charges or taxes into consideration.
From time to time a Fund may publish the ranking of its performance or
performance of its shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Funds, in broad
investment categories (domestic equity, international equity taxable bond,
municipal bond or other) monthly, based upon each fund's three, five, and
ten-year average annual total returns (when available) and a risk adjustment
factor that reflects fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads. There are
five ranking categories with a corresponding number of stars: highest (5), above
average (4), neutral (3), below average (2), and lowest (1). Ten percent of the
funds, series or classes in an investment category receive five stars, 22.5%
receive four stars, 35% receive three stars, 22.5% receive two stars, and the
bottom 10% receive one star.
22
<PAGE> 49
The total return on an investment made in a Fund may be compared with the
performance for the same period of one or more of the following indices: the
Consumer Price Index, the Standard & Poor's 500 Index (the "S&P 500"), the
Standard & Poor's SmallCap Index, and the Lehman Aggregate Bond Index. Other
indices may be used from time to time. The Consumer Price Index generally is
considered to be a measure of inflation. The S&P 500 is a composite index of 500
common stocks generally regarded as an index of U.S. stock market performance.
The Lehman Aggregate Bond Index measures the performance of U.S. corporate bond
issues, U.S. government securities and mortgage-backed securities. The foregoing
indices are unmanaged indices of securities that do not reflect reinvestment of
capital gains or take investment costs into consideration, as these items are
not applicable to indices.
From time to time, in advertisements and other sales literature, the yields and
the total returns of the Funds may be quoted in and compared to those of other
mutual funds with similar investment objectives that serve as funding vehicles
for separate accounts offering variable contracts. A Fund also may include
calculations that describe hypothetical performance results. (Such performance
examples are based on an express set of assumptions and are not indicative of
the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding. "Compounding" refers
to the fact that the receipt of additional contract units attributable to a
Fund's dividends or other distributions (which distributions are reinvested in
additional Fund shares) results in an increase in the value, not only of the
units representing the original Fund shares acquired by the separate account,
but also of additional units previously received.
A Fund may also include discussions or illustrations of the potential investment
goals of a prospective contract owner (including but not limited to tax and/or
retirement planning), investment management techniques, policies or investment
suitability of a Fund, economic conditions, legislative developments (including
pending legislation), the effects of inflation and historical performance of
various asset classes, including but not limited to stocks, bonds and Treasury
bills. From time to time advertisements or other sales literature may summarize
the substance of information contained in the Funds' financial reports
(including the investment composition of a Fund, as well as the views of the
investment adviser as to current market, economic, trade and interest rate
trends, legislative, regulatory and monetary developments, investment strategies
and related matters believed to be of relevance to a Fund). Sales literature
relating to a Fund may also include charts, graphs or drawings which illustrate
the potential risks and rewards of various investment vehicles, including but
not limited to stock, bonds, and Treasury bills, as compared owning a contract
with a separate account investing in a Fund, as well as charts or graphs which
illustrate strategies such as dollar cost averaging, and comparisons of
hypothetical yields of investment in tax-exempt versus taxable investments. In
addition, sales literature may include a discussion of certain attributes or
benefits resulting from participation in a separate account that invests in a
Fund. Such sales literature may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail therein.
With proper authorization, a Fund may reprint articles (or excerpts) written
regarding a Fund and provide them to prospective contact owners. Performance
information with respect to the Funds is generally available by contacting your
participating insurance company.
Advertisements and sales literature may include discussions of specifics of a
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis. Advertisements may also
include descriptive information about the investment adviser, including, but not
limited to, its status within the industry, other services and products it makes
available, total assets under management, and its investment philosophy.
When comparing yield, total return, and investment risk of a Fund with other
variable contract funding vehicles, contract owners should understand that
certain other vehicles have different risk characteristics than a Fund's shares.
For example, certificates of deposit may have fixed rates of return and may be
insured as to principal and interest by the FDIC, while a Fund's returns will
fluctuate and its share values and returns are not guaranteed. Money market
accounts offered by banks also may be insured by the FDIC and may offer
stability of principal. U.S. Treasury securities are guaranteed as to principal
and interest by the full faith and credit of the U.S. Government.
23
<PAGE> 50
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The NYSE is scheduled to be closed for the following holidays: New Year's Day,
Dr. Martin Luther King, Jr., Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. This holiday closing
schedule is subject to change.
The Trust has elected, pursuant to Rule 18f-1 under the 1940 Act, to redeem
shares of each Fund solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90-day period for any one separate account.
The remaining portion of the redemption may be made in securities or other
property, valued for this purpose as they are valued in computing the net asset
value of the Fund. Separate accounts receiving securities or other property on
redemption may realize a gain or loss for tax purposes and may incur additional
costs as well as the associated inconveniences of holding and/or disposing of
such securities or other property.
PURCHASING AND REDEEMING SHARES.
As described in the Prospectus, shares of the Funds may be purchased and
redeemed solely through variable annuity contracts and variable life insurance
policies (collectively, "contracts") offered by separate accounts of
participating insurance companies. The separate accounts purchase and redeem
shares of a Fund based on, among other things, the amount of premium payments
received on that day pursuant to variable contracts and variable life insurance
policies but only on days when the NYSE is open for trading. Such purchases and
redemptions of Fund shares are effected at its net asset value per share
determined as of the close of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) on that same day. No fee is charged the separate accounts of the
participating insurance companies when they redeem Fund shares.
DIVIDENDS AND DISTRIBUTIONS
The Funds distribute substantially all of their net investment income and net
capital gains, if any, to shareholders within each calendar year as well as on a
fiscal year basis to the extent required for the Funds to qualify for favorable
federal tax treatment. Each Fund ordinarily declares and pays dividends
quarterly. If a Fund makes a capital gains distribution, it is declared and paid
annually.
For this purpose, the net income of a Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to the Adviser, are accrued each
day. The expenses and liabilities of a Fund shall include those appropriately
allocable to the Fund as well as a share of the general expenses and liabilities
of the Trust in proportion to the Fund's share of the total net assets of the
Trust.
TAXES
The following is only a summary of certain additional federal income tax
considerations that are not described in the Prospectus and generally affect
each Fund and its shareholders. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Each Fund intends to qualify as a regulated investment company ("RIC") under
Subchapter M of the Code. If so qualified, a Fund will not be subject to federal
income tax on its investment company taxable income and net capital gains to the
extent that such investment company taxable income and net capital gains are
distributed in each taxable year to the variable annuity or variable life
insurance contracts ("Contracts") of participating insurance companies that hold
its shares. In addition, if a Fund distributes annually to the
24
<PAGE> 51
Contracts its ordinary income and capital gain net income, in the manner
prescribed in the Code, it will also not be subject to the 4% federal excise tax
otherwise applicable to a RIC on any of its undistributed income or gains.
Distributions of net investment income and net short-term capital gains will be
treated as ordinary income and distributions of net long-term capital gains will
be treated as long-term capital gain in the hands of the insurance companies.
Under current tax law, capital gains or dividends from any Fund are not
currently taxable to a holder of a Contract when left to accumulate within such
Contract.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified," in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies based on such
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, the
RIC will not be treated as a single investment of the account for these
purposes, but rather the segregated asset account will be treated as owning its
proportionate share of each of the assets of the RIC. Each Fund plans to satisfy
these conditions at all times so that each Contract of a participating insurance
company investing in the Funds will be treated as adequately diversified under
the Code and Regulations.
For information concerning the federal income tax consequences to the holders of
Contracts, such holders should consult the prospectuses for their particular
Contract.
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Trust rests with the Trustees, who
are elected by the shareholders of the Trust. The Trust is managed by the
Trustees in accordance with the laws of the State of Delaware. There are
currently nine Trustees, seven of whom are not "interested persons" of the Trust
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Trust to supervise actively its
day-to-day operations.
The Trustees of the Trust, their ages, addresses and their principal occupations
during the past five years are as follows. Each of the following individuals,
except Theodore H. Emmerich and Donald E. Weston, holds the same position with
The Victory Portfolios, a registered investment company in the same fund complex
as the Trust. Whereas Messrs. Emmerich and Weston serve as Trustees of the
Trust, each of them serves as an Advisory Trustee of The Victory Portfolios.
<TABLE>
<CAPTION>
Position(s)
Held with Principal Occupation
Name, Age and Address the Trust During Past 5 Years
- --------------------- --------- -------------------
<S> <C> <C>
Roger Noall,* 63 Chairman Since 1996, Executive of KeyCorp; from 1995 to 1996,
c/o Brighton Apt. 1603 and Trustee General Counsel and Secretary of KeyCorp; from 1994 to
8231 Bay Colony Drive 1996, Senior Executive Vice President and Chief
Naples, FL 34108 Administrative Officer of KeyCorp; from 1985 to 1994,
Vice Chairman of the Board and Chief Administrative
Officer of Society Corporation (now known as KeyCorp).
</TABLE>
- -------------------
* Mr. Noall is any "interested person" and an "affiliated person" of the Trust.
25
<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C>
Leigh A. Wilson,** 54 President Since 1989, Chairman and Chief Executive Officer, New
New Century Care, Inc. and Trustee Century Care, Inc. (merchant bank); since 1995, Principal
53 Sylvan Road North of New Century Living, Inc.; since 1989, Director of
Westport, CT 06880 Chimney Rock Vineyard and Chimney Rock Winery.
Theodore H. Emmerich, 72 Trustee Retired; until 1986, managing partner (Cincinnati office)
1201 Edgecliff Place Ernst & Young LLP; Director of Carillon Fund, Inc.
Cincinnati, Ohio 45206 (investment company), American Financial Group
(insurance), and Cincinnati Milacron Commercial
Corporation (financing arm of Cincinnati Milacron
Corporation, a machine tool manufacturer); Trustee of
Summit Investment Trust and Carillon Investment Trust.
Dr. Harry Gazelle, 71 Trustee Retired radiologist, Drs. Hill and Thomas Corporation.
17822 Lake Road
Lakewood, OH 44107
Eugene J. McDonald, 66 Trustee Since 1990, Executive Vice President and Chief Investment
Duke Management Company Officer for Asset Management of Duke University and
2200 West Main Street President and CEO of Duke Management Company; Director of
Suite 1000 CCB Financial Corporation, Flag Group of Mutual Funds, DP
Durham, NC 27705 Mann Holdings, Greater Triangle Community Foundation, and
NC Bar Association Investment Committee.
Dr. Thomas F. Morrissey, 65 Trustee Since 1970, Professor, Weatherhead School of Management,
Weatherhead School of Case Western Reserve University; from 1989 to 1995,
Management Associate Dean of Weatherhead School of Management; from
Case Western Reserve 1987 to December 1994, Member of the Supervisory Committee
University of Society's Collective Investment Retirement Fund; from
10900 Euclid Avenue May 1991 to August 1994, Trustee, Financial Reserves Fund
Cleveland, OH 44106-7235 and from May 1993 to August 1994, Trustee, Ohio Municipal
Money Market Fund.
H. Patrick Swygert, 55 Trustee Since 1995, President, Howard University; since May 1996,
Howard University Director, Hartford Financial Services Group; since May
2400 6th Street, N.W. 1996, Director, Hartford Life Insurance Company; from 1990
Suite 402 to 1995, President, State University of New York at Albany.
Washington, DC 20059
Donald E. Weston, 63* Trustee Since October 1998, Chairman of Gradison McDonald
McDonald Investments Inc. Investments, a division of McDonald Investments Inc.;
580 Walnut Street until October 1998, Chairman of the Gradison Division of
Cincinnati, Ohio 45202 McDonald & Company Securities, Inc. and a Director of
McDonald & Company Investments Inc.; Director of
Cincinnati Milacron Commercial Corporation.
</TABLE>
- -----------------------
** Mr. Wilson is deemed to be an "interested person" of the Trust under the 1940
Act solely by reason of his position as President.
26
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C> <C>
Frank A. Weil, 67 Trustee Since 1984, Chairman and Chief Executive Officer of Abacus
Abacus & Associates & Associates, Inc. (private investment firm); Director and
147 E. 47th Street President of the Norman and Hickrill Foundations;
New York, NY 10017 Director, Trojan Industries; from 1977 to 1979, United
States Assistant Secretary of Commerce for Industry and
Trade.
</TABLE>
The Board currently has an Investment Committee, a Business, Legal, and Audit
Committee, and a Board Process and Nominating Committee. The members of the
Investment Committee are Messrs. Wilson, Morrissey, Swygert, Weston and Weil,
who will serve until August 1999. The function of the Investment Committee is to
review the existing investment policies of the Trust, including the levels of
risk and types of funds available to shareholders, and make recommendations to
the Trustees regarding the revision of such policies or, if necessary, the
submission of such revisions to the Trust's shareholders for their
consideration. The members of the Business, Legal and Audit Committee are
Messrs. McDonald (Chairman), Emmerich, and Gazelle who will serve until August
1999. The function of the Business, Legal, and Audit Committee is to recommend
independent auditors and monitor accounting and financial matters and to review
compliance and contract matters. Mr. Swygert is the Chairman of the Board
Process and Nominating Committee (consisting of all the Trustees), which
nominates persons to serve as Independent Trustees and Trustees to serve on
committees of the Board.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Each Trustee receives an annual fee of $2,500 for serving as Trustee of all the
Funds of the Trust, and an additional fee of $500 per in-person meeting. The
Trustees do not receive compensation for participating in telephonic meetings.
The Adviser pays the expenses of Messrs. Noall and Weston.
The following table indicates the compensation that each Trustee is expected to
receive from the Victory "Fund Complex"(1) for the 12 month period ending
December 31, 1999.
<TABLE>
<CAPTION>
Pension or Estimated
Retirement Annual Aggregate Total Compensation
Benefits Accrued Benefits Upon Compensation from Victory
as Fund Expenses Retirement from Trust "Fund Complex"(1)
---------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Leigh A. Wilson -0- -0- $5,000 $50,000
Theodore H. Emmerich -0- -0- $5,000 $41,600
Harry Gazelle -0- -0- $5,000 $41,600
Eugene J. McDonald -0- -0- $5,000 $41,600
Thomas F. Morrissey -0- -0- $5,000 $41,600
H. Patrick Swygert -0- -0- $5,000 $41,600
</TABLE>
(1) There are currently 39 mutual funds from which the above-named Trustees
are compensated in the Victory "Fund Complex," but not all of the
above-named Trustees serve on the board of each fund in the "Fund
Complex."
27
<PAGE> 54
OFFICERS.
The officers of the Trust, their ages, and principal occupations during the past
five years, are as follows:
<TABLE>
<CAPTION>
Position(s)
Name and Age with the Trust Principal Occupation During Past 5 Years
- ------------ -------------- ----------------------------------------
<S> <C> <C>
Leigh A. Wilson, 54 President and See biographical information under "Board of Trustees."
Trustee
William B. Blundin, 60 Vice President Senior Vice President of BISYS Fund Services, Inc. ("BISYS
Inc."); officer of other investment companies administered
by BISYS Inc.
J. David Huber, 52 Vice President President of BISYS Inc.; officer of BISYS Inc. since June
1987.
Robert D. Hingston, 46 Secretary Since November 1998, Vice President of BISYS; from
January 1995 to October 1998, founder and principal
of RDH Associates (mutual fund management consulting
firm); from June 1980 to January 1995, Vice
President of Investors Bank & Trust Company.
Joel B. Engle, 33 Treasurer Since September 1998, Vice President of BISYS; from March
1995 to September 1998, Vice President, Northern Trust
Company; from July 1994 to February 1995, General
Accountant, Wanger Asset Management; from September 1988 to
June 1994, Audit Manager with Ernst & Young LLP.
</TABLE>
The mailing address of each of the officers of the Trust is 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
The officers of the Trust (other than Mr. Wilson) receive no compensation
directly from the Trust for performing the duties of their offices. BISYS Inc.
receives fees from the Trust as Administrator.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER.
One of the Trust's most important contracts is with its investment adviser, KAM,
a New York corporation registered as an investment adviser with the SEC. KAM is
a wholly owned subsidiary of KeyCorp. Affiliates of the Adviser manage
approximately $75 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals, and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of December 31, 1998, KeyCorp had an asset
base of $80 billion, with banking offices in 13 states from Maine to Alaska, and
trust and investment offices in 14 states. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies.
The following schedule lists the advisory fees for each mutual fund of the Trust
that is advised by the Adviser.
28
<PAGE> 55
.20 OF 1% OF AVERAGE DAILY NET ASSETS
Investment Quality Bond Fund
.30 OF 1% OF AVERAGE DAILY NET ASSETS
Diversified Stock Fund
Small Company Opportunity Fund
THE INVESTMENT ADVISORY AGREEMENT.
Unless sooner terminated, the Investment Advisory Agreement between KAM and the
Trust, on behalf of the Funds (the "Investment Advisory Agreement"), provides
that it will continue in effect as to the Funds for an initial two-year term and
for consecutive one-year terms thereafter, provided that such renewal is
approved at least annually by the Trustees or by vote of a majority of the
outstanding shares of each Fund (as defined under "Additional Information -
Miscellaneous"), and, in either case, by a majority of the Trustees who are not
parties to the Investment Advisory Agreement or interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory Agreement, by votes
cast in person at a meeting called for such purpose.
The Investment Advisory Agreement is terminable as to any particular Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding shares of the Fund, by vote of the Board, or by the
Adviser. The Investment Advisory Agreement also terminates automatically in the
event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder. The Adviser pays a fee to Disciplined Investment
Advisers, P.O. Box 112, Evanston, Illinois 60204, in connection with the
computer modeling methodology and the related database used to manage the
investments of the Small Company Opportunity Fund.
Under the Investment Advisory Agreement, the Adviser may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that the Adviser may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Funds and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of the Adviser.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in INVESTMENT COMPANY INSTITUTE V.
CAMP that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board of Governors") issued a regulation and interpretation
to the effect that the Glass-Steagall Act and such decision: (a) forbid a bank
holding company registered under the Federal Bank Holding Company Act of 1956
(the "Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board of Governors did not exceed its
authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies. In
the BOARD OF GOVERNORS
29
<PAGE> 56
case, the Supreme Court also stated that if a national bank complied with the
restrictions imposed by the Board of Governors in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective owners of contracts offered by separate
accounts that may invest in the Funds may include descriptions of Key Trust
Company of Ohio, N.A. ("Key Trust") and the Adviser including, but not limited
to, (1) descriptions of the operations of Key Trust and the Adviser; (2)
descriptions of certain personnel and their functions; and (3) statistics and
rankings related to the operations of Key Trust and the Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement, the Adviser determines, subject
to the general supervision of the Board, and in accordance with each Fund's
investment objective and restrictions, which securities are to be purchased and
sold by the Funds, and which brokers are to be eligible to execute its portfolio
transactions. Purchases from underwriters and/or broker-dealers of portfolio
securities include a commission or concession paid by the issuer to the
underwriter and/or broker-dealer and purchases from dealers serving as market
makers may include the spread between the bid and asked price. While the Adviser
generally seeks competitive spreads or commissions, each Fund may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions to dealers is determined by the Adviser in their best
judgment and in a manner deemed fair and reasonable to shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received is in addition to and not in lieu of services
required to be performed by the Adviser and does not reduce the investment
advisory fees payable to the Adviser by the Funds. Such information may be
useful to the Adviser in serving both the Trust and other clients and,
conversely, such supplemental research information obtained by the placement of
orders on behalf of other clients may be useful to the Adviser in carrying out
its obligations to the Trust. The Trustees have authorized the allocation of
brokerage to affiliated broker-dealers on an agency basis to effect portfolio
transactions. The Trustees have adopted procedures incorporating the standards
of Rule 17e-1 of the 1940 Act, which require that the commission paid to
affiliated broker-dealers must be "reasonable and fair compared to the
commission, fee or other remuneration received, or to be received, by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." At times, the Funds may also purchase
portfolio securities directly from dealers acting as principals, underwriters or
market makers. As these transactions are usually conducted on a net basis, no
brokerage commissions are paid by the Funds.
Investment decisions for each Fund are made independently from those made for
the other Funds of the Trust or any other investment company or account managed
by the Adviser. Such other investment companies or accounts may also invest in
the securities in which the Funds invest, and the Funds may invest in similar
securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and any other Fund, investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to such Funds, investment company or account. In some instances, this
investment procedure may affect the price paid or received by a Fund or the size
of the position obtained by the Fund in an adverse manner relative to the result
that would have been obtained if only that particular Fund had participated in
or been allocated such trades. To the extent permitted by law, the Adviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for the other funds of the Trust or for other investment
companies or accounts in order to obtain best execution. In making investment
recommendations for the Trust, the Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by a
Fund is a customer of the Adviser, their parents or
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<PAGE> 57
subsidiaries or affiliates and, in dealing with their commercial customers, the
Adviser, its parent, subsidiaries, and affiliates will not inquire or take into
consideration whether securities of such customers are held by the Trust.
ADMINISTRATOR.
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator to
the Funds pursuant to an administration agreement dated October 16, 1998 (the
"Administration Agreement"). The Administrator assists in supervising all
operations of the Funds (other than those performed by the Adviser under the
Investment Advisory Agreement), subject to the supervision of the Board.
For the services rendered to the Funds and related expenses borne by the
Administrator, each Fund pays the Administrator an annual fee of 0.05% of each
Fund's average daily net assets, computed daily and paid monthly.
The Administrator may periodically waive all or a portion of its fee with
respect to any Fund in order to increase the net income of one or more of the
Funds available for distribution to shareholders.
Unless sooner terminated, the Administration Agreement will continue in effect
as to each Fund until September 30, 1999, and for consecutive two-year terms
thereafter, provided that such renewal is ratified by the Trustees or by vote of
a majority of the outstanding shares of each Fund, and in either case by a
majority of the Trustees who are not parties to the Administration Agreement or
interested persons (as defined in the 1940 Act) of any party to the
Administration Agreement, by votes cast in person at a meeting called for such
purpose.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith, or negligence in
the performance of its duties, or from the reckless disregard by it of its
obligations and duties thereunder.
Under the Administration Agreement, the Administrator assists in each Fund's
administration and operation, including providing statistical and research data,
clerical services, internal compliance and various other administrative
services, including among other responsibilities, participation in the updating
of the prospectus, coordinating the preparation, filing, printing and
dissemination of reports to shareholders, coordinating the preparation of income
tax returns, arranging for the maintenance of books and records and providing
the office facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, the Administrator may delegate all or any part of its
responsibilities thereunder.
SUB-ADMINISTRATOR.
KAM serves as sub-administrator to the Funds pursuant to a sub-administration
agreement dated October 16, 1998 (the "Sub-Administration Agreement"). As
sub-administrator, KAM assists the Administrator in all aspects of the
operations of the Funds, except those performed by KAM under its Investment
Advisory Agreement.
For services provided under the Sub-Administration Agreement, the Administrator
pays KAM a fee, with respect to each Fund, calculated at the annual rate of up
to five one-hundredths of one percent (0.05%) of such Fund's average daily net
assets. Except as otherwise provided in the Administration Agreement, KAM shall
pay all expenses incurred by it in performing its services and duties as
sub-administrator. Unless sooner terminated, the Sub-Administration Agreement
will continue in effect as to each Fund for a period of two years, and for
consecutive one-year terms thereafter, unless written notice not to renew is
given by the non-renewing party.
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<PAGE> 58
Under the Sub-Administration Agreement, KAM's duties include maintaining office
facilities, furnishing statistical and research data, compiling data for various
state and federal filings by the Funds, assist in mailing and filing the Funds'
annual and semi-annual reports to shareholders, providing support for board
meetings, and arranging for the maintenance of books and records and providing
the office facilities necessary to carry out the duties thereunder.
DISTRIBUTOR.
BISYS Fund Services Limited Partnership serves as distributor (the
"Distributor") for the continuous offering of the shares of the Funds pursuant
to a Distribution Agreement between the Distributor and the Trust. Unless
otherwise terminated, the Distribution Agreement will remain in effect with
respect to each Fund until September 30, 1999, and thereafter for consecutive
one-year terms, provided that it is approved at least annually (1) by the
Trustees or by the vote of a majority of the outstanding shares of each Fund,
and (2) by the vote of a majority of the Trustees of the Trust who are not
parties to the Distribution Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Distribution Agreement will terminate in the event of its assignment, as
defined under the 1940 Act.
CLASS A SHARES DISTRIBUTION AND SERVICE PLAN.
The Trust, on behalf of the Class A Shares of the Funds, has adopted a
Distribution and Service Plan (the " Plan") pursuant to Rule 12b-1 under the
1940 Act. The Plan provides that, to the extent that payments made for Class A
Share promotional and administrative expenses by the Adviser, Administrator or
the Distributor, directly or through an affiliate, using its own resources, are
deemed to be made in connection with the offer and sale of the Funds within the
context of Rule 12b-1, such payments are deemed to be authorized by the Plan.
TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Funds. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Funds,
pursuant to a Transfer Agency and Service Agreement. Under its agreement with
the Trust, State Street has agreed (1) to issue and redeem shares of the Trust;
(2) to address and mail all communications by the Trust to its shareholders,
including reports to shareholders, dividend and distribution notices, and proxy
material for its meetings of shareholders; (3) to respond to correspondence or
inquiries by shareholders and others relating to its duties; (4) to maintain
shareholder accounts and certain sub-accounts; and (5) to make periodic reports
to the Trustees concerning the Trust's operations. BFDS is located at Two
Heritage Drive, Quincy, Massachusetts 02171.
CONTRACT OWNER ADMINISTRATIVE SERVICES AGREEMENT.
Payments made under the Contract Owner Administrative Services Agreement to
contract owner servicing agents (which may include affiliates of the Adviser),
or to insurance companies or their affiliates, are for administrative support
services to individuals who may from time to time own contracts offered by the
separate accounts that invest in the Funds, which services may include: (1)
dissemination of Fund prospectuses to existing contract owners; (2) solicitation
of Trust proxies (including facilitating distribution of proxy material to
contract owners, tabulation and reporting); (3) telephonic support for contract
owners with respect to inquiries about the Trust (not including information
related to sales); (4) communications to contract owners regarding performance
of the separate account and the Funds; (5) aggregating purchase and redemption
orders of the separate account for sales of shares of the Funds; (6) recording
issuance and transfers of shares of the Funds held by the separate account; (7)
processing and reinvesting dividends and distributions of the Funds held by the
separate account; and (8) providing other administrative support to the Trust as
mutually agreed between the Trust, a life insurance company and the Distributor.
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<PAGE> 59
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio") serves as fund accountant for the
all of the Funds pursuant to a fund accounting agreement with the Trust dated
October 16, 1998 (the "Fund Accounting Agreement"). As fund accountant for the
Trust, BISYS Ohio calculates each Fund's net asset value, the dividend and
capital gain distribution, if any, and the yield. BISYS Ohio also provides a
current security position report, a summary report of transactions and pending
maturities, a current cash position report, and maintains the general ledger
accounting records for the Funds. Under the Fund Accounting Agreement, BISYS
Ohio is entitled to receive annual fees of 0.03% of the first $100 million of
the Fund's daily average net assets, 0.02% of the next $100 million, and .01% of
the Fund's remaining daily average net assets. These annual fees are subject to
a minimum monthly assets charge of $2,500 per Fund and does not include
out-of-pocket expenses or multiple class charges of $833 per month assessed for
each class of shares after the first class.
CUSTODIAN.
Cash and securities owned by each of the Funds are held by Key Trust as
custodian pursuant to a Custodian Agreement dated October 16, 1998. Under this
Agreement, Key Trust (1) maintains a separate account or accounts in the name of
each respective fund; (2) makes receipts and disbursements of money on behalf of
each Fund; (3) collects and receives all income and other payments and
distributions on account of portfolio securities; (4) responds to correspondence
from security brokers and others relating to its duties; and (5) makes periodic
reports to the Trustees concerning the Trust's operations. Key Trust may, with
the approval of a Fund and at the custodian's own expense, open and maintain a
sub-custody account or accounts on behalf of a fund, provided that Key Trust
shall remain liable for the performance of all of its duties under the Custodian
Agreement.
INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 100 East Broad Street, Columbus, Ohio
43215, serves as the Trust's independent accountants.
LEGAL COUNSEL.
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022
is the counsel to the Trust.
EXPENSES.
The Funds bear the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, SEC fees, state
securities qualification fees, costs of preparing and printing prospectuses for
regulatory purposes and for distribution to current shareholders, outside
auditing and legal expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and transfer agent, certain insurance
premiums, costs of maintenance of the fund's existence, costs of shareholders'
reports and meetings, and any extraordinary expenses incurred in the Funds'
operation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Trust is a Delaware business trust and was formed on February 11, 1998 under
the name "The Victory Variable Funds." The Trust's Certificate of Trust was
amended on October 15, 1998 to reflect its current name, "The Victory Variable
Insurance Funds." The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, with a
par value of $.001 per share. The Trust currently offers three series of Class A
Shares.
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<PAGE> 60
The Trust Instrument authorizes the Trustees to divide or redivide any unissued
shares of the Trust into one or more additional series by setting or changing in
any one or more aspects their respective preferences, conversion or other
rights, voting power, restrictions, limitations as to dividends, qualifications,
and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this SAI, the Trust's shares will be
fully paid and non-assessable. In the event of a liquidation or dissolution of
the Trust, shares of a Fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
Shares of the Trust are entitled to one vote per share (with proportional voting
for fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class on all matters except (1) when required by
the 1940 Act, shares shall be voted by individual series or class, and (2) when
the Trustees have determined that the matter affects only the interests of one
or more series, then only shareholders of such series shall be entitled to vote
thereon. The shareholders of the Trust are the insurance company separate
accounts using the Funds to fund contracts. The insurance company separate
accounts pass voting rights attributable to shares held for the contracts to the
contract owners, as described in the separate account prospectus.
There will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees have
been elected by the shareholders, at which time the Trustees then in office will
call a shareholders' meeting for the election of Trustees. A meeting shall be
held for such purpose upon the written request of the holders of not less than
10% of the outstanding shares. Upon written request by ten or more shareholders
meeting the qualifications of Section 16(c) of the 1940 Act, (i.e., persons who
have been shareholders for at least six months, and who hold shares having a net
asset value of at least $25,000 or constituting 1% of the outstanding shares)
stating that such shareholders wish to communicate with the other shareholders
for the purpose of obtaining the signatures necessary to demand a meeting to
consider removal of a Trustee, the Trust will provide a list of shareholders or
disseminate appropriate materials (at the expense of the requesting
shareholders). Except as set forth above, the Trustees shall continue to hold
office and may appoint their successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each fund of
the Trust affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a fund will be required in
connection with a matter, a fund will be deemed to be affected by a matter
unless it is clear that the interests of each fund in the matter are identical,
or that the matter does not affect any interest of the fund. Under Rule 18f-2,
the approval of an investment advisory agreement or any change in investment
policy would be effectively acted upon with respect to a fund only if approved
by a majority of the outstanding shares of such fund. However, Rule 18f-2 also
provides that the ratification of independent accountants, the approval of
principal underwriting contracts, and the election of Trustees may be
effectively acted upon by shareholders of the Trust voting without regard to
series.
SHAREHOLDER AND TRUSTEE LIABILITY.
The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to shareholders of Delaware corporations, and the Trust Instrument
provides that shareholders of the Trust shall not be liable for the obligations
of the Trust. The Trust Instrument also provides for indemnification out of the
trust property of any shareholder held personally liable solely by reason of his
or her being or having been a shareholder. The Trust Instrument also provides
that the Trust shall, upon request, assume the defense of any claim made against
any
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<PAGE> 61
shareholder for any act or obligation of the Trust, and shall satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is considered to be extremely remote.
The Trust Instrument states further that no Trustee, officer, or agent of the
Trust shall be personally liable in connection with the administration or
preservation of the assets of the funds or the conduct of the Trust's business;
nor shall any Trustee, officer, or agent be personally liable to any person for
any action or failure to act except for his own bad faith, willful misfeasance,
gross negligence, or reckless disregard of his duties. The Trust Instrument also
provides that all persons having any claim against the Trustees or the Trust
shall look solely to the assets of the Trust for payment.
MISCELLANEOUS.
As used in the Prospectus and in this SAI, "assets belonging to a fund" (or
"assets belonging to the Fund") means the consideration received by the Trust
upon the issuance or sale of shares of a Fund, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or payments derived from any reinvestment of such proceeds and any
general assets of the Trust, which general liabilities and expenses are not
readily identified as belonging to a particular Fund that are allocated to that
Fund by the Trustees. The Trustees may allocate such general assets in any
manner they deem fair and equitable. It is anticipated that the factor that will
be used by the Trustees in making allocations of general assets to a particular
fund of the Trust will be the relative net asset value of each respective fund
at the time of allocation. Assets belonging to a particular Fund are charged
with the direct liabilities and expenses in respect of that Fund, and with a
share of the general liabilities and expenses of each of the Funds not readily
identified as belonging to a particular Fund, which are allocated to each Fund
in accordance with its proportionate share of the net asset values of the Trust
at the time of allocation. The timing of allocations of general assets and
general liabilities and expenses of the Trust to a particular fund will be
determined by the Trustees and will be in accordance with generally accepted
accounting principles. Determinations by the Trustees as to the timing of the
allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a particular fund are
conclusive.
As used in the Prospectus and in this SAI, a "vote of a majority of the
outstanding shares" of the Fund means the affirmative vote of the lesser of (a)
67% or more of the shares of the Fund present at a meeting at which the holders
of more than 50% of the outstanding shares of the Fund are represented in person
or by proxy, or (b) more than 50% of the outstanding shares of the Fund.
The Trust is registered with the SEC as an open-end management investment
company. Such registration does not involve supervision by the SEC of the
management or policies of the Trust.
The Prospectus and this SAI omit certain of the information contained in the
Registration Statement filed with the SEC. Copies of such information may be
obtained from the SEC upon payment of the prescribed fee.
As of May ___, 1999, the following entities owned 5% or more of outstanding
shares of the listed Fund. These entities are the insurance company sponsored
separate accounts that invest in the Funds as investment vehicles for variable
annuity and variable life insurance contracts. Nationwide Life Insurance Company
may be deemed to control the Trust because it owns more than 25% of each Fund's
shares.
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<TABLE>
<CAPTION>
INSURANCE COMPANY PERCENTAGE
SEPARATE ACCOUNT NAME & ADDRESS OWNED
<S> <C> <C>
Investment Quality Bond Fund, Class A Nationwide Life Insurance Company 100%
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Diversified Stock Fund, Class A Nationwide Life Insurance Company 100%
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Small Company Opportunity Fund, Class A Nationwide Life Insurance 100%
Company
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
</TABLE>
THE PROSPECTUS AND THIS SAI ARE NOT AN OFFERING OF THE SECURITIES DESCRIBED IN
THESE DOCUMENTS IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO
SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE PROSPECTUS AND THIS SAI.
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<PAGE> 63
APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The NRSROs that may be utilized by the Adviser with regard to portfolio
investments for the Funds include Moody's and S&P. Set forth below is a
description of the relevant ratings of each such NRSRO. The NRSROs that may be
utilized by the Adviser and the description of each NRSRO's ratings is as of the
date of this SAI, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
<PAGE> 64
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
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SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
3
<PAGE> 66
<TABLE>
<CAPTION>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
<S> <C>
(a)(1) Amended and Restated Certificate of Trust, filed as of October 15, 1998.
(a)(2) Amended and Restated Trust Instrument as of October 15, 1998.
(b) Amended and Restated Bylaws as of October 15, 1998.
(c) The rights of holders of the securities being registered are
set out in Articles II, VII, IX and X of the Trust
Instrument referenced in Exhibit (a)(2) above and in Article
IV of the Bylaws referenced in Exhibit (b) above.
(d) Form of Investment Advisory Agreement between Registrant and Key Asset
Management Inc. ("KAM").
(e) Form of Distribution Agreement between Registrant and BISYS Fund Services
Limited Partnership (collectively with all affiliates, "BISYS").
(f) Not applicable.
(g) Form of Mutual Fund Custody Agreement between Registrant and Key Trust
Company of Ohio.
(h)(1) Form of Fund Accounting Agreement between Registrant and BISYS.
(2) Form of Administration Agreement between Registrant and BISYS.
(3) Form of Sub-Administration Agreement between BISYS and KAM.
(4) Form of Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company.
(5) Form of Participation Agreement among Registrant, BISYS and Nationwide
Life Insurance Company.
(i) Consent of Kramer Levin Naftalis & Frankel LLP.
(j) Consent of PricewaterhouseCoopers LLP.
(k) Not Applicable.
(l) Form of Initial Investment and Redemption Agreement.
(m)(1) Class A Shares Form of Distribution and Service Plan.
(2) Form of Contract Owner Administrative Services Agreement.
(o) Not Applicable.
Powers of Attorney of Theodore H. Emmerich and Donald E. Weston.
Powers of Attorney of Leigh A. Wilson, Roger Noall, Dr. Harry Gazelle,
Eugene J. McDonald, Dr. Thomas F. Morissey, H. Patrick Swygert and Frank A. Weil
are incorporated by reference to Registrant's Registration Statement on Form N-1A
filed with the Securities and Exchange Commission on August 21, 1998.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
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<PAGE> 67
ITEM 25. INDEMNIFICATION
Article X, Section 10.02 of Registrant's Delaware Trust
Instrument, attached hereto as Exhibit (a)(2), provides for
the indemnification of Registrant's Trustees and officers, as
follows:
"SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action,
suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened
while in office or thereafter, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office or (B) not to have acted
in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office,
(A) by the court or other body approving the settlement; (B)
by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as opposed to
a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily
available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other
rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to
which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation
of a defense to any claim, action, suit or proceeding of the
character described in Subsection (a) of this Section
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<PAGE> 68
10.02 may be paid by the Trust or Series from time to time
prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such
amount will be paid over by him to the Trust or Series if it
is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however,
that either (i) such Covered Person shall have provided
appropriate security for such undertaking, (ii) the Trust is
insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are
neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such
Covered Person will be found entitled to indemnification under
this Section 10.02."
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
trustees, officers, and controlling persons or Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Investment
Company Act of 1940, as amended (the "1940 Act"), and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person
in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
KAM is the investment adviser to each series of Registrant.
KAM is a wholly-owned indirect subsidiary of KeyCorp, a bank
holding company which had total assets of approximately $75
billion as of December 31, 1998. KeyCorp is a leading
financial institution doing business in 13 states from Maine
to Alaska, providing a full array of trust, commercial, and
retail banking services. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank
credit card processing, mortgage and leasing companies. KAM
and its affiliates have over $80 billion in assets under
management, and provides a full range of investment management
services to personal and corporate clients.
To the knowledge of Registrant, none of the directors or
officers of KAM, except those set forth below, is or has been
at any time during the past two calendar years engaged in any
other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers
of KAM also hold positions with KeyCorp or its subsidiaries.
The principal executive officers and directors of KAM are as follows:
- ---------------------------------------------------------------------
Directors:
- ----------
William G. Spears - Senior Managing Director, Chairman and Chief
Executive Officer.
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<PAGE> 69
Richard J. Buoncore - Senior Managing Director, President and
Chief Operating Officer.
Anthony Aveni - Senior Managing Director and Chief
Investment Officer of Society Asset
Management Division.
Vincent DeP. Farrell - Senior Managing Director and Chief
Investment Officer, Spears, Benzak, Salomon
& Farrell Division.
Richard E. Salomon - Senior Managing Director.
Gary R. Martzolf - Senior Managing Director.
Other Officers:
Charles G. Crane - Senior Managing Director and Chief Market
Strategist.
James D. Kacic - Chief Financial Officer, Chief
Administrative Officer, and Senior Managing
Director.
William R. Allen - Managing Director.
Michael Foisel - Assistant Treasurer.
Michael Stearns - Chief Compliance Officer.
William J. Blake - Secretary.
Steven N. Bulloch - Assistant Secretary. Also, Senior Vice
President and Senior Counsel of KeyCorp
Management Company.
Kathleen A. Dennis - Senior Managing Director.
The business address of each of the foregoing individuals is 127 Public Square,
Cleveland, Ohio 44114.
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services, Registrant's administrator, also acts as the
distributor for the following investment companies as of December 22, 1998.
<TABLE>
<CAPTION>
<S> <C>
Alpine Equity Trust The Kent Funds
American Performance Funds Magna Funds Meyers Investment Trust
AmSouth Mutual Funds MMA Praxis Mutual Funds
The ARCH Fund, Inc. M.S.D. & T. Funds
The BB&T Mutual Funds Group Pacific Capital Funds
The Coventry Group The Parkstone Advantage Fund
ESC Strategic Funds, Inc. Pegasus Funds
The Eureka Funds Puget Sound Alternative Investment Series Trust
Fifth Third Funds Republic Advisor Funds Trust
Gradison Custodian Trust Republic Funds Trust
Gradison Growth Trust The Riverfront Funds, Inc.
Gradison-McDonald Cash Reserves Trust Sefton Funds
Gradison-McDonald Municipal Custodian Trust The Sessions Group
Hirtle Callaghan Trust SSgA Liquidity Fund
HSBC Funds Trust Summit Investment Trust
HSBC Mutual Funds Trust Variable Insurance Funds
The Infinity Mutual Funds, Inc. The Victory Portfolios
INTRUST Funds Trust Vintage Mutual Funds, Inc.
</TABLE>
C-4
<PAGE> 70
(b) Directors, officers and partners of BISYS Fund Services, Inc., the General
Partner of BISYS Fund Services, as of June 15, 1998 were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Lynn J. Mangum - Chairman and CEO. William Tomko Senior Vice President.
Dennis Sheehan - Director, Executive Michael D. Burns Vice President.
Vice President and
Treasurer.
J. David Huber* - President. David Blackmore Vice President.
Kevin J. Dell - Vice President and Steve Ludwig Compliance Officer.
Secretary.
Mark Rybarczyk - Senior Vice President. Robert Tuch Assistant Secretary.
</TABLE>
The business address of each of the foregoing individuals is BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43215.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) Key Asset Management Inc., 127 Public Square, Cleveland, Ohio 44114-1306
(records relating to its functions as investment adviser and
sub-administrator).
(2) KeyBank National Association, 127 Public Square, Cleveland, Ohio 44114-1306
(records relating to its functions as shareholder servicing agent).
(3) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as administrator and fund accountant).
(4) BISYS Fund Services Limited Partnership, 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its function as distributor).
(5) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110-3875 (records relating to its function as transfer
agent).
(6) Boston Financial Data Services, Inc. Two Heritage Drive, Quincy,
Massachusetts 02171 (records relating to its functions as dividend
disbursing agent and shareholder servicing agent).
(7) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as custodian and securities
lending agent).
ITEM 29. MANAGEMENT SERVICES
None.
- --------
* Mr. Huber is also the Vice President of the Trust.
C-5
<PAGE> 71
ITEM 30. UNDERTAKINGS
None
NOTICE
A copy of Registrant's Certificate of Trust is on file with the Secretary of
State of Delaware and notice is hereby given that this Pre-Effective Amendment
to Registrant's Registration Statement has been executed on behalf of Registrant
by officers of, and Trustees of, Registrant as officers and as Trustees,
respectively, and not individually, and that the obligations of or arising out
of this instrument are not binding upon any of the Trustees, officers or
shareholders of Registrant individually but are binding only upon the assets and
property of Registrant.
C-6
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Investment Company Act,
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, duly authorized, in the City of New York, and the
State of New York on this 10 day of May, 1999.
THE VICTORY VARIABLE INSURANCE FUNDS
By: /s/ Leigh A. Wilson
-------------------
Leigh A. Wilson, President and Trustee
Pursuant to the requirements of the Securities Act, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Roger Noall Chairman of the Board and Trustee May 10, 1999
- ---------------
Roger Noall
/s/ Leigh A. Wilson Trustee May 10, 1999
- -------------------
Leigh A. Wilson
/s/ Joel B. Engle Treasurer May 10, 1999
- -----------------
Joel B. Engle
/s/ Theodore H. Emmerich* Trustee May 10, 1999
- -------------------------
Theodore H. Emmerich
/s/ Harry Gazelle* Trustee May 10, 1999
- ------------------
Harry Gazelle
/s/ Eugene J. McDonald* Trustee May 10, 1999
- -----------------------
Eugene J. McDonald
/s/ Thomas F. Morrissey* Trustee May 10, 1999
- ------------------------
Thomas F. Morrissey
/s/ H. Patrick Swygert* Trustee May 10, 1999
- -----------------------
H. Patrick Swygert
/s/ Frank A. Weil* Trustee May 10, 1999
- ------------------
Frank A. Weil
/s/ Donald E. Weston* Trustee May 10, 1999
- ---------------------
Donald E. Weston
</TABLE>
- --------------------------------
*
By: /s/ Carl Frischling
-------------------
Carl Frischling
Attorney-in-fact
C-7
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
N-1A Item 23
- ------------
<S> <C>
(a)(1) Amended and Restated Certificate of Trust, filed as of October 15, 1998.
(a)(2) Amended and Restated Trust Instrument as of October 15, 1998.
(b) Amended and Restated Bylaws as of October 15, 1998.
(d) Form of Investment Advisory Agreement between Registrant and Key
Asset Management Inc. ("KAM").
(e) Form of Distribution Agreement between Registrant and
BISYS Fund Services Limited Partnership (collectively
with all affiliates, "BISYS").
(g) Form of Mutual Fund Custody Agreement between Registrant and Key
Trust Company of Ohio.
(h)(1) Form of Fund Accounting Agreement between Registrant and BISYS.
(2) Form of Administration Agreement between Registrant and BISYS.
(3) Form of Sub-Administration Agreement between BISYS and KAM.
(4) Form of Transfer Agency and Service Agreement between Registrant
and State Street Bank and Trust Company.
(5) Form of Participation Agreement among Registrant, BISYS and Nationwide
Life Insurance Company.
(i) Consent of Kramer Levin Naftalis & Frankel LLP.
(j) Consent of PricewaterhouseCoopers LLP.
(l) Form of Initial Investment and Redemption Agreement.
(m)(1) Class A Shares Form of Distribution and Service Plan.
(2) Form of Contract Owner Administrative Services Agreement.
Powers of Attorney of Theodore H. Emmerich and Donald E. Weston.
</TABLE>
<PAGE> 1
Exhibit 99(a)(1)
AMENDED AND RESTATED CERTIFICATE OF TRUST
OF
THE VICTORY VARIABLE FUNDS
This Certificate of Trust is being executed as of October 8, 1998 for
the purpose of amending and restating the Certificate of Trust filed with the
Secretary of State of the State of Delaware on February 11, 1998 pursuant to the
Delaware Business Trust Act, 12 DEL. C. section section. 3801 ET SEQ. (the
"Act").
The undersigned hereby certifies as follows:
1. NAME. The name of the business trust is The Victory Variable
Insurance Funds (the "Trust").
2. REGISTERED OFFICE. The address of the Trust's registered office in
the State of Delaware is 1201 North Market Street, P.O. Box 1347, Wilmington,
Delaware 19899-1347.
3. REGISTERED AGENT. The name of the Trust's registered agent at the
above listed address is Delaware Corporation Organizers, Inc.
4. EFFECTIVE. This Amended and Restated Certificate of Trust shall be
effective immediately upon filing in the office of the Secretary of State of the
State of Delaware.
5. SERIES TRUST. Notice is hereby given that pursuant to Section 3804
of the Act, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular series of the
Trust shall be enforceable against the assets of such series only and not
against the assets of the Trust generally. The Trust is, or will become prior to
or within 180 days following the first issuance of shares of beneficial
interests therein, a registered investment company under the Investment Company
Act of 1940, as amended.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust, has
duly executed this Amended and Restated Certificate of Trust as of the day and
year first above written.
TRUSTEE:
/s/ Leigh A. Wilson
-------------------
Leigh A. Wilson
<PAGE> 1
Exhibit 99(a)(2)
THE VICTORY VARIABLE INSURANCE FUNDS
TRUST INSTRUMENT
DATED FEBRUARY 11, 1998
AMENDED AND RESTATED AS OF
OCTOBER 15, 1998
<PAGE> 2
THE VICTORY VARIABLE INSURANCE FUNDS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - NAME AND DEFINITIONS..................................................................................1
Section 1.01 Name............................................................................................1
Section 1.02 Definitions.....................................................................................1
ARTICLE II - BENEFICIAL INTEREST..................................................................................2
Section 2.01 Shares Of Beneficial Interest...................................................................2
Section 2.02 Issuance of Shares..............................................................................2
Section 2.03 Register of Shares and Share Certificates.......................................................3
Section 2.04 Transfer of Shares..............................................................................3
Section 2.05 Treasury Shares.................................................................................3
Section 2.06 Establishment of Series.........................................................................3
Section 2.07 Investment in the Trust.........................................................................4
Section 2.08 Assets and Liabilities of Series................................................................5
Section 2.09 No Preemptive Rights............................................................................5
Section 2.10 No Personal Liability of Shareholder............................................................5
ARTICLE III - THE TRUSTEES........................................................................................6
Section 3.01 Management of the Trust.........................................................................6
Section 3.02 Initial Trustees................................................................................6
Section 3.03 Term of Office..................................................................................6
Section 3.04 Vacancies and Appointments......................................................................7
Section 3.05 Temporary Absence...............................................................................7
Section 3.06 Number of Trustees..............................................................................7
Section 3.07 Effect of Ending of a Trustee's Service.........................................................7
Section 3.08 Ownership of Assets of the Trust................................................................7
ARTICLE IV - POWERS OF THE TRUSTEES...............................................................................8
Section 4.01 Powers..........................................................................................8
Section 4.02 Issuance and Repurchase of Shares..............................................................11
Section 4.03 Trustees and Officers as Shareholders..........................................................11
Section 4.04 Action by the Trustees.........................................................................11
Section 4.05 Chairman of the Board of Trustees..............................................................11
Section 4.06 Principal Transactions.........................................................................11
ARTICLE V - EXPENSES OF THE TRUST................................................................................12
ARTICLE VI - INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT.................................................................................12
Section 6.01 Investment Adviser.............................................................................12
Section 6.02 Principal Underwriter..........................................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 6.03 Administration.................................................................................13
Section 6.04 Transfer Agent.................................................................................13
Section 6.05 Parties to Contract............................................................................13
Section 6.06 Provisions and Amendments......................................................................14
ARTICLE VII - SHAREHOLDERS' VOTING POWERS AND MEETINGS...........................................................14
Section 7.01 Voting Powers..................................................................................14
Section 7.02 Meetings.......................................................................................15
Section 7.03 Quorum and Required Vote.......................................................................16
ARTICLE VIII - CUSTODIAN.........................................................................................16
Section 8.01 Appointment and Duties.........................................................................16
Section 8.02 Central Certificate System.....................................................................17
ARTICLE IX - DISTRIBUTIONS AND REDEMPTIONS.......................................................................17
Section 9.01 Distributions..................................................................................17
Section 9.02 Redemptions....................................................................................17
Section 9.03 Determination of Net Asset Value and Valuation of Portfolio Assets.............................18
Section 9.04 Suspension of the Right of Redemption..........................................................18
Section 9.05 Required Redemption of Shares..................................................................19
ARTICLE X - LIMITATION OF LIABILITY AND INDEMNIFICATION..........................................................19
Section 10.01 Limitation of Liability........................................................................19
Section 10.02 Indemnification................................................................................19
Section 10.03 Shareholders...................................................................................20
ARTICLE XI - MISCELLANEOUS.......................................................................................21
Section 11.01 Trust Not a Partnership........................................................................21
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or Surety..................................21
Section 11.03 Establishment of Record Dates..................................................................21
Section 11.04 Dissolution and Termination of Trust...........................................................22
Section 11.05 Reorganization and Master/Feeder...............................................................23
Section 11.06 Filing of Copies, References, Headings.........................................................23
Section 11.07 Applicable Law.................................................................................24
Section 11.08 Derivative Actions.............................................................................24
Section 11.09 Amendments.....................................................................................25
Section 11.10 Fiscal Year....................................................................................25
Section 11.11 Name Reservation...............................................................................25
Section 11.12 Provisions in Conflict With Law................................................................26
</TABLE>
ii
<PAGE> 4
THE VICTORY VARIABLE INSURANCE FUNDS
FEBRUARY 11, 1998
AMENDED AND RESTATED AS OF OCTOBER 15, 1998
TRUST INSTRUMENT of The Victory Variable Insurance Funds, a Delaware
business trust (the "Trust"), amended and restated by Edward P. Campbell, Harry
Gazelle, Eugene J. McDonald, Thomas F. Morrissey, Roger Noall, H. Patrick
Swygert, Frank A. Weil and Leigh A. Wilson, (the "Trustees").
WHEREAS Carl Frischling and Jay G. Baris, as the initial Trustees of
the Trust, established the Trust pursuant to a Trust Instrument dated February
11, 1998 (the "Original Trust Instrument"); and
WHEREAS, the Trustees declare that all money and property contributed
to the Trust hereunder shall be held and managed in trust under this Trust
Instrument as set forth herein; and
WHEREAS, the Trustees consider it necessary and appropriate to amend
and restate the Original Trust Instrument;
NOW THEREFORE, the Original Trust Instrument is hereby amended and
restated in its entirety as follows.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.01 NAME. The name of the trust created under the Original
Trust Instrument and continued hereby is "The Victory Variable Insurance Funds."
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time. Whenever reference is made hereunder to the 1940 Act, such
references shall be interpreted as including any applicable order or orders of
the Commission or any rules or regulations adopted by the Commission thereunder
or interpretive releases of the Commission staff;
(b) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees,
as amended from time to time;
(c) "Commission" has the meaning given it in the 1940 Act. In addition,
"Affiliated Person," "Assignment," "Interested Person" and "Principal
Underwriter" shall have the respective meanings given them in the 1940 Act.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" under the 1940 Act;
<PAGE> 5
(d) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware
Code entitled "Treatment of Delaware Business Trusts," as amended from time to
time;
(e) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof;
(f) "Outstanding Shares" means those Shares shown from time to time in
the books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(j) The "Trust" means The Victory Variable Insurance Funds, a Delaware
business trust, and reference to the Trust when applicable to one or more Series
of the Trust, shall refer to any such Series;
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument so long as he or they shall continue in office in
accordance with the terms hereof and all other persons who may from time to time
be duly qualified and serving as Trustees in accordance with the provisions of
Article III hereof, and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their respective capacity as Trustees
hereunder;
(l) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of one or
more of the Trust or any Series, or the Trustees on behalf of the Trust or any
Series.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in
the Trust shall be divided into such Shares of one or more separate and distinct
Series or classes of a Series as set forth in Section 2.06 or as the Trustees
shall otherwise from time to time create and establish as provided in Section
2.06. The number of Shares of each Series and class thereof authorized hereunder
is unlimited. Each Share shall have a par value of $0.001. All Shares issued
hereunder, including without limitation, Shares issued in connection with a
dividend paid in Shares or a split of Shares, shall be fully paid and
non-assessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may,
from time to time,
2
<PAGE> 6
without a vote of the Shareholders, issue Shares, in addition to the then issued
and outstanding Shares and Shares held in the treasury, to such party or parties
and for such amount and type of consideration, subject to applicable law,
including cash or securities, at such time or times and on such terms as the
Trustees may deem appropriate, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with, the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1000th of a Share or integral
multiples thereof. The Trustees or any person the Trustees may authorize for the
purpose may, in their discretion, reject any application for the issuance of
shares.
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. No
share certificates shall be issued by the Trust except as the Trustees may
otherwise authorize, and the persons indicated as shareholders in such register
shall be entitled to receive dividends or other distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or other distribution, nor to have notice
given to him as herein or in the Bylaws provided, until he has given his address
to the transfer agent or such officer or other agent of the Trustees as shall
keep the said register for entry thereon.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed transfer.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES. Subject to the provisions of this
Section 2.06, the Trust shall consist of the Series indicated on Schedule A
attached hereto, as such Schedule may be amended from time to time. The
preferences, voting powers, rights and privileges of the Series and any classes
thereof existing as of the date hereof shall be as set forth in the Trust's
registration statement or statements as filed with the Commission, as from time
to time in effect. Distinct records shall be maintained by the Trust for each
Series and the assets associated with each Series shall be held and accounted
for separately from the assets of the Trust or any other Series. The
3
<PAGE> 7
Trustees shall have full power and authority, in their sole discretion and
without obtaining any prior authorization or vote of the Shareholders of any
Series, to establish and designate and to change in any manner any Series or any
classes of initial or additional Series and to fix such preferences, voting
powers, rights and privileges of such Series or classes thereof as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or classes thereof into a greater or lesser number, to classify or reclassify
any issued Shares or any Series or classes thereof into one or more Series or
classes of Shares, and to take such other action with respect to the Shares as
the Trustees may deem desirable. The establishment and designation of any Series
thereof (other than those existing as of the date hereof) shall be effective
upon the adoption of a resolution by a majority of the Trustees setting forth
such establishment and designation and the relative rights and preferences of
the Shares of such Series (or classes), whether directly in such resolution or
by reference to, or approval of, another document that sets forth such relative
rights and preferences of such Series (or class) including, without limitation,
any registration statement of the Trust, or as otherwise provided in such
resolution. Upon the establishment of any such Series (or class), Schedule A
shall be amended to reflect the addition of such Series (or class) thereto;
provided that amendment of Schedule A shall not be a condition precedent to the
establishment of any Series (or class) in accordance with this Trust Instrument.
A Series may issue any number of Shares, but need not issue Shares. At any time
that there are no Shares outstanding of any particular Series (or class)
previously established and designated, the Trustees may by a majority vote
abolish that Series (or class) and the establishment and designation thereof,
and, in connection with such abolishment, Schedule A shall be amended to reflect
the removal of such Series (or class) therefrom; provided that amendment of
Schedule A shall not be a condition precedent to the abolishment of any Series
(or class) in accordance with this Trust Instrument.
All references to Shares in this Trust Instrument shall be deemed to be
Shares of any or all Series, or classes thereof as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his proportionate share of all distributions made
with respect to such Series, based upon the number of full and fractional Shares
of the Series held. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full and fractional Shares at the net asset
value per Share next determined after the investment is received or accepted as
may be determined by the Trustees; provided, however, that the Trustees may, in
their sole discretion, (a) fix minimum amounts for initial and subsequent
investments or (b) impose a sales charge upon investments in such manner and at
such time determined by the Trustees.
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SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, and shall be
subject only to the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with respect
thereto, which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto shall be assets
belonging to that Series. The assets belonging to a particular Series shall be
so recorded upon the books of the Trust, and shall be held by the Trustees in
trust for the benefit of the holders of Shares of that Series, and separate and
distinct records shall be maintained for each Series. The assets belonging to
each particular Series shall be charged with the liabilities of that Series and
all expenses, costs, charges and reserves attributable to that Series. Any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees between or among any one or more of the
Series in such manner as the Trustees in their sole discretion deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Without limitation of the foregoing
provisions of this Section 2.08, but subject to the right of the Trustees in
their discretion to allocate general liabilities, expenses, costs, changes or
reserves as herein provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
Series shall be enforceable against the assets of such Series only, and not
against the assets of the Trust generally or of any other Series. Notice of this
contractual limitation on inter-Series liabilities may, in the Trustee's sole
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
inter-Series liabilities (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may look only to the assets of that Series
to satisfy or enforce any debt, with respect to that Series. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. No Shareholder shall
be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise
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existing with respect to, the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise.
ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Any Shareholder meeting held for such purpose shall be held on
a date fixed by the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the Trustees then in
office will call a Shareholders' meeting for the election of Trustees in
accordance with the provisions of the 1940 Act.
SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the
persons named in the Original Trust Instrument.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except (a)
that any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery or
upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, becomes physically or mentally incapacitated by reason
of illness or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement;
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and (d) that a Trustee may be removed at any meeting of the Shareholders of the
Trust by a vote of Shareholders owning at least two-thirds of the Outstanding
Shares of the Trust.
SECTION 3.04 VACANCIES AND APPOINTMENTS . In case of a Trustee's
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of illness, disease or otherwise, or if a Trustee is
otherwise unable to serve, or if there is an increase in the number of Trustees,
a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of a vacancy, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion see fit, to
the extent consistent with the limitations provided under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any person
appointed as a Trustee pursuant to this Section 3.04 shall have accepted this
Trust, the trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and such person
shall be deemed a Trustee.
SECTION 3.05 TEMPORARY ABSENCE . Any Trustee may, by power of attorney,
delegate his power for a period not exceeding six months at any time to any
other Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
SECTION 3.06 NUMBER OF TRUSTEES . The number of Trustees shall be at
least two (2), and thereafter shall be such number as shall be fixed from time
to time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than twelve (12).
SECTION 3.07 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.08 OWNERSHIP OF ASSETS OF THE TRUST . The assets of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by, or in the name of, the Trust or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series based upon
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the number of Shares owned. The Shares shall be personal property giving only
the rights specifically set forth in this Trust Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their sole discretion, shall deem
proper to accomplish the purpose of this Trust without recourse to any court or
other authority. Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property (including
investment, notwithstanding any other provision hereof, of all of the assets of
any Series in a single open-end investment company, including investment by
means of transfer of such assets in exchange for an interest or interests in
such investment company), and to hold cash or other property of the Trust
uninvested, without in any event being bound or limited by any present or future
law or custom in regard to investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust:
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are
members of a national securities exchange or such other entities as the
Commission may permit as custodians of
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any assets of the Trust subject to any conditions set forth in this Trust
Instrument or in the Bylaws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject
to the provisions of Article XI, subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
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(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers
of the Trustees to said committees and to adopt a committee charter providing
for such responsibilities, membership (including Trustees, officers or other
agents of the Trust therein) and any other characteristics of said committees as
the Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as if
the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in the
state of Delaware;
(x) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any requirement of approval by
Shareholders unless required by the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws of the State of Delaware or
of any other state) which is classified as a partnership for federal income tax
purposes; and
(y) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an individual
capacity.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.
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No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see the application
of any payments made or property transferred to the Trustees or upon their
order.
SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares and, subject to the
provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. In any action taken by the
Trustees hereunder, unless otherwise specified, the Trustees shall act by
majority vote at a meeting (including a telephone meeting) duly called, provided
a quorum of Trustees participate, or by written consent of a majority of the
Trustees without a meeting, unless the 1940 Act requires that a particular
action be taken only at a meeting at which the Trustees are present in person.
At any meeting of the Trustees, a majority of the Trustees shall constitute a
quorum. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Board of Trustees or by any two other Trustees. Notice of the
time, date and place of all meetings of the Trustees shall be given by the
person calling the meeting to each Trustee by telephone, facsimile or other
electronic mechanism sent to his home or business address at least twenty-four
hours in advance of the meeting or by written notice mailed to his home or
business address at least seventy-two hours in advance of the meeting. Notice
need not be given to any Trustee who attends the meeting without objecting to
the lack of notice or who executes a written waiver of notice with respect to
the meeting. Any meeting conducted by telephone shall be deemed to take place at
the principal office of the Trust, as determined by the Bylaws or by the
Trustees. Subject to the requirements of the 1940 Act, the Trustees by majority
vote may delegate to any one or more of their number their authority to approve
particular matters or take particular actions on behalf of the Trust. Written
consents or waivers of the Trustees may be executed in one or more counterparts.
Execution of a written consent or waiver and delivery thereof to the Trust may
be accomplished by facsimile or other similar electronic mechanism.
SECTION 4.05 CHAIRMAN OF THE BOARD OF TRUSTEES. The Trustees shall
appoint one of their number to be Chairman of the Board of Trustees. The
Chairman shall preside at all meetings of the Trustees, shall be responsible for
the execution of policies established by the Trustees and the administration of
the Trust, and may be (but is not required to be) the chief executive, financial
and/or accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any
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assets of the Trust to, any Trustee or officer of the Trust or any firm of which
any such Trustee or officer is a member acting as principal, or have any such
dealings with any investment adviser, administrator, distributor or transfer
agent for the Trust or with any interested person of such person; and the Trust
may employ any such person, or firm or company in which such person is an
interested person, as broker, legal counsel, registrar, investment adviser,
administrator, distributor, transfer agent, dividend disbursing agent, custodian
or in any other capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, interest charges, taxes, brokerage fees and commissions; expenses of
issue, repurchase and redemption of Shares; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, distributors, custodians,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining its existence;
costs of preparing and printing the Trust's prospectuses, statements of
additional information and shareholder reports and delivering them to existing
Shareholders; expenses of meetings of Shareholders and proxy solicitations
therefor; costs of maintaining books and accounts; costs of reproduction,
stationery and supplies; fees and expenses of the Trustees; compensation of the
Trust's officers and employees and costs of other personnel performing services
for the Trust; costs of Trustee meetings; Commission registration fees and
related expenses; state or foreign securities laws registration fees and related
expenses and for such non-recurring items as may arise, including litigation to
which the Trust (or a Trustee acting as such) is a party, and for all losses and
liabilities by them incurred in administering the Trust, and for the payment of
such expenses, disbursements, losses and liabilities the Trustees shall have a
lien on the assets belonging to the appropriate Series, or in the case of an
expense allocable to more than one Series, on the assets of each such Series,
prior to any rights or interests of the Shareholders thereto. This section shall
not preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER.
(a) The Trustees may in their discretion, from time to time, enter into
an investment advisory contract or contracts with respect to the Trust or any
Series whereby the other party or parties to such contract or contracts shall
undertake to furnish the Trustees with such investment advisory, statistical and
research facilities and services and such other facilities and services, if any,
all upon such terms and conditions (including any Shareholder vote) that may be
required under the 1940 Act, as may be prescribed in the Bylaws, or as the
Trustees may in their discretion determine
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(such terms and conditions not to be inconsistent with the provisions of this
Trust Instrument or of the Bylaws). Notwithstanding any other provision of this
Trust Instrument, the Trustees may authorize any investment adviser (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio securities, other
investment instruments of the Trust, or other Trust Property on behalf of the
Trustees, or may authorize any officer, agent, or Trustee to effect such
purchases, sales or exchanges pursuant to recommendations of the investment
adviser (and all without further action by the Trustees). Any such purchases,
sales and exchanges shall be deemed to have been authorized by all of the
Trustees.
(b) The Trustees may authorize the investment adviser to employ, from
time to time, one or more sub-advisers to perform such of the acts and services
of the investment adviser, and upon such terms and conditions, as may be agreed
upon between the investment adviser and subadviser (such terms and conditions
not to be inconsistent with the provisions of this Trust Instrument or of the
Bylaws). Any reference in this Trust Instrument to the investment adviser shall
be deemed to include such sub-advisers, unless the context otherwise requires;
provided that no Shareholder approval shall be required with respect to any
sub-adviser unless required under the 1940 Act or other law, contract or order
applicable to the Trust.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from
time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or
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member of such other party to the contract, and no such contract shall be
invalidated or rendered void or voidable by reason of the existence of any
relationship, nor shall any person holding such relationship be disqualified
from voting on or executing the same in his capacity as Shareholder and/or
Trustee, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the Bylaws. The same person (including a corporation, firm, partnership, trust,
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into
pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 or 6.02 of this Article VI shall be
effective unless assented to in a manner consistent with the requirements of
said Section 15, as modified by any applicable rule, regulation or order of the
Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS.
(a) The Shareholders shall have power to vote only (a) for the election
of Trustees to the extent provided in Article III, Section 3.01 hereof, (b) for
the removal of Trustees to the extent provided in Article III, Section 3.03(d)
hereof, (c) with respect to any investment advisory contract to the extent
provided in Article VI, Section 6.01 hereof, (d) with respect to an amendment of
this Trust Instrument, to the extent provided in Article XI, Section 11.08, and
(e) with respect to such additional matters relating to the Trust as may be
required by law, by this Trust Instrument, or any registration of the Trust with
the Commission or any State, or as the Trustees may consider desirable.
(b) Notwithstanding paragraph (a) of this Section 7.01 or any other
provision of this Trust Instrument (including the Bylaws) which would by its
terms provide for or require a vote of Shareholders, the Trustees may take
action without a Shareholder vote if (i) the Trustees shall have obtained an
opinion of counsel that a vote or approval of such action by Shareholders is not
required under (A) the 1940 Act or any other applicable laws, or (B) any
registrations, undertakings or agreements of the Trust known to such counsel,
and if the Trustees determine that the taking of such action without a
Shareholder vote would be consistent with the best interests of the Shareholders
(considered as a group).
(c) On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, and whenever the Trustees
determine that the matter affects only
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certain Series, may be submitted for a vote by only such Series, except (i) when
required by the 1940 Act, Shares shall be voted in the aggregate and not by
individual Series; and (ii) when the Trustees have determined that the matter
affects the interests of more than one Series and that voting by shareholders of
all Series would be consistent with the 1940 Act, then the Shareholders of all
such Series shall be entitled to vote thereon (either by individual Series or by
Shares voted in the aggregate, as the Trustees in their discretion may
determine). The Trustees may also determine that a matter affects only the
interests of one or more classes of a Series, in which case (or if required
under the 1940 Act) such matter shall be voted on by such class or classes.
As determined by the Trustees without the vote or consent of Shareholders
(except as required by the 1940 Act), on any matter submitted to a vote of
Shareholders, either (i) each whole Share shall be entitled to one vote as to
any matter on which it is entitled to vote, and each fractional Share shall be
entitled to a proportionate fractional vote or (ii) each dollar of Net Asset
Value (number of Shares owned times Net Asset Value per share of such Series or
class thereof, as applicable) shall be entitled to one vote on any matter on
which such Shares are entitled to vote and each fractional dollar amount shall
be entitled to a proportionate fractional vote. Without limiting the power of
the Trustees in any way to designate otherwise in accordance with the preceding
sentence, the Trustees hereby establish that each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share shall be entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy or in any manner provided for in the Bylaws. A proxy may be given in
writing. The Bylaws may provide that proxies may also, or may instead, be given
by any electronic or telecommunications device or in any other manner.
Notwithstanding anything else herein or in the Bylaws, in the event a proposal
by anyone other than the officers or Trustees of the Trust is submitted to a
vote of the Shareholders, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. Meetings may be held within or without the State
of Delaware. Special meetings of the Shareholders of any Series may be called by
the Trustees and shall be called by the Trustees upon the written request of
Shareholders owning at least one tenth of the Outstanding Shares of the Trust
entitled to vote. Whenever ten or more Shareholders meeting the qualifications
set forth in Section 16(c) of the 1940 Act, as the same may be amended from time
to time, seek the opportunity of furnishing materials to the other Shareholders
with a view to obtaining signatures on such a request for a meeting, the
Trustees shall comply with the provisions of said Section 16(c) with respect to
providing such Shareholders access to the list of the Shareholders of record of
the Trust or the mailing of such materials to such Shareholders of record,
subject to any rights provided to the Trust or any Trustees provided by said
Section 16(c). Notice shall be sent, by First Class Mail or such other means
determined by the Trustees, at least 10 days prior to any such meeting.
Notwithstanding anything to the contrary in this Section 7.02, the Trustees
shall not be required to call a special meeting of the Shareholders of any
Series or to provide Shareholders seeking the opportunity of furnishing the
materials to other Shareholders with a view to obtaining signatures on a request
for a meeting except to the extent required under the 1940 Act.
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SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares outstanding
and entitled to vote in person or by proxy as of the record date for a
Shareholders' meeting shall be a quorum for the transaction of business at such
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the question of adjourning
a meeting to another date and time, whether or not a quorum is present. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series (or class), voted on the matter in person or by proxy
shall decide that matter insofar as that Series (or class) is concerned.
Shareholders may act by unanimous written consent, to the extent not
inconsistent with the 1940 Act, and any such actions taken by a Series (or
class) may be consented to unanimously in writing by Shareholders of that Series
(or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall employ a bank,
a company that is a member of a national securities exchange, or a trust
company, that in each case shall have capital, surplus and undivided profits of
at least twenty million dollars ($20,000,000) and that is a member of the
Depository Trust Company (or such other person or entity as may be permitted to
act as custodian of the Trust's assets under the 1940 Act) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Bylaws of the Trust: (a) to
hold the securities owned by the Trust and deliver the same upon written order
or oral order confirmed in writing; (b) to receive and receipt for any moneys
due to the Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; and (c) to disburse such funds upon orders or
vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital, surplus and
undivided profits of at least twenty million dollars ($20,000,000) and that is a
member of the Depository Trust Company or such other person or entity as may be
permitted by the Commission or is otherwise able to act as custodian of the
Trust's assets in accordance with the 1940 Act.
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SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to the 1940 Act and
such other rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, as amended, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
. SECTION 9.01 DISTRIBUTIONS
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series and/or class of a Series. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding,
the Trustees may at any time declare and distribute a stock dividend to the
Shareholders of a particular Series, or class thereof, as of the record date of
that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof he may
deposit at the office of the transfer agent or other authorized agent of that
Series a written request or such other form of request as the Trustees may from
time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and, subject to Section 9.04 hereof, the
Shareholder so requesting shall be entitled to require the Series to purchase,
and the Series or the principal underwriter of the Series shall purchase his
said Shares, but only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for any such Shares to
be redeemed, as aforesaid, in cash or property from the assets of that Series
and, subject to Section 9.04 hereof, payment for such Shares shall be made by
the Series or the principal underwriter of the Series to the Shareholder of
record within seven (7) days after the date upon which the request is effective.
Upon redemption, shares shall become Treasury shares and may be re-issued from
time to time.
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SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF
PORTFOLIO ASSETS. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect to valuation
of assets and liabilities. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as the Trustees
may determine. Such determination shall be made with respect to securities for
which market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair value
as determined in good faith by the Trustees; provided, however, that the
Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act. The resulting
amount, which shall represent the total Net Asset Value of the particular
Series, shall be divided by the total number of shares of that Series
outstanding at the time and the quotient so obtained shall be the Net Asset
Value per Share of that Series. At any time the Trustees may cause the Net Asset
Value per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective.
The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend a practice of seeking to maintain the Net Asset Value per
Share of the Series at a constant amount. If, for any reason, the net income of
any Series, determined at any time, is a negative amount, the Trustees shall
have the power with respect to that Series (a) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, (b) to reduce the number of Outstanding Shares of such Series by
reducing the number of Shares in the account of each Shareholder by a pro rata
portion of that number of full and fractional Shares which represents the amount
of such excess negative net income, (c) to cause to be recorded on the books of
such Series an asset account in the amount of such negative net income (provided
that the same shall thereupon become the property of such Series with respect to
such Series and shall not be paid to any Shareholder), which account may be
reduced by the amount of dividends declared thereafter upon the Outstanding
Shares of such Series on the day such negative net income is experienced, until
such asset account is reduced to zero; (d) to combine the methods described in
clauses (a) and (b) and (c) of this sentence; or (e) to take any other action
they deem appropriate, in order to cause (or in order to assist in causing) the
Net Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per Share to be increased.
In the event that any Series is divided into classes, the provisions of
this Section 9.03, to the extent applicable as determined in the discretion of
the Trustees and consistent with the 1940 Act and other applicable law, may be
equally applied to each such class.
SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
if permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his
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request for redemption or receive payment based on the Net Asset Value per Share
next determined after the termination of the suspension.
SECTION 9.05 REQUIRED REDEMPTION OF SHARES. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including, but not limited to, (i) the determination of the Trustees that direct
or indirect ownership of Shares of any Series has or may become concentrated in
such Shareholder to an extent that would disqualify any Series as a regulated
investment company under the Internal Revenue Code of 1986, as amended (or any
successor statute thereto), (ii) the failure of a Shareholder to supply a tax
identification number if required to do so, or to have the minimum investment
required (which may vary by Series), (iii) the failure of a Shareholder to pay
when due for the purchase of Shares issued to him or (iv) the Shares owned by
such Shareholder being below the minimum investment set by the Trustees, from
time to time, for investments in the Trust or in such Series or classes thereof,
as applicable.
The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the requirements of any taxing
authority or for the Trustees to make any determination contemplated by this
Section 9.05.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITATION OF LIABILITY. Neither a Trustee nor an
officer of the Trust, when acting in such capacity, shall be personally liable
to any person other than the Trust or the Shareholders for any act, omission or
obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission or
any conduct whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect any
Trustee or any officer of the Trust against any liability to the Trust or to
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or officer of the Trust
hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without
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limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither interested persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02 may be paid by the Trust or Series from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets belonging to
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the applicable Series to be held harmless from and indemnified against all loss
and expense arising from such liability. The Trust, on behalf of the affected
Series, shall, upon request by the Shareholder, assume the defense of any claim
made against the Shareholder for any act or obligation of the Series and satisfy
any judgment thereon from the assets of the Series.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared
that a trust and not a partnership is created hereby. No Trustee hereunder shall
have any power to bind personally either the Trust officers or any Shareholder.
All persons extending credit to, contracting with or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (if the Trustees shall have yet to have established Series) of the
Trust for payment under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Trust Instrument
shall protect a Trustee against any liability to which the Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees or the officers of the Trust of their
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees and the officers of the Trust shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees and the officers of the Trust
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees and the officers of the Trust shall not be required to give
any bond as such, nor any surety if a bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the
Share transfer books of the Trust for a period not exceeding ninety (90) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall go
into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the
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case may be, notwithstanding any transfer of any Shares on the books of the
Trust after any such record date fixed as aforesaid.
SECTION 11.04 DISSOLUTION AND TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to
the provisions of Subsection 11.04(b).
(b) The Trustees may, subject to any necessary Shareholder, Trustee,
and regulatory approvals:
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another trust, partnership,
association or corporation, or to a separate series of shares thereof,
organized under the laws of any state which trust, partnership,
association or corporation is an open-end management investment company
as defined in the 1940 Act, or is a series thereof, for adequate
consideration which may include the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, of the
Trust or any affected Series, and which may include shares of
beneficial interest, stock or other ownership interests of such trust,
partnership, association or corporation or of a series thereof;
(ii) enter into a plan of liquidation in order to dissolve and
liquidate any Series (or class) of the Trust, or the Trust; or
(iii) at any time sell and convert into money all of the
assets of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all liabilities by assumption or otherwise, the Trustees shall
distribute the remaining proceeds or assets (as the case may be) of each Series
(or class) ratably among the holders of Shares of the affected Series, based
upon the ratio that each Shareholder's Shares bears to the number of Shares of
such Series (or class) then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in Subsection 11.04(b), the Trustees and the
Trust or any affected Series shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties with respect to the Trust or Series shall be canceled and discharged and
any such Series shall terminate.
Following completion of winding up of its business, the Trustees shall
cause a certificate of cancellation of the Trust's certificate of trust to be
filed in accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee. Upon filing of the certificate of cancellation for
the Trust, the Trust shall terminate.
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SECTION 11.05 REORGANIZATION AND MASTER/FEEDER.
(a) Notwithstanding anything else herein, the Trustees, in order to
change the form or jurisdiction of organization of the Trust, may (i) cause the
Trust to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations or corporations so long as the surviving or
resulting entity is an open-end management investment company under the 1940
Act, or is a series thereof, that will succeed to or assume the Trust's
registration under that Act and which is formed, organized or existing under the
laws of a state, commonwealth, possession or colony of the United States or (ii)
cause the Trust to incorporate under the laws of Delaware.
(b) The Trustees may, subject to a vote of a majority of the Trustees
and any shareholder vote required under the 1940 Act, if any, cause the Trust to
merge or consolidate with or into one or more trusts, partnerships (general or
limited), associations, limited liability companies or corporations formed,
organized or existing under the laws of a state, commonwealth, possession or
colony of the United States.
(c) Any agreement of merger or consolidation or certificate of merger
or consolidation may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
(d) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Trust Instrument, an agreement of merger or consolidation
approved by the Trustees in accordance with paragraph (a) or (b) of this Section
11.05 may effect any amendment to the Trust Instrument or effect the adoption of
a new trust instrument of the Trust if it is the surviving or resulting trust in
the merger or consolidation.
(e) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval (unless required by the 1940 Act), invest all or a portion
of the Trust Property of any Series, or dispose of all or a portion of the Trust
Property of any Series, and invest the proceeds of such disposition in interests
issued by one or more other investment companies registered under the 1940 Act.
Any such other investment company may (but need not) be a trust (formed under
the laws of the State of Delaware or any other state or jurisdiction) (or series
thereof) which is classified as a partnership for federal income tax purposes.
Notwithstanding anything else herein, the Trustees may, without Shareholder
approval unless such approval is required by the 1940 Act, cause a Series that
is organized in the master/feeder fund structure to withdraw or redeem its Trust
Property from the master fund and cause such series to invest its Trust Property
directly in securities and other financial instruments or in another master
fund.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a
copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
23
<PAGE> 27
Trust Instrument, references to this Trust Instrument, and all expressions such
as "herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions like "his," "he" and "him," shall be deemed to include the feminine
and neuter, as well as masculine, genders. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
SECTION 11.07 APPLICABLE LAW. The trust set forth in this instrument is
made in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08 DERIVATIVE ACTIONS. In addition to the requirements set
forth in Section 3816 of the Delaware Act, a Shareholder may bring a derivative
action on behalf of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand upon
the Trustees to bring the subject action unless an effort to cause the Trustees
to bring such an action is not likely to succeed. For purposes of this Section
11.08(a), a demand on the Trustees shall only be deemed not likely to succeed
and therefore excused if a majority of the Board of Trustees, or a majority of
any committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on the Board of Trustees of the Trust or on the
boards of one or more investment companies that are under common management with
or otherwise affiliated with
24
<PAGE> 28
the Trust.
(b) Unless a demand is not required under paragraph (a) of this Section
11.08, Shareholders eligible to bring such derivative action under the Delaware
Act who hold at least 10% of the Outstanding Shares of the Trust, or 10% of the
Outstanding Shares of the Series or Class to which such action relates, shall
join in the request for the Trustees to commence such action; and
(c) Unless a demand is not required under paragraph (a) of this Section
11.08, the Trustees must be afforded a reasonable amount of time to consider
such Shareholder request and to investigate the basis of such claim. The
Trustees shall be entitled to retain counsel or other advisors in considering
the merits of the request and shall require an undertaking by the Shareholders
making such request to reimburse the Trust for the expense of any such advisors
in the event that the Trustees determine not to bring such action.
For purposes of this Section 11.08, the Board of Trustees may
designate a committee of one Trustee to consider a Shareholder demand if
necessary to create a committee with a majority of Trustees who do not have a
personal financial interest in the transaction at issue.
SECTION 11.09 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(a) on any amendment as may be required by law or by the Trust's registration
statement filed with the Commission and (b) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders of each
Series affected and no vote of shareholders of a Series not affected shall be
required. Notwithstanding any other provision of this Trust Instrument, any
amendment to Article X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission of Covered Persons
prior to such amendment.
SECTION 11.10 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may change the fiscal year of the Trust.
SECTION 11.11 NAME RESERVATION. The Trustees on behalf of the Trust
acknowledge that KeyCorp, through its subsidiary Key Asset Management Inc.
("KAM") has licensed to the Trust the non-exclusive right to use the name "The
Victory Variable Insurance Funds" as part of the name of the Trust, and has
reserved the right to grant the non-exclusive use of the name "The Victory
Variable Insurance Funds" or any derivative thereof to any other party. In
addition, KAM reserves the right to grant the non-exclusive use of the name "The
Victory Variable Insurance Funds" to, and to withdraw such right from, any other
business or other enterprise. KAM reserves the right to withdraw from the Trust
the right to use said name "The Victory Variable Insurance Funds" and will
withdraw such right if the Trust ceases to employ, for any reason, KeyCorp, an
affiliate or any successor as adviser of the Trust.
25
<PAGE> 29
SECTION 11.12 PROVISIONS IN CONFLICT WITH LAW. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provision is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provision in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
26
<PAGE> 30
IN WITNESS WHEREOF, the undersigned, being all of the current Trustees
of the Trust, have amended and restated this instrument as of date first written
above.
- ----------------------------------- -----------------------------------
Edward P. Campbell, as Trustee Roger Noall, as Trustee
and not individually and not individually
- ----------------------------------- -----------------------------------
Harry Gazelle, as Trustee H. Patrick Swygert, as Trustee
and not individually and not individually
- ----------------------------------- -----------------------------------
Eugene J. McDonald, as Trustee Frank A. Weil, as Trustee
and not individually and not individually
- ----------------------------------- -----------------------------------
Thomas F. Morrissey, as Trustee Leigh A. Wilson, as Trustee
and not individually and not individually
27
<PAGE> 31
Schedule A
Establishment of Series of the Trust
Established February 11, 1998:
- - Income and Growth Portfolio
- - Moderate Growth Portfolio
- - Growth Portfolio
Established August 28, 1998:
- - Investment Quality Bond Fund, Class A and Class B
- - Diversified Stock Fund, Class A and Class B
- - Small Company Value Fund, Class A and Class B
<PAGE> 1
Exhibit 99(b)
THE VICTORY VARIABLE INSURANCE FUNDS
BYLAWS
DATED FEBRUARY 20, 1998
AMENDED AND RESTATED
OCTOBER 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
PRINCIPAL OFFICE..................................................................................................1
ARTICLE II
OFFICERS AND THEIR ELECTION.......................................................................................1
Section 2.01 Officers.........................................................................................1
Section 2.02 Election of Officers............................................................................1
Section 2.03 Resignations.....................................................................................1
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES........................................................................1
Section 3.01 Management of the Trust..........................................................................1
Section 3.02 Executive And Other Committees...................................................................2
Section 3.03 Compensation.....................................................................................2
Section 3.04 Chairman of the Board of Trustees................................................................2
Section 3.05 President........................................................................................2
Section 3.06 Treasurer........................................................................................2
Section 3.07 Secretary........................................................................................2
Section 3.08 Vice President...................................................................................3
Section 3.09 Assistant Treasurer..............................................................................3
Section 3.10 Assistant Secretary..............................................................................3
Section 3.11 Subordinate Officers.............................................................................3
Section 3.12 Surety Bonds.....................................................................................3
Section 3.13 Removal..........................................................................................3
Section 3.14 Remuneration.....................................................................................3
ARTICLE IV
SHAREHOLDERS' MEETINGS............................................................................................4
Section 4.01 Special Meetings.................................................................................4
Section 4.02 Notices..........................................................................................4
Section 4.03 Voting-Proxies...................................................................................4
Section 4.04 Place of Meeting.................................................................................5
Section 4.05 Action Without a Meeting.........................................................................5
Section 4.06 Abstentions and Broker Non-Votes.................................................................5
ARTICLE V
TRUSTEES' MEETINGS................................................................................................5
Section 5.01 Special Meetings.................................................................................5
Section 5.02 Regular Meetings.................................................................................5
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 5.03 Quorum...........................................................................................5
Section 5.04 Notice...........................................................................................5
Section 5.05 Place of Meeting.................................................................................6
Section 5.06 Special Action...................................................................................6
Section 5.07 Action by Consent................................................................................6
Section 5.08 Participation in Meetings By Conference Telephone................................................6
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT...............................................................6
Section 6.01 Fiscal Year......................................................................................6
Section 6.02 Registered Office and Registered Agent...........................................................6
ARTICLE VII
INSPECTION OF BOOKS...............................................................................................7
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES....................................................................7
ARTICLE IX
SEAL..............................................................................................................7
</TABLE>
<PAGE> 4
THE VICTORY VARIABLE INSURANCE FUNDS
BYLAWS
These Bylaws of The Victory Variable Insurance Funds (the
"Trust"), a Delaware business trust, are subject to the Trust Instrument of the
Trust, originally adopted on February 20, 1998, amended and restated on October
15, 1998, and as from time to time amended, supplemented or restated (the "Trust
Instrument"). Capitalized terms used herein which are defined in the Trust
Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in
Cleveland, Ohio or such other location as the Trustees may, from time to time,
determine. The Trust may establish and maintain such other offices and places of
business as the Trustees may, from time to time, determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
SECTION 2.01 OFFICERS. The officers of the Trust shall be a President,
a Treasurer, a Secretary, and such other officers as the Trustees may from time
to time elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for any
Trustee or other officer to be a holder of Shares in the Trust.
SECTION 2.02 ELECTION OF OFFICERS. The Treasurer and Secretary shall be
chosen by the Trustees. The President shall be chosen by and from the Trustees.
Two or more offices may be held by a single person except the offices of
President and Secretary. Subject to the provisions of Section 3.13 hereof the
President, the Treasurer and the Secretary shall each hold office until their
successors are chosen and qualified and all other officers shall hold office at
the pleasure of the Trustees.
SECTION 2.03 RESIGNATIONS. Any officer of the Trust may resign,
notwithstanding Section 2.02 hereof, by filing a written resignation with the
President, the Trustees or the Secretary, which resignation shall take effect on
being so filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The business and affairs of the
Trust shall be managed by, or under the direction of the Trustees, and they
shall have all powers necessary and desirable to carry out their
responsibilities, so far as such powers are not inconsistent with the laws of
the State of Delaware, the Trust Instrument or with these Bylaws.
<PAGE> 5
SECTION 3.02 EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect
from their own number an executive committee, which shall have any or all of the
powers of the Board of Trustees while the Board of Trustees is not in session.
The Trustees may also elect from their own number other committees from time to
time. The number composing such committees and the powers conferred upon the
same are to be determined by vote of a majority of the Trustees. All members of
such committees shall hold such offices at the pleasure of the Trustees, and the
Trustees may abolish any of the committees at any time. Any committee to which
the Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.
SECTION 3.03 COMPENSATION. Each Trustee and each committee member may
receive such compensation for his services and reimbursement for his expenses as
may be fixed from time to time by resolution of the Trustees.
SECTION 3.04 CHAIRMAN OF THE BOARD OF TRUSTEES. The Trustees may
appoint from among their number a Chairman who shall serve as such at the
pleasure of the Trustees. When present, he shall preside at all meetings of the
Shareholders and the Trustees, and he may, subject to the approval of the
Trustees, appoint a Trustee to preside at such meetings in his absence. He shall
perform such other duties as the Trustees may from time to time designate.
SECTION 3.05 PRESIDENT. The President shall be the chief executive
officer of the Trust and, subject to the direction of the Trustees, shall have
general administration of the business and policies of the Trust. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers of attorney, process, agreements or other
documents as may be deemed advisable or necessary in the furtherance of the
interests of the Trust or any Series thereof. He shall also have the power to
employ attorneys, accountants and other advisors and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees may from time to time designate.
SECTION 3.06 TREASURER. The Treasurer shall be the principal financial
and accounting officer of the Trust. He shall deliver all funds and securities
of the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and applicable
provisions of law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust records, and
he shall furnish such other reports regarding the business and condition of the
Trust as the Trustees may from time to time require. The Treasurer shall perform
such additional duties as the Trustees may from time to time designate.
SECTION 3.07 SECRETARY. The Secretary shall record in books kept for
the purpose all votes and proceedings of the Trustees and the Shareholders at
their respective meetings. He shall have the custody of the seal of the Trust.
The Secretary shall perform such additional duties as the Trustees may from time
to time designate.
2
<PAGE> 6
SECTION 3.08 VICE PRESIDENT. Any Vice President of the Trust shall
perform such duties as the Trustees or the President may from time to time
designate. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, then the senior of
the Vice Presidents) present and able to act may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 3.09 ASSISTANT TREASURER. Any Assistant Treasurer of the Trust
shall perform such duties as the Trustees or the Treasurer may from time to time
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Treasurer.
SECTION 3.10 ASSISTANT SECRETARY. Any Assistant Secretary of the Trust
shall perform such duties as the Trustees or the Secretary may from time to time
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Secretary.
SECTION 3.11 SUBORDINATE OFFICERS. The Trustees from time to time may
appoint such other officers or agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one or more officers or committees of Trustees the power to
appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities and duties.
SECTION 3.12 SURETY BONDS. The Trustees may require any officer or
agent of the Trust to execute a bond (including without limitation, any bond
required by the Investment Company Act of 1940, as amended (the "1940 Act"), and
the rules and regulations of the Commission) to the Trust in such sum and with
such surety or sureties as the Trustees may determine, conditioned upon the
faithful performance of his duties to the Trust including responsibility for
negligence and for the accounting of any of the Trust's property, funds or
securities that may come into his hands.
SECTION 3.13 REMOVAL. Any officer may be removed from office, with or
without cause, whenever in the judgment of the Trustees the best interest of the
Trust will be served thereby, by the vote of a majority of the Trustees given at
any regular meeting or any special meeting of the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 3.11
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees.
SECTION 3.14 REMUNERATION. The salaries or other compensation, if any,
of the officers of the Trust shall be fixed from time to time by resolution of
the Trustees.
3
<PAGE> 7
ARTICLE IV
SHAREHOLDERS' MEETINGS
SECTION 4.01 SPECIAL MEETINGS. A special meeting of the shareholders
shall be called by the Secretary as provided in the Trust Instrument. If the
Secretary, when so ordered or requested, refuses or neglects for more than 30
days to call such special meeting, the Trustees or the Shareholders so
requesting may, in the name of the Secretary, call the meeting by giving notice
thereof in the manner required when notice is given by the Secretary. If the
meeting is a meeting of the Shareholders of one or more Series or classes of
Shares, but not a meeting of all Shareholders of the Trust, then only special
meetings of the Shareholders of such one or more Series or classes shall be
called and only the shareholders of such one or more Series or classes shall be
entitled to notice of and to vote at such meeting.
SECTION 4.02 NOTICES. Except as provided in Section 4.01, notices of
any meeting of the Shareholders shall be given by the Secretary by delivering or
mailing, postage prepaid, to each Shareholder entitled to vote at said meeting,
written or printed notification of such meeting at least ten (10) days before
the meeting, to such address as may be registered with the Trust by the
Shareholder. Notice of any Shareholder meeting need not be given to any
Shareholder if a written waiver of notice, executed before or after such
meeting, is filed with the records of such meeting, or to any Shareholder who
shall attend such meeting in person or by proxy. Notice of adjournment of a
Shareholder's meeting to another time or place need not be given, if such time
and place are announced at the meeting or reasonable notice is given to persons
present at the meeting and the adjourned meeting is held within a reasonable
time after the date set for the original meeting.
SECTION 4.03 VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, shareholders entitled to vote may vote either in person or by proxy.
A proxy shall be deemed signed if the Shareholder's name is placed on the proxy
(by manual signature, typewriting, telegraphic transmission, facsimile, other
electronic or computerized means or otherwise) by the Shareholder or the
Shareholder's attorney-in-fact. Proxies may be given by any electronic or
computerized or telecommunication device except as otherwise provided in the
Trust Instrument or determined by the Trustees. The placing of a Shareholder's
name on a proxy instruction transmitted by telephone, computer, other electronic
means or otherwise pursuant to procedures reasonably designed, as determined by
the Trustees, to verify that such instructions have been authorized by the
Shareholder shall constitute execution of the proxy by or on behalf of the
Shareholder. Proxies shall be delivered to the Secretary of the Trust or other
person responsible for recording the proceedings before being voted. A proxy
with respect to shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice from any one of them. Unless otherwise
specifically limited by their terms, proxies shall entitle the holder thereof to
vote at any adjournment of a meeting. A proxy purporting to be exercised by or
on behalf of a Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden or proving invalidity shall rest on the
challenger. At all meetings of the Shareholders, unless the voting is conducted
by inspectors, all questions relating to the qualifications of voters, the
validity of proxies, and the acceptance or rejection
4
<PAGE> 8
of votes shall be decided by the Chairman of the meeting. Except as otherwise
provided herein or in the Trust Instrument, as these Bylaws or such Trust
Instrument may be amended or supplemented from time to time, all matters
relating to the giving, voting or validity of proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
SECTION 4.04 PLACE OF MEETING. All special meetings of the Shareholders
shall be held at the principal place of business of the Trust or at such other
place in the United States as the Trustees may designate.
SECTION 4.05 ACTION WITHOUT A MEETING. Any action to be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of meetings of Shareholders of the Trust. Such consent
shall be treated for all purposes as a vote at a meeting of the Shareholders
held at the principal place of business of the Trust.
SECTION 4.06 ABSTENTIONS AND BROKER NON-VOTES. (A) Shares that abstain
or do not vote with respect to one or more of any proposals presented for
Shareholder approval and (B) Shares held in "street name" as to which the broker
or nominee with respect thereto indicates on the proxy that it does not have
discretionary authority to vote with respect to a particular proposal will be
counted as outstanding and entitled to vote for purposes of determining whether
a quorum is present at a meeting, but will not be counted as Shares voted with
respect to such proposal or proposals.
ARTICLE V
TRUSTEES' MEETINGS
SECTION 5.01 SPECIAL MEETINGS. Special meetings of the Trustees may be
called orally or in writing by the Chairman of the Board of Trustees or any two
other Trustees.
SECTION 5.02 REGULAR MEETINGS. Regular meetings of the Trustees may be
held at such places and at such times as the Trustees may from time to time
determine; each Trustee present at such determination shall be deemed a party
calling the meeting and no call or notice will be required to such Trustee
provided that any Trustee who is absent when such determination is made shall be
given notice of the determination by the Chairman or any two other Trustees, as
provided for in Section 4.04 of the Trust Instrument.
SECTION 5.03 QUORUM. A majority of the Trustees shall constitute a
quorum for the transaction of business at any meeting and an action of a
majority of the Trustees in attendance constituting a quorum shall constitute
action of the Trustees.
SECTION 5.04 NOTICE. Except as otherwise provided, notice of any
special meeting of the Trustees shall be given by the party calling the meeting
to each of the Trustees, as provided for in Section 4.04 of the Trust
Instrument. A written notice may be mailed,
5
<PAGE> 9
postage prepaid, addressed to him at his address as registered on the books of
the Trust or, if not so registered, at his last known address.
SECTION 5.05 PLACE OF MEETING. All special meetings of the Trustees
shall be held at the principal place of business of the Trust or such other
place as the Trustees may designate. Any meeting may adjourn to any place.
SECTION 5.06 SPECIAL ACTION. When all the Trustees shall be present at
any meeting however called or wherever held, or shall assent to the holding of
the meeting without notice, or shall sign a written assent thereto filed with
the records of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
SECTION 5.07 ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by a majority of the
Trustees and filed with the records of the Trustees' meeting. Such consent shall
be treated, for all purposes, as a vote at a meeting of the Trustees held at the
principal place of business of the Trustees.
SECTION 5.08 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Except
when presence in person is required at a meeting under the 1940 Act or other
applicable laws, Trustees may participate in a meeting of Trustees by conference
telephone or similar communications equipment by means of which all persons
participating in the meeting are able to hear each other, and such participation
shall constitute presence in person at such meeting. Any meeting conducted by
telephone shall be deemed to take place at and from the principal office of the
Trust.
ARTICLE VI
FISCAL YEAR; REGISTERED OFFICE AND REGISTERED AGENT
SECTION 6.01 FISCAL YEAR. The fiscal year of the Trust and of each
Series of the Trust shall end on December 31 of each year; provided that the
last fiscal year of the Trust and each Series shall end on the date on which the
Trust or each such Series is terminated, as applicable; and further provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the fiscal year of the Trust and of any or all Series (and the Trust and
each Series may have different fiscal years as determined by the Trustees).
SECTION 6.02 REGISTERED OFFICE AND REGISTERED AGENT. The initial
registered office of the Trust in the State of Delaware shall be located at 1201
North Market Street, Wilmington, Delaware 19801. The registered agent of the
Trust at such location shall be Delaware Corporation Organizers, Inc.; provided
that the Trustees by resolution and without a Shareholder vote may at any time
change the Trust's registered office or its registered agent, or both.
6
<PAGE> 10
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust or any of them shall be open to
the inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE VIII
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any
Covered Person (as defined in Section 10.02 of the Trust Instrument) or employee
of the Trust, including any Covered Person or employee of the Trust who is or
was serving at the request of the Trust as a Trustee, officer or employee of a
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and claimed by him in any such capacity or
arising out of his status as such, whether or not the Trustees would have the
power to indemnify him against such liability.
The Trust may not acquire or obtain a contract for insurance
that protects or purports to protect any Trustee or officer of the Trust against
any liability to the Trust or its Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"THE VICTORY VARIABLE INSURANCE FUNDS, FEBRUARY 11, 1998
THE STATE OF DELAWARE"
7
<PAGE> 1
Exhibit 99(d)
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE VICTORY VARIABLE INSURANCE FUNDS
AND
KEY ASSET MANAGEMENT INC.
This INVESTMENT ADVISORY AGREEMENT made as of the 16th day of October,
1998, by and between The Victory Variable Insurance Funds (the "Trust"), on
behalf of the Funds listed in Schedule A (each a "Fund" and collectively, the
"Funds"), a Delaware business trust which may issue one or more series of shares
of beneficial interest, and Key Asset Management Inc., a New York corporation
(the "Adviser").
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust desires to retain the Adviser to furnish investment
advisory services to the Funds and the Adviser represents that it is willing and
possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) General. The Trust hereby appoints the Adviser to act as
investment adviser to the Funds for the period and on the
terms set forth in this Agreement. The Adviser accepts such
appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
(b) Employees of Affiliates. The Adviser may, in its discretion,
provide such services through its own employees or the
employees of one or more affiliated companies that are
qualified to act as an investment adviser to the Trust under
applicable laws and are under the control of KeyCorp, the
indirect parent of the Adviser; provided that (i) all persons,
when providing services hereunder, are functioning as part of
an organized group of persons, and (ii) such organized group
of persons is managed at all times by authorized officers of
the Adviser.
2. DELIVERY OF DOCUMENTS. The Trust has delivered to the Adviser copies
of each of the following documents along with all amendments thereto through the
date hereof, and will promptly deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Trust Instrument;
<PAGE> 2
(b) the Bylaws of the Trust;
(c) resolutions of the Board of Trustees of the Trust (the
"Board") authorizing the execution and delivery of this
Agreement;
(d) Notification of Registration of the Trust under the 1940 Act
on Form N-8A as filed with the Securities and Exchange
Commission (the "Commission"); and
(e) the currently effective Prospectus and Statement of Additional
Information of the Trust.
3. INVESTMENT ADVISORY SERVICES.
(a) Management of the Funds. The Adviser hereby undertakes to act
as investment adviser to the Funds. The Adviser shall
regularly provide investment advice to the Funds and
continuously supervise the investment and reinvestment of
cash, securities and other property composing the assets of
the Funds and, in furtherance thereof, shall:
(i) supervise all aspects of the operations of the Trust
and the Funds;
(ii) obtain and evaluate pertinent economic, statistical
and financial data, as well as other significant
events and developments, which affect the economy
generally, the Funds' investment programs, and the
issuers of securities included in the Funds'
investment portfolios and the industries in which
they engage, or which may relate to securities or
other investments which the Adviser may deem
desirable for inclusion in the Funds' investment
portfolios;
(iii) determine which issuers and securities shall be
included in each of the Funds;
(iv) furnish a continuous investment program for the
Funds;
(v) in its discretion and without prior consultation with
the Trust, buy, sell, lend and otherwise trade any
stocks, bonds and other securities and investment
instruments on behalf of the Funds; and
(vi) take, on behalf of the Funds, all actions the Adviser
may deem necessary in order to carry into effect such
investment program and the Adviser's functions as
provided above, including the making of appropriate
periodic reports to the Board.
(b) Covenants. The Adviser shall carry out its investment advisory
and supervisory responsibilities in a manner consistent with
the investment objectives, policies, and restrictions provided
in: (i) the Funds' Prospectus and Statement of Additional
Information in effect from time to time; (ii) the Trust's
Trust Instrument, Bylaws or
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<PAGE> 3
other governing instruments, as amended from time to time;
(iii) the 1940 Act; (iv) other applicable laws; and (v) such
other investment policies, procedures and/or limitations as
may be adopted by the Trust with respect to the Funds and
provided to the Adviser in writing. The Adviser agrees to use
reasonable efforts to manage the Funds so that it will
qualify, and continue to qualify, as a regulated investment
company under Subchapters L and M of the Internal Revenue Code
of 1986, as amended, and regulations issued thereunder (the
"Code"), except as may be authorized to the contrary by the
Board. The management of the Funds by the Adviser shall at all
times be subject to the review of the Board.
(c) Books and Records. Pursuant to applicable law, the Adviser
shall keep the Funds' books and records required to be
maintained by, or on behalf of, the Funds with respect to
advisory services rendered hereunder. The Adviser agrees that
all records which it maintains for the Funds are the property
of the Funds and it will promptly surrender any of such
records to the Funds upon the Funds' request. The Adviser
further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any such records of the Funds
required to be preserved by such Rule.
(d) Reports, Evaluations and other Services. The Adviser shall
furnish reports, evaluations, information or analyses to the
Trust with respect to the Funds and in connection with the
Adviser's services hereunder as the Board may request from
time to time or as the Adviser may otherwise deem to be
desirable. The Adviser shall make recommendations to the Board
with respect to Trust policies, and shall carry out such
policies as are adopted by the Board. The Adviser shall,
subject to review by the Board, furnish such other services as
the Adviser shall from time to time determine to be necessary
or useful to perform its obligations under this Agreement.
(e) Purchase and Sale of Securities. The Adviser shall place all
orders for the purchase and sale of Fund securities for the
Funds with brokers or dealers selected by the Adviser, which
may include brokers or dealers affiliated with the Adviser to
the extent permitted by the 1940 Act and the Trust's policies
and procedures applicable to the Funds. The Adviser shall use
its best efforts to seek to execute Fund transactions at
prices which, under the circumstances, result in total costs
or proceeds being the most favorable to the Funds. In
assessing the best overall terms available for any
transaction, the Adviser shall consider all factors it deems
relevant, including the breadth of the market in the security,
the price of the security, the financial condition and
execution capability of the broker or dealer, research
services provided to the Adviser, and the reasonableness of
the commission, if any, both for the specific transaction and
on a continuing basis. In no event shall the Adviser be under
any duty to obtain the lowest commission or the best net price
for the Funds on any particular transaction, nor shall the
Adviser be under any duty to execute any order in a fashion
either preferential to the Funds relative to other accounts
managed by the Adviser or otherwise materially adverse to such
other accounts.
3
<PAGE> 4
(f) Selection of Brokers or Dealers. In selecting brokers or
dealers qualified to execute a particular transaction, brokers
or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934) to the Adviser, the
Funds and/or the other accounts over which the Adviser
exercises investment discretion. The Adviser is authorized to
pay a broker or dealer who provides such brokerage and
research services a commission for executing a Fund
transaction for the Funds which is in excess of the amount of
commission another broker or dealer would have charged for
effecting that transaction if the Adviser determines in good
faith that the total commission is reasonable in relation to
the value of the brokerage and research services provided by
such broker or dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the
Adviser with respect to accounts over which it exercises
investment discretion. The Adviser shall report to the Board
of the Trust regarding overall commissions paid by the Funds
and their reasonableness in relation to the benefits to the
Funds.
(g) Aggregation of Securities Transactions. In executing Fund
transactions for the Funds, the Adviser may, to the extent
permitted by applicable laws and regulations, but shall not be
obligated to, aggregate the securities to be sold or purchased
with those of other Funds or its other clients if, in the
Adviser's reasonable judgment, such aggregation (i) will
result in an overall economic benefit to the Funds, taking
into consideration the advantageous selling or purchase price,
brokerage commission and other expenses, and trading
requirements, and (ii) is not inconsistent with the policies
set forth in the Trust's registration statement and the Funds'
Prospectus and Statement of Additional Information. In such
event, the Adviser will allocate the securities so purchased
or sold, and the expenses incurred in the transaction, in an
equitable manner, consistent with its fiduciary obligations to
the Funds and such other clients.
4. REPRESENTATIONS AND WARRANTIES.
(a) The Adviser hereby represents and warrants to the Trust as
follows:
(i) The Adviser is a corporation duly organized and in
good standing under the laws of the State of New York
and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
(ii) The Adviser is registered as an investment adviser
with the Commission under the Investment Advisers Act
of 1940, as amended (the "Advisers Act"), and is
registered or licensed as an investment adviser under
the laws of all applicable jurisdictions. The Adviser
shall maintain such registrations or licenses in
effect at all times during the term of this
Agreement.
(iii) The Adviser at all times shall provide its best
judgment and effort to the Trust in carrying out the
Adviser's obligations hereunder.
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<PAGE> 5
(b) The Trust hereby represents and warrants to the Adviser as follows:
(i) The Trust has been duly organized as a business trust
under the laws of the State of Delaware and is
authorized to enter into this Agreement and carry out
its terms.
(ii) The Trust is registered as an investment company with
the Commission under the 1940 Act and shares of the
Funds are registered for offer and sale to the public
under the Securities Act of 1933 and all applicable
state securities laws where currently sold. Such
registrations will be kept in effect during the term
of this Agreement.
5. COMPENSATION. As compensation for the services which the Adviser is
to provide or cause to be provided pursuant to Paragraph 3, the Funds shall pay
to the Adviser out of Funds assets an annual fee, computed and accrued daily and
paid in arrears on the first business day of every month, at the rate set forth
opposite the Funds' name on Schedule A, which shall be a percentage of the
average daily net assets of the Funds (computed in the manner set forth in the
Funds' most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. The fee for any partial month under this Agreement shall be calculated on
a proportionate basis. In the event that the total expenses of the Funds exceed
the limits on investment company expenses imposed by any statute or any
regulatory authority of any jurisdiction in which shares of such Funds are
qualified for offer and sale, the Adviser will bear the amount of such excess,
except: (i) the Adviser shall not be required to bear such excess to an extent
greater than the compensation due to the Adviser for the period for which such
expense limitation is required to be calculated unless such statute or
regulatory authority shall so require, and (ii) the Adviser shall not be
required to bear the expenses of the Funds to an extent which would result in
the Funds' or Trust's inability to qualify as a regulated investment company
under the provisions of Subchapter M of the Code.
6. INTERESTED PERSONS. It is understood that, to the extent consistent
with applicable laws, the Trustees, officers and shareholders of the Trust are
or may be or become interested in the Adviser as directors, officers or
otherwise and that directors, officers and shareholders of the Adviser are or
may be or become similarly interested in the Trust.
7. EXPENSES. As between the Adviser and the Funds, the Funds will pay
for all their expenses other than those expressly stated to be payable by the
Adviser hereunder, which expenses payable by the Funds shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other costs
in connection with the purchase or sale of securities and other investment
instruments, which the parties acknowledge might be higher than other brokers
would charge when the Funds utilize a broker which provides brokerage and
research services to the Adviser as contemplated under Paragraph 3 above; (iii)
fees and expenses of the Trust's Trustees that are not employees of the Adviser;
(iv) legal and audit expenses; (v) administrator, custodian, pricing and
bookkeeping, registrar and transfer agent fees and expenses; (vi) fees and
expenses related to the registration and qualification of the Funds' shares for
distribution under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy
5
<PAGE> 6
material to shareholders, unless otherwise required; (viii) all other expenses
incidental to holding meetings of shareholders, including proxy solicitations
therefor, unless otherwise required; (ix) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements thereto;
(x) expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; (xi)
insurance premiums for fidelity bonds and other coverage to the extent approved
by the Board; (xii) association membership dues authorized by the Board; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Trust is a party
(or to which the Funds' assets are subject) and any legal obligation for which
the Trust may have to provide indemnification to the Trust's Trustees and
officers.
8. NON-EXCLUSIVE SERVICES; LIMITATION OF ADVISER'S LIABILITY. The
services of the Adviser to the Funds are not to be deemed exclusive and the
Adviser may render similar services to others and engage in other activities.
The Adviser and its affiliates may enter into other agreements with the Funds
and the Trust for providing additional services to the Funds and the Trust which
are not covered by this Agreement, and to receive additional compensation for
such services. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, or a breach of fiduciary duty with respect to receipt of
compensation, neither the Adviser nor any of its directors, officers,
shareholders, agents, or employees shall be liable or responsible to the Trust,
the Funds or to any shareholder of the Funds for any error of judgment or
mistake of law or for any act or omission in the course of, or connected with,
rendering services hereunder or for any loss suffered by the Trust, the Funds or
any shareholder of the Funds in connection with the performance of this
Agreement.
9. EFFECTIVE DATE; MODIFICATIONS; TERMINATION. This Agreement shall
become effective as of the date of execution hereof, provided that it shall have
been approved by a majority of the outstanding voting securities of the Funds,
in accordance with the requirements of the 1940 Act, or such later date as may
be agreed by the parties following such shareholder approval.
(a) The initial term of this Agreement shall be for two years.
Thereafter, this Agreement shall continue in effect as to the
Funds for successive annual periods, provided such continuance
is specifically approved at least annually (i) by a vote of
the majority of the Trustees of the Trust who are not parties
to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting
on such approval and (ii) by a vote of the Board or a majority
of the outstanding voting shares of the Funds.
(b) The modification of any of the non-material terms of this
Agreement may be approved by a vote of a majority of those
Trustees of the Trust who are not interested persons of any
party to this Agreement, cast in person at a meeting called
for the purpose of voting on such approval.
(c) Notwithstanding the foregoing provisions of this Paragraph 9,
either party hereto may terminate this Agreement at any time
on sixty (60) days' prior written notice to the other, without
payment of any penalty. Such a termination by the Trust shall
be
6
<PAGE> 7
effected to the Funds by vote of the Board or by vote of a
majority of the outstanding voting securities of the Funds.
This Agreement shall terminate automatically in the event of
its assignment.
10. LIMITATION OF LIABILITY OF TRUSTEES AND SHAREHOLDERS. The Adviser
acknowledges the following limitation of liability:
The terms "The Victory Variable Insurance Funds" and "Trustees" refer,
respectively, to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under the Trust Instrument,
to which reference is hereby made and a copy of which is on file at the office
of the Secretary of State of the State of Delaware, such reference being
inclusive of any and all amendments thereto so filed or hereafter filed. The
obligations of "The Victory Variable Insurance Funds" entered into in the name
or on behalf thereof by any of the Trustees, representatives or agents are made
not individually, but in such capacities and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with the Trust or the Funds
must look solely to the assets of the Trust or Funds for the enforcement of any
claims against the Trust or Funds.
11. SERVICE MARK. The service mark of the Trust and the name "The
Victory Variable Insurance Funds" (and derivatives thereof) have been licensed
to the Trust by KeyCorp, through its subsidiary Key Trust Company ("Key Trust"),
an affiliate of the Adviser, pursuant to a License Agreement dated
________________, and their continued use is subject to the right of Key Trust
to withdraw this permission under the License Agreement in the event the Adviser
or another subsidiary of KeyCorp is not the investment adviser to the Trust.
12. CERTAIN DEFINITIONS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "control," and "interested
persons," when used herein, shall have the respective meanings specified in the
1940 Act. References in this Agreement to the 1940 Act and the Advisers Act
shall be construed as references to such laws as now in effect or as hereafter
amended, and shall be understood as inclusive of any applicable rules,
interpretations and/or orders adopted or issued thereunder by the Commission.
13. INDEPENDENT CONTRACTOR. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board from time to time, have no authority
to act for or represent the Funds in any way or otherwise be deemed an agent of
the Funds.
14. STRUCTURE OF AGREEMENT. The Trust is entering into this Agreement
on behalf of the respective Funds severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to the
Funds severally and not jointly. No Fund shall have any responsibility for any
obligation of any other Fund arising out of this Agreement. Without otherwise
limiting the generality of the foregoing:
(a) any breach of any term of this Agreement regarding the Trust
with respect to any one Fund shall not create a right or
obligation with respect to any other Fund;
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<PAGE> 8
(b) under no circumstances shall the Adviser have the right to set
off claims relating to the Funds by applying property of any
other Fund; and
(c) the business and contractual relationships created by this
Agreement, consideration for entering into this Agreement, and
the consequences of such relationship and consideration relate
solely to the Trust and the particular Fund to which such
relationship and consideration applies.
This Agreement is intended to govern only the relationships between the
Adviser, on the one hand, and the Trust and the Funds, on the other hand, and
(except as specifically provided above in this Paragraph 14) is not intended to
and shall not govern (i) the relationship between the Trust and any Fund or (ii)
the relationships among the respective Funds.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Ohio, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act or the Advisers Act.
16. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
17. NOTICES. Notices of any kind to be given to the Trust hereunder by
the Adviser shall be in writing and shall be duly given if mailed or delivered
to 3435 Stelzer Road, Columbus, Ohio 43219-3035, Attention: Michael J. Sullivan;
with a copy to Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York, 10022, Attention: Carl Frischling, Esq., or at such other address or
to such individual as shall be so specified by the Trust to the Adviser. Notices
of any kind to be given to the Adviser hereunder by the Trust shall be in
writing and shall be duly given if mailed or delivered to the Adviser at 127
Public Square, Cleveland, Ohio 44114-1306, Attention: William G. Spears with a
copy to William J. Blake, Esq., or at such other address or to such individual
as shall be so specified by the Adviser to the Trust. Notices shall be effective
upon delivery.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
written above.
THE VICTORY VARIABLE INSURANCE KEY ASSET MANAGEMENT INC.
FUNDS
By:_________________________ By: _________________________
Michael J. Sullivan Kathleen A. Dennis
Secretary Senior Managing Director
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<PAGE> 9
SCHEDULE A
Name of Fund Fee*
- ------------ ----
1. Investment Quality Bond Fund 0.20%
2. Diversified Stock Fund 0.30%
3. Small Company Value Fund 0.30%
- --------------------
* As a percentage of average daily net assets. Note, however, that the
Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of
rendering investment advisory services by the Adviser, and shall be in
writing and signed by the parties hereto.
<PAGE> 1
Exhibit 99(e)
DISTRIBUTION AGREEMENT
BETWEEN
THE VICTORY VARIABLE INSURANCE FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
This DISTRIBUTION AGREEMENT is made as of this ______day,
___________1999 between THE VICTORY VARIABLE INSURANCE FUNDS, a Delaware
business trust (herein called the "Trust"), and BISYS Fund Services Limited
Partnership, an Ohio limited partnership (herein called the "Distributor").
WHEREAS, the Trust is an open-end management investment company and is
so registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Trust desires to retain the Distributor as Distributor for
each of the Trust's separate portfolios set forth on Schedule I hereto, as such
Schedule may be revised from time to time (individually known as a "Fund" and
collectively as the "Funds") to provide for the sale and distribution of shares
of beneficial interest with a par value of $0.001 of the Funds (herein
collectively called "Shares"), and the Distributor is willing to render such
services;
NOW THEREFORE, in consideration of the premises and mutual convenants
set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to the Distributor copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) The Trust's Certificate of Trust and all amendments
thereto (such Certificate of Trust, as presently in effect and as it
shall from time to time be amended, herein called the "Trust's
Certificate");
(b) The Bylaws of the Trust (such Bylaws, as presently in
effect and as they shall from time to time be amended, herein called
the "Bylaws");
(c) Resolutions of the Board of Trustees of the Trust (the
"Board") authorizing the execution and delivery of this Agreement;
(d) Notification of Registration of the Trust under the 1940
Act on Form N-8A as filed with the Commission; and
(e) A Prospectus and Statement of Additional Information of
the Funds (such prospectus and statement of additional information, as
presently filed with the Securities and Exchange Commission (the "SEC")
and as they shall from time to time be amended and supplemented).
<PAGE> 2
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints the
Distributor as Principal Distributor of the Funds' Shares and the Distributor
hereby accepts such appointment and agrees to render the services and duties set
forth in this Section II.
2. SERVICES AND DUTIES.
(a) The Trust agrees to sell through the Distributor, as
agent, from time to time during the term of this Agreement, Shares of
the Funds (whether authorized but unissued or treasury shares, in the
Trust's sole discretion) upon the terms and at the current offering
price as described in the Prospectus. It is understood that the Shares
are offered only through variable annuity contracts and variable life
policies issued by the insurance companies that have entered into
Participation Agreements with the Trust or its affiliates. The
Distributor shall not be obligated to sell any certain number of
Shares. Each Fund reserves the right to issue Shares in connection with
any merger or consolidation of the Trust or any Fund with any other
investment company or personal holding company or in connection with
offers of exchange exempted from Section 11(a) of the 1940 Act.
(b) In all matters relating to the sale and redemption of
Shares, the Distributor will act in conformity with the Trust's
Certificate, Bylaws, and Prospectus and with the instructions and
directions of the Board and will conform to and comply with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), the 1940 Act, the regulations of the National Association of
Securities Dealers, Inc. and all other applicable federal or state laws
and regulations. In connection with such sales, the Distributor
acknowledges and agrees that it is not authorized to provide any
information or make any representations other than as contained in the
Trust's Registration Statement and Prospectus and any sales literature
specifically approved by the Trust. The Trust shall not be responsible
in any way for any information, statements or representations given or
made by the Distributor or its representatives or agents other than
such information, statements or representations contained in the
Prospectus or other financial statements of the Trust or in any sales
literature or advertisements specifically approved by the Trust.
(c) The Distributor will bear the cost of (i) printing and
distributing any Prospectus (including any supplement thereto) to
persons who are not either shareholders or counsel, independent
accountants or other persons providing similar services to the Trust,
and (ii) preparing, printing and distributing any literature,
advertisement or material which is primarily intended to result in the
sale of the Shares; provided, however, that the Distributor shall not
be obligated to bear the expenses incurred by the Trust in connection
with the preparation and printing of any amendment to any Registration
Statement or Prospectus necessary for the continued effective
registration of the Shares under the Securities Act; and provided
further, that each Fund will bear the expenses incurred and other
payments made in accordance with the provisions of this
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<PAGE> 3
Agreement and any plan now in existence or hereafter adopted with
respect to such Fund, or any class or classes of shares of such Fund,
pursuant to Rule 12b-1 under the 1940 Act (collectively, the "Plans").
(d) The Distributor agrees to be responsible for implementing
and/or operating the Plans in accordance with the terms thereof.
(e) All Shares of the Funds offered for sale by the
Distributor shall be offered for sale at a price per Share (the
"offering price") equal to their net asset value (determined in the
manner set forth in the Trust's Certificate and then Prospectus) plus
any applicable sales charge as set forth in the Prospectus. The
offering price, if not an exact multiple of one cent, shall be adjusted
to the nearest cent.
(f) If any Shares sold by the Distributor under the terms of
this Agreement are redeemed or repurchased by the Trust or by the
Distributor as agent or are tendered for redemption within seven
business days after the date of confirmation of the original purchase
of said Shares, the Distributor shall forfeit the amount (if any) of
the net asset value received by it in respect of such Shares.
3. SALES AND REDEMPTIONS.
(a) The Trust shall pay all costs and expenses in connection
with the registration of the Shares under the Securities Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of the Shares and for supplying information, prices and other
data to be furnished by the Trust hereunder, and all expenses in
connection with preparing, printing and distributing the Prospectus
except as set forth in subsection 2(c) of Section II hereof.
(b) The Trust shall execute all documents, furnish all
information and otherwise take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with
the qualification of the Shares for sale in such states as the
Distributor may designate to the Trust and the Trust may approve, and
the Trust shall pay all filing fees which may be incurred in connection
with such qualification. The Distributor shall pay all expenses
connected with its qualification as a dealer under state or federal
laws and, except as otherwise specifically provided in this Agreement,
all other expenses incurred by the Distributor in connection with the
sale of the Shares as contemplated in this Agreement. It is understood
that certain advertising, marketing, shareholder servicing,
administration and/or distribution expenses to be incurred in
connection with the Shares will be paid by the Funds as provided in
this Agreement and in the Plans relating thereto.
(c) The Trust shall have the right to suspend the sale of
Shares of any Fund at any time in response to conditions in the
securities markets or otherwise, and to suspend the redemption of
Shares of any Fund at any time permitted by the 1940 Act or the rules
of the SEC ("Rules").
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<PAGE> 4
(d) The Trust reserves the right to reject any order for
Shares.
4. PAYMENTS TO SERVICE PROVIDERS. The Funds may pay the Distributor an
amount under a Plan. The Distributor may pay such amounts to service providers,
some of whom may be affiliates of the Trust or affiliates of affiliates of the
Trust, in connection with, among other things, the distribution of variable
contracts funded by Shares of the Funds, or other services provided to contract
owners.
III. LIMITATION OF LIABILITY
The Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust or any Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
IV. CONFIDENTIALITY
The Distributor will treat confidentially and as proprietary
information of the Trust all records and other information relative to the
Trust, to the Trust's prior or present shareholders and to those persons or
entities who respond to the Distributor's inquiries concerning investment in the
Trust, and except as provided below, will not use such records and information
for any purpose other than the performance of its responsibilities and duties
hereunder or the performance of its responsibilities and duties with regard to
sales of the shares of any Fund which may be added to the Trust in the future.
Any other use by the Distributor of the information and records referred to
above may be made only after prior notification to and approval in writing by
the Trust. Such approval shall not be unreasonably withheld and may not be
withheld where (i) the Distributor may be exposed to civil or criminal contempt
proceedings for failure to divulge such information; (ii) the Distributor is
requested to divulge such information by duly constituted authorities; or (iii)
the Distributor is so requested by the Trust.
V. REPRESENTATIONS AND INDEMNIFICATION
1. TRUST REPRESENTATIONS. The Trust represents and warrants to the
Distributor that at all times the Registration Statement and Prospectus will in
all material respects conform to the applicable requirements of the Securities
Act and the Rules and will not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation or warranty in this
subsection shall apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Trust by or on behalf of
and with respect to the Distributor expressly for use in the Registration
Statement or Prospectus.
2. DISTRIBUTOR REPRESENTATIONS. The Distributor represents and warrants
to the
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Trust that it is duly organized as an Ohio Limited Partnership and is and
at all times will remain duly authorized and licensed to carry out its services
as contemplated herein.
3. TRUST INDEMNIFICATION. The Trust will indemnify and hold harmless
the Distributor, its several officers and directors, and any person who controls
the Distributor within the meaning of Section 15 of the Securities Act, from and
against any losses, claims, damages or liabilities, joint or several, to which
any of them may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectus or in any application or other document executed by or
on behalf of the Trust, or arise out of, or are based upon, information
furnished by or on behalf of the Trust filed in any state in order to qualify
the Shares under the securities or blue sky laws thereof ("Blue Sky
Application"), or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the Securities Act, for any
legal or other expenses reasonably incurred by any of them in investigating,
defending, or preparing to defend any such action, proceeding or claim;
provided, however, that the Trust shall not be liable in any case to the extent
that such loss, claim, damage or liability arises out of, or is based upon, any
untrue statement, alleged untrue statement, or omission or alleged omission made
in the Registration Statement, the Prospectus, any Blue Sky Application or any
application or other document executed by or on behalf of the Trust in reliance
upon and in conformity with written information furnished to the Trust by or on
behalf of and with respect to the Distributor specifically for inclusion
therein.
The Trust shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or negligence in the performance of
his duties, or his reckless disregard of obligations and duties, under this
Agreement ("disabling conduct") or, in the absence of such a decision, a
reasonable determination (based upon a review of the facts) that such person was
not liable by reason of disabling conduct has been made by the vote of a
majority of a quorum of trustees of the Trust who are neither "interested
persons" of the Trust (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
Each Fund shall advance attorney's fees and other expenses incurred by
any person in defending any claim, demand, action or suit which is the subject
of a claim for indemnification pursuant to this subsection 3, so long as: (i)
such person shall undertake to repay all such advances unless it is ultimately
determined that he is entitled to indemnification hereunder; and (ii) such
person shall provide security for such undertaking, or the Fund shall be insured
against losses arising by reason of any lawful advances, or a majority of a
quorum of the disinterested, non-party trustees of the Trust (or an independent
legal counsel in a written opinion) shall determine based on a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such person ultimately will be found entitled to indemnification
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hereunder.
4. DISTRIBUTOR INDEMNIFICATION. The Distributor will indemnify and hold
harmless the Trust, the Trust's several officers and trustees and any person who
controls the Trust within the meaning of Section 15 of the Securities Act, from
and against any losses, claims, damages or liabilities, joint or several, to
which any of them may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect hereof) arise out of, or are based upon, any breach of
its representations and warranties in subsection 2 hereof or its agreements in
subsection 2 of Section II hereof, or which arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any Blue Sky Application or any
application or other document executed by or on behalf of the Trust, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission or alleged statement or alleged omission was made in
reliance upon or in conformity with information furnished in writing to the
Trust or any of its several officers and trustees by or on behalf of and with
respect to the Distributor specifically for inclusion therein, and will
reimburse the Trust, the Trust's several officers and trustees, and any person
who controls the Trust within the meaning of Section 15 of the Securities Act,
for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above
written, and, unless sooner terminated as provided herein, shall continue until
September 30, 1999. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a majority of those members of
the Board who are not parties to this Agreement or "interested persons" of any
such party (the "Disinterested Trustees"), pursuant to a vote cast in person at
a meeting called for the purpose of voting on such approval, and (b) by the
Board or by vote of a "majority of the
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outstanding voting securities" of the Trust. Notwithstanding anything to the
contrary contained in this Section VI, this Agreement may be terminated by the
Trust at any time with respect to any Fund, without the payment of any penalty,
by vote of a majority of the Disinterested Trustees or by vote of a "majority of
the outstanding voting securities" of such Fund on 60 days' written notice to
the Distributor, or by the Distributor at any time, without the payment of any
penalty, on 60 days' written notice to the Trust. This Agreement will
automatically terminate in the event of its "assignment." (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VIII. NOTICES
Notices of any kind to be given to the Trust hereunder by the
Distributor shall be in writing and shall be duly given if mailed or delivered
to the Trust c/o Mutual Fund Products, KeyCorp Management Company, 127 Public
Square, Cleveland, Ohio 44114, with a copy to Kramer Levin Naftalis & Frankel
LLP, 919 Third Avenue, New York, New, York 10022, Attention: Jay G. Baris,
Esquire, or at such other address or to such individual as shall be so specified
by the Trust to the Distributor. Notices of any kind to be given to the
Distributor hereunder by the Trust shall be in writing and shall be duly given
if mailed or delivered to the Distributor at 3534 Stelzer Road, Columbus, Ohio
43219, Attention: J. David Huber, President, or at such other address or to such
individual as shall be so specified by the Distributor to the Trust.
IX. COMPENSATION
The Distributor shall not receive compensation with respect to the
provision of distribution services under this Agreement; provided, however, that
the Distributor shall be entitled to receive payments, if any, under the Plans
in accordance with the terms thereof and payments, if any, of sales charges as
set forth in the Trust's Prospectus. The Trust is entering into this Agreement
on behalf of the Funds listed on Schedule I severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Fund severally and not jointly. No individual Fund shall have any responsibility
for any obligation, if any, with respect to any other Fund arising out of this
Agreement.
X. MISCELLANEOUS
1. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected
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thereby. Subject to the provisions of Section VI hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by New York law; provided, however,
that nothing herein shall be construed in a manner inconsistent with the 1940
Act or any rule or regulation of the SEC thereunder.
2. NAMES. The names "The Victory Variable Insurance Funds" and
"Trustees of The Victory Variable Insurance Funds" refer respectively to the
Trust created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Certificate of Trust filed February 11, 1998,
as amended October 15, 1998, at the office of the Secretary of State of the
State of Delaware which is hereby referred to and is also on file at the
principal office of the Trust. The obligations of the Trust entered into in the
name or on behalf thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not binding upon any of
the Trustees, shareholders or representatives of the Trust personally, but bind
only the Trust property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust property belonging to such class for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE VICTORY VARIABLE INSURANCE FUNDS
By: _________________________
Name:
Title:
Attest: _________________
Name:
BISYS FUND SERVICES LIMITED
PARTNERSHIP, d/b/a BISYS FUND SERVICES
By: BISYS Fund Services, Inc.,
Its General Partner
By: __________________________
Name:
Title:
Attest: _________________
Name:
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SCHEDULE I
----------
As of ______________ 1999
Name of Fund
- ------------
Investment Quality Bond Fund, Class A and Class B
Diversified Stock Fund, Class A and Class B
Small Company Opportunity Fund, Class A and Class B
<PAGE> 1
Exhibit 99(g)
MUTUAL FUND CUSTODY AGREEMENT
THIS AGREEMENT is made as of October 16, 1998, by and between The
Victory Variable Insurance Funds, a Delaware business trust (the "Trust"), which
may issue one or series of shares of beneficial interest (each a "Fund"), and
Key Trust Company of Ohio, N.A., a bank chartered under the laws of the United
States, having its principal office at 127 Public Square, Cleveland, Ohio
44114-1306 (the "Custodian").
W I T N E S S E T H:
--------------------
WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust desires to retain the Custodian to serve as the
Trust's custodian and the Custodian is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Trust, on behalf of each Fund, separately and not
jointly, hereby appoints the Custodian to act as custodian of the securities,
cash and other property of each Fund listed on Attachment A hereto, as it may be
amended from time to time, on the terms set forth in this Agreement. The
Custodian accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Paragraph 27 of this
Agreement.
2. DELIVERY OF DOCUMENTS. The Trust has furnished The Custodian with
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Custodian as custodian of the securities, cash and other
property of each Fund of the Trust and approving this Agreement;
(b) Incumbency and signature certificates identifying and containing
the signatures of the Trust's officers and/or the persons authorized to sign
Proper Instructions, as hereinafter defined, on behalf of the Trust;
(c) The Trust's Certificate of Trust filed with the Secretary of State
of the State of Delaware and the Trust's Trust Instrument is filed with the
Secretary of the Trust (such Certificate of Trust and Trust Instrument, as
currently in effect and as they shall from time to time be amended, are herein
together called the "Certificate");
(d) The Trust's Bylaws and all amendments thereto (such Bylaws, as
currently in effect and as they shall from time to time be amended, are herein
called the "Bylaws");
(e) Resolutions of the Trust's Board of Trustees and/or the Trust's
shareholders
<PAGE> 2
approving the Investment Advisory Agreements between the Trust on behalf of
various Funds and Key Asset Management Inc. dated August 28, 1998;
(f) The Administration Agreement between the Trust and BISYS Fund
Services Limited Partnership ("BISYS") dated October 16, 1998;
(g) The Distribution Agreement between the Trust and BISYS dated
October 16, 1998;
(h) The Trust's current Registration Statement on Form N-1A under the
1940 Act and the Securities Act of 1933, as amended ("the Securities Act") as
filed with the Securities and Exchange Commission ("SEC"); and
(i) The Trust's most recent prospectuses including all amendments and
supplements thereto (the "Prospectus").
The Trust will furnish the Custodian from time to time with copies of
all amendments of or supplements to the foregoing, if any. The Trust will also
furnish the Custodian with a copy of the opinion of counsel for the Trust with
respect to the validity of the statements issued by the Trust ("Shares") and the
status of such Shares under the Securities Act filed with the SEC, and any other
applicable federal law or regulation.
3. DEFINITIONS.
(a) "AUTHORIZED PERSON". As used in this Agreement, the term
"Authorized Person" means the Trust's President, Vice-President, Treasurer and
any other person, whether or not any such person is an officer or employee of
the Trust, duly authorized by Trustees of the Trust to give Proper Instructions
on behalf of the Trust and the Funds listed on Attachment A which may be amended
from time to time.
(b) "BOOK-ENTRY SYSTEM". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees.
(c) "INVESTMENT ADVISER" means each investment adviser of Funds of the
Trust.
(d) "PROPERTY". The term "Property", as used in this Agreement, means:
(i) any and all securities, cash, and other property
of the Trust which the Trust may from time to time deposit, or
cause to be deposited, with the Custodian or which the
Custodian may from time to time hold for the Trust;
(ii) all income, dividends, or distributions of any
kind in respect of any other such securities or other
property;
(iii) all proceeds of the sales, repurchase,
redemptions (or otherwise)of any of such securities or other
property; and
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(iv) all proceeds of the sale of securities issued by
the Trust, which are received by the Custodian from time to
time from or on behalf of the Trust.
(e) "SECURITIES DEPOSITORY". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the SEC or its successor or successors and its
nominee or nominees; and shall also mean any other registered clearing agency,
its successor or successors specifically identified in a certified copy of a
resolution of the Trust's Board of Trustees delivered to the Custodian and
specifically approving deposits by the Custodian therein.
(f) "PROPER INSTRUCTIONS". Means instructions
(i) delivered by mail; telegram, cable; telex;
facsimile sending device; DTC "ID" or "IID" system or any
similar system; and any Trade Order Entry System acceptable to
the parties; and received by the Mutual Funds Custody Division
of the Custodian, signed by two Authorized Persons or by
persons reasonably believed by the Custodian to be Authorized
Persons; or
(ii) transmitted electronically through the Custodian
Asset Management System or any similar electronic instruction
system acceptable to the Custodian; or
(iii) previously agreed to in writing by the Trust
and the Custodian or provided orally by the Trust in form
satisfactory to the Custodian and promptly followed by written
instructions signed by an Authorized Person.
4. WARRANTIES AND REPRESENTATIONS.
(a) The Trust warrants and represents that:
(i) It is a business trust organized under the
laws of Delaware;
(ii) It is registered as an investment company
under the 1940 Act; and
(iii) It is duly authorized to enter into this
Agreement and the Agreement is a valid and binding obligation
of the Trust.
(b) the Custodian warrants and represents that:
(i) It is a national bank duly organized under
the laws of the United States;
(ii) It is duly authorized to enter into this
Agreement and the Agreement is a valid and binding obligation
of the Bank; and
(iii) It is under no regulatory restriction that
would materially affect its ability to carry out its
obligations under this Agreement.
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<PAGE> 4
5. DELIVERY AND REGISTRATION OF THE PROPERTY. (a) The Trust will
deliver or cause to be delivered to the Custodian all Property owned by it, at
any time during the period of this Agreement, except for securities and monies
to be delivered to any Subcustodian appointed pursuant to Paragraph 11 hereof.
The Custodian will not be responsible for such securities and such monies until
actually received by it. All securities delivered to the Custodian or to any
such subcustodian (other than in bearer form) shall be registered in the name of
the Trust or in the name of a nominee of the Trust or in the name of the
Custodian or any nominee of the Custodian (with or without indication of
fiduciary status) or in the name of any subcustodian or any nominee of such
subcustodian appointed pursuant to Paragraph 11 hereof or shall be properly
endorsed and in form for transfer satisfactory to the Custodian.
(b) The Custodian shall at all times hold securities of the Trust
either: (i) by physical possession of the share certificates or other
instruments representing such securities in registered or bearer form; or (ii)
in the Book-Entry System, or (iii) in a Securities Depository or (iv) a
Sub-Custodian (as herein defined) of the Custodian.
(c) The Custodian shall at all times hold securities of the Trust in
the name of the Custodian, the Trust or any nominee of either of them, unless
otherwise directed by Proper Instructions; provided that, in any event, all
securities and other assets of the Trust shall be held in an account of the
Custodian containing only the securities and assets of the Trust, or only
securities and assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the records of the Custodian shall
indicate at all times the Trust or other customer for which such securities and
other assets are held in such account and the respective interests therein.
6. VOTING RIGHTS. It is the Custodian's responsibility to deliver to
the Trust or the Investment Adviser of the relevant Fund, via overnight mail if
necessary, all forms of proxies, all notices of meetings, and any other notices
or announcements materially affecting or relating to securities owned by the
Trust that are received by the Custodian, any Subcustodian (as hereinafter
defined), or any nominee of either of them, and upon receipt of Proper
Instructions, the Custodian shall execute and deliver, or use its best efforts
to cause such Subcustodian or nominee to execute and deliver, such proxies or
other authorizations as may be required. Where warrants, options, tenders or
other securities have fixed expiration dates, the Trust understands that in
order for the Custodian to act, the Custodian must receive the instructions of
the Trust or the Investment Adviser at its offices in Cleveland, addressed as
the Custodian may from time to time request, by no later than noon (Eastern
time) at least one business day prior to the last scheduled date to act with
respect thereto (or such earlier date or time as the Custodian may reasonably
notify the Trust). Absent the Custodian's timely receipt of such instructions,
such instruments will expire without liability to the Custodian.
7. EXERCISE OF RIGHTS; TENDER OFFERS. Upon receipt of Proper
Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or
similar securities to the issuer or trustee thereof, or to the agent of such
issuer or trustee, for the purpose of exercise or sale; and (b) deposit
securities upon invitations for tenders thereof, provided that the consideration
for such securities is to be paid or delivered to the Custodian, or the tendered
securities included in
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<PAGE> 5
the Proper Instructions that are received in exchange for the tendered
securities are to be returned to the Custodian. Notwithstanding any provision of
this Agreement to the contrary, the Custodian shall take all action as directed
in Proper Instructions to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions, or similar rights of security ownership,
and shall promptly notify the Trust or the Investment Adviser of such action in
writing by facsimile transmission or in such manner as the Trust may designate
in writing.
8. OPTIONS. Upon receipt of Proper Instructions, the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option on a security or securities index by the Trust;
(b) deposit and maintain in a segregated account, securities (either physically
or by book entry in a Securities Depository), cash or other assets; and/or (c)
pay, release and/or transfer such securities, cash, or other assets in
accordance with notices or other communications evidencing the expiration,
termination or exercise of such options furnished by the Options Clearing
Corporation, the securities or options exchange on which such options are traded
or such other organization as may be responsible for handling such option
transactions. The Trust and the broker-dealer shall be responsible for the
sufficiency of assets held in any segregated account established in compliance
with applicable margin maintenance requirements and the performance of other
terms of any option contract, and shall promptly upon notice from the Custodian
bring such accounts into compliance with such terms or requirements.
9. FUTURES CONTRACTS. Upon receipt of Proper Instructions, the
Custodian shall: (a) receive and retain confirmation, if any, evidencing the
purchase or sale of a futures contract or an option on a futures contract by a
Fund; (b) deposit and maintain in a segregated account, cash, securities and
other assets designated as initial, maintenance or variation "margin" deposits
intended to secure the Trust's performance of its obligations under any futures
contracts purchased or sold or any options on futures contracts written by the
Trust, regarding such margin deposits; and (c) release assets from and/or
transfer assets into such margin accounts only in accordance with any such
Proper Instructions. The Trust shall be responsible for the sufficiency of
assets held in the segregated account in compliance with applicable margin
maintenance requirements and the performance of any futures contract or option
on a futures contract in accordance with its terms, and shall promptly upon
notice act to bring such accounts into compliance with such terms or
requirements.
10. RECEIPT AND DISBURSEMENT OF MONEY.
(a) The Custodian shall open and maintain a custody account for the
Trust, and shall hold in such account, subject to the provisions hereof, all
cash received by it from or for the Trust. The Custodian shall make payments of
cash to, or for the account of, the Trust from such cash only (i) for the
purchase of securities for the Trust as provided in paragraph 16 hereof; (ii)
upon receipt of Proper Instructions, for the payment of dividends or for the
payment of interest, taxes, administration, distribution or advisory fees or
expenses which are to be borne by the Trust under the terms of this Agreement,
any advisory agreement, any distribution agreement, or any administration
agreement; (iii) upon receipt of Proper Instructions for payments in connection
with the conversion, exchange or surrender of securities owned or subscribed to
by the Trust and
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<PAGE> 6
held by or to be delivered to the Custodian; (iv) to a subcustodian pursuant to
Paragraph 11 hereof; or (v) upon receipt of Proper Instructions for other
corporate purposes.
(b) The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the Trust.
11. RECEIPT OF SECURITIES.
(a) Except as provided by Paragraph 12 hereof, the Custodian shall hold
all securities and non-cash Property received by it for the Trust. All such
securities and non-cash Property are to be held or disposed of by the Custodian
for the Trust pursuant to the terms of this Agreement. In the absence of Proper
Instructions, the Custodian shall have no power or authority to withdraw,
deliver, assign, hypothecate, pledge or otherwise dispose of any such securities
and non-cash Property, except in accordance with the express terms provided for
in this Agreement. In no case may any trustee, officer, employee or agent of the
Trust, acting as individuals, withdraw any securities or non-cash Property.
12. SUBCUSTODIAN AGREEMENTS. In connection with its duties under this
Agreement, the Custodian may, at its own expense, enter into subcustodian
agreements with other banks or trust companies for the receipt of certain
securities and cash to be held by the Custodian for the account of the Trust
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less then twenty million dollars ($20,000,000) and that such bank
or trust company agrees with the Custodian to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder. The
Custodian will be liable for acts or omissions of any such subcustodian.
(a) Promptly after the close of business on each day the Custodian
shall furnish the Trust with system access to review a summary of all transfers
to or from the account of the Trust during said day. Where securities are
transferred to the account of the Trust established at a Securities Depository
or the Book Entry System pursuant to Paragraph 13 hereof, the Custodian shall
use the Securities Depository or Book Entry System to identity as belonging to
such Trust the securities in a commingled group of securities registered in the
name of the Custodian (or its nominee) or shown in the Custodian's account on
the books of a Securities Depository or the Book-Entry System. At least monthly
and from time to time, the Custodian shall furnish the Trust with a detailed
statement of the Property held for the Trust under this Agreement.
(b) Notwithstanding any other provision of this agreement, no provision
of this Section 12, and no provision of this agreement relating to
subcustodians, shall apply to any agreement entered into by the Custodian for
the purpose of facilitating repurchase transactions by the Fund ("Tri-party
Agreements"), except that (i) the indemnification obligations owed to the
Custodian by the Fund and set forth in Sections 28(a) and (b) shall apply to
such Tri-party Agreements without qualification; and (ii) the Fund's rights
contained in Section 30 of this Agreement shall apply to such Tri-party
Agreements. All actions taken by the Custodian in connection with such Tri-party
Agreements shall be taken solely for the purpose of providing and accepting
instructions at the Fund's request and on the Fund's behalf.
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<PAGE> 7
13. USE OF SECURITIES DEPOSITORY OR THE BOOK-ENTRY SYSTEM. The Trust
shall deliver to the Custodian a certified resolution of the Board of Trustees
of the Trust approving, authorizing and instructing the Custodian on a
continuous and ongoing basis until instructed to the contrary by Proper
Instructions actually received by the Custodian (i) to deposit in a Securities
Depository or the Book-Entry System all securities of the Trust eligible for
deposit therein and (ii) to utilize a Securities Depository or the Book-Entry
System to the extent possible in connection with the performance of its duties
hereunder, including without limitation settlements of purchases and sales of
securities by the Trust, and deliveries and returns of securities collateral in
connection with borrowings. Without limiting the generality of such use, it is
agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Trust deposited in a Securities
Depository or the Book-Entry System will at all times be segregated from any
assets and cash controlled by the Custodian in other than a fiduciary or
custodial capacity but may be commingled with other assets held in such
capacities. The Custodian will effect payment for securities, in the place where
the transaction is settled, unless the Trust has given the Custodian Proper
Instructions to the contrary.
(b) All Books and records maintained by the Custodian which relate to
the Trust participation in a Securities Depository or the Book-Entry System will
at all times during the Custodian's regular business hours be open to the
inspection of the Trust's duly authorized employees or agents, and the Trust
will be furnished with all information in respect of the services rendered to it
as it may require.
14. INSTRUCTIONS CONSISTENT WITH THE CERTIFICATE, ETC.
The Custodian shall act only upon Proper Instructions. The Custodian
may assume that any Proper Instructions received hereunder are not in any way
inconsistent with any provision of the Certificate or Bylaws of the Trust or any
vote or resolution of the Trust's Board of Trustees, or any committee thereof.
The Custodian shall be entitled to rely upon any Proper Instructions actually
received by the Custodian pursuant to this Agreement. The Trust agrees that the
Custodian shall incur no liability in acting upon Proper Instructions given to
the Custodian. In accordance with instructions from the Trust, advances of cash
or other Property made by the Custodian, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Trust, or in
connection with the disbursement of trusts to any party, or in payment of fees,
expenses, claims or liabilities owed to the Custodian by the Trust, or to any
other party which has secured judgment in a court of law against the Trust which
creates an overdraft in the accounts or over-delivery of Property shall be
deemed a loan by the Custodian to the Trust, to the extent permitted under
applicable law. Such loans shall be payable on demand, bearing interest at such
rate customarily charged by the Custodian for similar loans or such other rate
agreed to by the parties. The Trust agrees that test arrangements,
authentication methods or other security devices to be used with respect to
instructions which the Trust may give by telephone, telex, TWX, facsimile
transmission, bank wire or through an electronic instruction system, shall be
processed in accordance with terms and conditions for the use of such
arrangements, methods or devices as the Custodian may put into effect and modify
from time to time. The Trust shall safeguard any
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<PAGE> 8
test keys, identification codes or other security devices which the Custodian
makes available to the Trust and agrees that the Trust shall be responsible for
any loss, liability or damage incurred by the Custodian or by the Trust as a
result of the Custodian's acting in accordance with instructions from any
unauthorized person using the proper security device unless such loss, liability
or damage was incurred as a result of the Custodian's negligence or willful
misconduct. The Custodian may electronically record, but shall not be obligated
to so record, any instructions given by telephone and any other telephone
discussions with respect to the Account. In the event that the Trust uses the
Custodian's Asset Management System, the Trust agrees that the Custodian is not
responsible for the consequences of the failure of that system to perform for
any reason, beyond the reasonable control of the Custodian, or the failure of
any communications carrier, utility, or communications network. In the event
that system is inoperable, the Trust agrees that it will accept the
communication of transaction instructions by telephone, facsimile transmission
on equipment compatible to the Custodian's facsimile receiving equipment or by
letter, at no additional charge to the Trust.
15. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. The Custodian is
authorized to take the following action without Proper Instructions:
(a) COLLECTION OF INCOME AND OTHER PAYMENTS. The Custodian shall:
(i) collect and receive for the account of the Trust,
all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and
similar items, included or to be included in the Property of
the Trust, and promptly advise the Trust of such receipt and
shall credit such income, as collected, to the Trust. From
time to time, the Custodian may elect to credit, but shall not
be so obligated, the account with interest, dividends or
principal payments on payable or contractual settlement date,
in anticipation of receiving same from a payor, central
depository, broker or other agent employed by the Trust or the
Custodian. Any such crediting and posting shall be at the
Trust's sole risk, and the Custodian shall be authorized to
reverse any such advance posting after making every reasonable
attempt to collect, in the event it does not receive good
funds from any such payor, central depository, broker or agent
of the Customer.
(ii) with respect to securities of foreign issue,
effect collection of dividends, interest and other income, and
to notify the Trust of any call for redemption, offer of
exchange, right of subscription, reorganization, or other
proceedings materially affecting such securities, or any
default in payments due thereon. It is understood, however,
that the Custodian shall be under no responsibility for any
failure or dealing in effecting such collections or giving
such notice with respect to securities of foreign issue,
regardless of whether or not the relevant information is
published in any financial service available to it unless such
failure or delay is due to its negligence or willful
misconduct; however, this sub-paragraph (ii) shall not be
construed as creating any such responsibility with respect to
securities of non-foreign issue. Collections of income in
foreign
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<PAGE> 9
currency are, to the extent possible, to be converted into
United States dollars unless otherwise instructed by Proper
Instructions, and in effecting such conversion the Custodian
may use such methods or agencies as it may see fit. All risk
and expenses incident to such collection and conversion is for
the account of the Trust and the Custodian shall have no
responsibility for fluctuations in exchange rates affecting
any such conversion.
(iii) endorse and deposit for collection in the name
of the Trust, checks, drafts, or other orders for the payment
of money on the same day as received;
(iv) receive and hold for the account of the Trust
all securities received by the Trust as a result of a stock
dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights
or similar securities issued with respect to any portfolio
securities of the Trust held by the Custodian hereunder;
(v) present for payment and collect the amount
payable upon all securities which may mature or be called,
redeemed or retired, or otherwise become payable on the date
such securities become payable;
(vi) take any action which in the opinion of the
Custodian may be necessary and proper in connection with the
collection and receipt of such income and other payments and
the endorsements for collection of checks, drafts and other
negotiable instruments;
(vii) with respect to domestic securities, to
exchange securities in temporary form for securities in
definitive form, to effect an exchange of the shares where the
par value of stock is changed, and to surrender securities at
maturity or when advised of earlier call for redemption,
against payment therefor in accordance with accepted industry
practice. The Trust understands that the Custodian subscribes
to one or more nationally recognized services that provide
information with respect to calls for redemption of bonds or
other corporate actions. The Custodian shall not be liable for
failure to redeem any called bond or take other action if
notice of such call or action was not provided by any service
to which it subscribes provided that the Custodian shall have
acted in good faith without negligence or willful misconduct.
The Custodian shall have no duty to notify the Trust of any
rights, duties, limitations, conditions or other information
set forth in any security (including mandatory or optional
put, call and similar provisions), but the Custodian shall
forward to the Trust or the appropriate Investment Adviser any
notices or other documents subsequently received in regard to
any such security. When fractional shares of stock of a
declaring corporation are received as a stock distribution,
unless specifically instructed to the contrary in writing, the
Custodian is authorized to sell the fraction received and
credit the Trust's account. Unless specifically instructed to
the contrary in writing, the Custodian is authorized to
exchange securities in bearer form for
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securities in registered form. If any Property registered in
the name of a nominee of the Custodian is called for partial
redemption by the issue of such Property, the Custodian is
authorized to allot the called portion to the respective
beneficial holders of the Property in such manner deemed to be
fair and equitable by the Custodian in its sole discretion.
(b) DEPOSITS OF PROCEEDS OF ISSUANCE OF SHARES. The Custodian shall
collect and receive for the account of the Fund all payments received in payment
for shares of such Fund issued by the Trust.
(c) REDEMPTIONS. Upon receipt of notice by the Fund's transfer agent
stating that such transfer agent is required to redeem shares and specifying the
number and class of shares which such transfer agent is required to redeem and
the date and time the request or requests for redemption were received by the
Fund's distributor, the Custodian shall either (i) pay to such transfer agent,
for distribution to the redeeming shareholder, the amount payable to such
shareholder upon the redemption of such shares as determined in the manner
described in the then current Prospectus, or (ii) arrange for the direct payment
of such redemption proceeds by the Custodian to the redeeming shareholder in
accordance with such procedures and controls as are mutually agreed upon from
time to time by and among the Custodian, the Trust and the Trust's transfer
agent.
(d) MISCELLANEOUS TRANSACTIONS. The Custodian is authorized to deliver
or cause to be delivered Property against payment or other consideration or
written receipt therefor in the following cases:
(i) for examination by a broker selling for the
account of the Trust;
(ii) for the exchange of interim receipts or
temporary securities for definitive securities;
(iii) for transfer of securities into the name of the
Trust or the Custodian or a nominee of either, or for exchange
of securities for a different number of bonds, certificates,
or other evidence, representing the same aggregate face amount
or number of units bearing the same interest rate, maturity
date and call provisions, if any; provided that, in any such
case, the new securities are to be delivered to the Custodian.
16. TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Proper
Instructions and not otherwise, the Custodian, directly or through the use of a
Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Trust as owner of any securities may be
exercised;
(b) Deliver any securities held for the Trust against receipt of other
securities or cash
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issued or paid in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation, or the exercise of
any conversion privilege;
(c) Deliver any securities held for the Trust to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates or deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Trust and
take such other steps as shall be stated in said instructions to be for the
purpose of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Trust;
(e) Release securities belonging to the Trust to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by the Trust; and pay such loan upon redelivery to it of the securities pledged
or hypothecated therefore and upon surrender of the note or notes evidencing the
loan;
(f) Deliver any securities held for the Trust upon the exercise of a
covered call option written by the Trust on such securities; and
(g) Deliver securities held for the Trust pursuant to separate security
lending agreements.
(h) Regarding dividends and distributions, the Trust shall furnish the
Custodian with appropriate evidence of action by the Trust's Board of Trustees
declaring and authorizing the payment of any dividends and distributions to the
shareholders of the particular Fund. Upon receipt by the Custodian of Proper
Instructions with respect to dividends and distributions declared by the Trust's
Board of Trustees and payable to the shareholders of the Fund who have elected
in the proper manner to receive their distributions and/or dividends in cash,
and in conformance with procedures mutually agreed upon by the Custodian, the
Trust, and the Trust's transfer agent, the Custodian shall pay to the Trust's
transfer agent, as agent for the shareholders, an amount equal to the amount
indicated in said Proper Instructions as payable by the Trust to such
shareholders for distribution in cash by the transfer agent to such
shareholders. In lieu of paying the Trust's transfer agent cash dividends and
distributions, the Custodian may arrange for the direct payment of cash
dividends and distributions to shareholders by the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time by
and among the Trust, the Custodian and the Trust's transfer agent.
17. PURCHASE OF SECURITIES. Promptly after each purchase of securities,
the Trust or the appropriate Investment Adviser shall deliver to the Custodian
(as Custodian) Proper Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares of the principal amount purchased and accrued interest, if any,
(c) the dates of purchase and settlement, (d) the purchase price per unit, (e)
the total amount payable upon such purchase, (f) the name of the person from
whom or the broker
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through whom the purchase was made and (g) the Fund for which the purchase was
made. The Custodian shall upon receipt of securities purchased by or for the
Trust pay out of the moneys held for the account of such Trust the total amount
payable to the person from whom or the broker through whom the purchase was
made, if and only if the same conforms to the total amount payable as set forth
in such Proper Instructions.
18. SALES OF SECURITIES. Promptly after each sale of securities, the
Trust or the appropriate Investment Adviser shall deliver to the Custodian
Proper Instructions, specifying with respect to each such sale: (a) the name of
the issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the date of sale, (d) the sale
price per unit, (e) the total amount payable to the Trust upon such sale, (f)
the name of the broker through whom or the person to whom the sale was made and
(g) the Fund for which the sale was made. The Custodian shall deliver the
securities upon receipt of the total amount payable to the Trust upon such sale,
if and only if the same conforms to the total amount payable as set forth in
such Proper Instructions.
19. RECORDS. The books and records pertaining to the Trust which are in
the possession of the Custodian shall be the property of the Trust. Such books
and records shall be prepared and maintained as required by the 1940 Act, as
amended; other applicable federal and state securities laws and rules and
regulations; and, any state or federal regulatory body having appropriate
jurisdiction. The Trust, or the Trust's authorized representative, shall have
access to such books and records at all times during the Custodian's normal
business hours, and such books and records shall be surrendered to the Trust
promptly upon request. Upon reasonable request of the Trust, copies of any such
books and records shall be provided by the Custodian to the Trust or the Trust's
authorized representative.
20. REPORTS. The Custodian shall furnish the Trust the following
reports:
(a) such periodic and special reports as the Trustees may reasonably
request;
(b) a monthly statement summarizing all transactions and entries for
the account of each Fund;
(c) a monthly report of Fund securities belonging to each Fund showing
the adjusted amortized cost of the issues and the market value at the end of the
month;
(d) a monthly report of the cash account of each Fund showing
disbursements; and
(e) such other information as may be agreed upon from time to time
between the Trustees and the Custodian.
21. COMPLIANCE WITH RULE 17F-2. The Custodian shall comply with the
requirements of Rule 17f-2 under the 1940 Act and will permit access to the
Fund's securities only in compliance with the requirements of Rule 17f-2.
22. COOPERATION WITH ACCOUNTANTS. The Custodian shall cooperate with
the Trust's
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independent certified public accountants and shall take all reasonable action in
the performance of its obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their unqualified opinion, including but not limited to the opinion included
in the Trust's semiannual report on the Trust's Form N-SAR.
23. CONFIDENTIALITY. The Custodian agrees on behalf of itself and its
employees to treat confidentially and as the proprietary information of the
Trust all records and other information relative to the Trust and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where the
Custodian may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust. Nothing contained herein,
however, shall prohibit the Custodian from advertising or soliciting the public
generally with respect to other products or services, regardless of whether such
advertisement or solicitation may include prior, present or potential
Shareholders of the Trust provided that, in no event, will any information
obtained as custodian be used in any such solicitation or advertisement.
24. EQUIPMENT FAILURES. In the event of the failure of certain
equipment including but not limited to data processing equipment,
telecommunications equipment, or power generators located at the Custodian, at a
designated Subcustodian or nominee, or at a third party contracted to for
certain securities processing services, the Custodian shall, at no additional
expense to the Trust, take reasonable steps to minimize service interruptions
but shall not have liability with respect thereto. The Custodian shall enter
into and shall maintain in effect with appropriate parties one or more
agreements making reasonable provision for backup emergency use of electronic
data processing equipment to the extent appropriate equipment is available.
25. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF TRUST. If the Custodian shall be in doubt as to any
action to be taken or omitted by it, it may request, and shall promptly receive,
clarification or advice from the Trust.
(b) ADVICE OF COUNSEL. If the Custodian shall be in doubt as to any
question of law involved in any action to be taken or omitted by the Custodian,
it may request advice at its own cost from counsel of its own choosing (who may
be counsel for the Trust or the Custodian, at the option of the Custodian).
(c) CONFLICTING ADVICE. In case of conflict between directions or
advice received by the Custodian pursuant to subparagraph (a) of this paragraph
and advice received by the Custodian pursuant to subparagraph (b) of this
paragraph, the Custodian shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) PROTECTION OF THE CUSTODIAN. The Custodian shall be protected in
any action or inaction which it takes or omits to take in reliance on any
directions or advice received pursuant to subparagraph (a) of this section.
However, nothing in this paragraph shall be construed as
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imposing upon the Custodian any obligation (i) to seek such directions or
advice, or (ii) to act in accordance with such directions or advice when
received. Nothing in this subparagraph shall excuse the Custodian when an action
or omission on the part of the Custodian constitutes willful misfeasance or
negligence by the Custodian of its duties under this Agreement.
26. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Trust
assumes full responsibility for insuring that the contents of each Prospectus of
the Trust complies with all applicable requirements of the Securities Act, the
1940 Act, and any laws, rules and regulations of governmental authorities having
jurisdiction.
27. COMPENSATION. As compensation for the services described within
this agreement and rendered by the Custodian during the term of this Agreement,
the Trust shall pay to the Custodian the fees provided on Attachment B hereto,
as it may be amended from time to time. In addition, the Trust agrees to
reimburse the Custodian for any out-of-pocket expenses described in Attachment B
to this Agreement, incurred in providing the services contained within this
Agreement.
28. INDEMNIFICATION. (a) The Trust, on behalf of each Fund individually
and not jointly, as sole owner of the Property, agrees, to the extent permitted
by applicable law, to indemnify and hold harmless the Custodian and its nominees
from all taxes, charges, expenses, assessments, claims, and liabilities
(including, without limitation, liabilities arising under the Securities Act,
the Securities Exchange Act of 1934, the 1940 Act, and any state and foreign
securities and blue sky laws, all as or to be amended from time to time) and
expenses, including (without limitation) reasonable attorney's fees and
disbursements, arising directly or indirectly (a) from the fact that securities
included in the Property are registered in the name of any such nominee or (b)
without limiting the generality of the foregoing clause (a) from any action or
thing which the Custodian takes or does or omits to take or do (i) at the
request or on the direction of or in reliance on the advice of the Trust given
in accordance with the terms of this Agreement, or (ii) upon Proper
Instructions, provided, that neither the Custodian nor any of its nominees or
subcustodian shall be indemnified against any liability to the Trust or to its
Shareholders (or any expenses incident to such liability) (x) arising out of the
Custodian's or such nominee's or subcustodian's own willful misfeasance or
negligence of its duties under this Agreement or any agreement between the
Custodian and any nominee or subcustodian, or (y) constituting any incidental or
consequential damages. In the event of any advance of cash for any purpose made
by the Custodian resulting from Proper Instructions of the Trust, or in the
event that the Custodian or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's or subcustodian's own negligence or willful misfeasance,
the Trust shall promptly reimburse the Custodian for such advance of cash or
such taxes, charges, expenses, assessments, claims or liabilities.
(b) Subject to the limitations set forth in this Agreement, the Trust,
on behalf of each Fund individually, and not jointly, agrees to indemnify and
hold harmless the Custodian and its nominees from all loss, damage and expense
(including reasonable attorney's fees) suffered or incurred by the Custodian or
its nominee caused by or arising from actions taken by the
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Custodian in reliance upon Proper Instructions; provided, however, that such
indemnity shall not apply to (x) loss, damage or expense occasioned by or
resulting from the negligence or willful misfeasance of the Custodian or its
nominee or any material breach of this Agreement by the Custodian or its nominee
or (y) incidental or consequential damages. In addition, the Trust agrees to
indemnify the Custodian against any liability incurred by reason of taxes
assessed to the Custodian, or other loss, damage or expenses incurred by such
person, resulting solely from the fact that securities and other property of the
Trust is registered in the name of such person; provided, however, that in no
event shall such indemnification be applicable to income, franchise or similar
taxes which may be imposed or assessed against the Custodian.
29. NOTICE OF LITIGATION, RIGHT TO PROSECUTE. The Custodian shall
promptly inform the Trust in writing of the commencement of any litigation or
proceeding in respect of which indemnity may be sought under the above paragraph
28. The Trust shall be entitled to participate in any such litigation or
proceeding and, after written notice from the Trust to the Custodian, the Trust
may assume the defense of such litigation or proceeding with counsel of its
choice at its own expense. The Custodian shall not consent to the entry of any
judgment or enter into any settlement in any such litigation or proceeding
without providing the Trust with adequate notice of any such settlement or
judgment. The Custodian shall submit written evidence to the Trust with respect
to any cost or expense for which it is seeking indemnification in such form and
detail as the Trust may reasonably request.
30. TRUST'S RIGHT TO PROCEED. Notwithstanding anything to the contrary
contained herein, the Trust shall have, at its election upon reasonable notice
to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian or Securities Depository for loss, damage or expense caused the
Custodian or the Trust by such Subcustodian or Securities Depository and shall
be entitled to enforce the rights of the Custodian with respect to any claim
against such Subcustodian or Securities Depository which the Custodian may have
as a consequence of such loss, damage or expense, if and to the extent that the
Trust has not been made whole for any such loss or damage. The Custodian agrees
to cooperate with the Trust and take all actions reasonably requested by the
Trust in connection with the Trust's enforcement of any rights of the Custodian.
The Trust agrees to reimburse the Custodian for all reasonable out-of-pocket
expenses incurred by the Custodian in connection with the fulfillment of its
obligations as long as the Custodian has not otherwise breached the terms of
this Agreement.
31. RESPONSIBILITY OF THE CUSTODIAN. The Custodian shall not be
required to take any action except as specifically set forth herein. The
Custodian shall be responsible for its own negligent failure or that of any
subcustodian it shall appoint to perform its duties under this Agreement.
Without limiting the generality of the foregoing or of any other provision of
this Agreement, the Custodian in connection with its duties under this Agreement
shall not be under any duty or obligation to inquire into and shall not be
liable for or in respect of (a) the validity or invalidity or authority or lack
thereof of any advice, direction, notice or other instrument which conforms to
the applicable requirements of this Agreement, if any, and which the Custodian
believes to be genuine, (b) the validity of the issue of any securities
purchased or sold by the Trust, the legality of the purchase or sale thereof or
the propriety of the amount paid or received
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<PAGE> 16
therefore, (c) the legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor, (d) the legality of the
redemption of any Shares, or the propriety of the amount to be paid therefore,
(e) the legality of the declaration or payment of any dividend or distribution
on Shares, or (f) delays or errors or loss of data occurring by reason of
circumstances beyond the Custodian's control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown (except as provided in Paragraph 24), flood or catastrophe, acts of
God, insurrection, war, riots, or failure of the mail, transportation,
communication or power supply. In no event will the Custodian be liable for
special, indirect or consequential damages or lost profits or loss of business,
which may be suffered by the Trust or any third party, even if previously
informed of the possibility of such damages.
32. COLLECTION. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by the Custodian) shall be at the sole risk of the Trust. In any
case in which the Custodian does not receive any payment due the Trust within a
reasonable time after the Custodian has made proper demands for the same, it
shall so notify the Trust in writing, including copies of all demand letters,
any written responses thereto, and memoranda of all oral responses thereto, and
to telephonic demands, and await instructions from the Trust. the Custodian
shall not be obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. The Custodian shall also notify the
Trust as soon as reasonably practicable whenever income due on securities is not
collected in due course.
33. DURATION AND TERMINATION. This Agreement shall be effective as of
the date hereof and shall continue until termination by the Trust or by the
Custodian on 60 day's written notice. Upon any termination of this Agreement,
pending appointment of a successor to the Custodian or a vote of the
Shareholders of the Trust to dissolve or to function without a custodian of its
cash, securities or other property, the Custodian shall not deliver cash,
securities or other property of the Trust to the Trust, but may deliver them to
a bank or trust company designated by the Trust or, failing that, to a bank or
trust company of the Custodian's selection, having aggregate capital, surplus
and undivided profits, as shown by its last published report of not less than
twenty million dollars ($20,000,000) as a successor custodian for the Trust to
be held under terms similar to those of this Agreement, provided, however, that
the Custodian shall not be required to make any such delivery or payment until
full payment shall have been made by the Trust of all liabilities constituting a
charge on or against the properties then held by the Custodian or on or against
the Custodian and until full payment shall have been made to the Custodian of
all of its fee, compensation, costs and expenses, subject to the provisions of
Paragraph 26 of this Agreement. The termination by the Trust of a particular
Series or Fund within the Trust that does not result in the closure of the Trust
does not constitute termination of this Agreement.
34. NOTICES. Notices shall be addressed,
If to the Trust: The Victory Variable Insurance Funds
c/o BISYS Fund Services
3435 Stelzer Road
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Columbus, Ohio 43219-3035
Attention: President
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Jay G. Baris
If to the Custodian: Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114 -1306
Attention: Division Head
Master Trust Division
or, if the address is to neither of the foregoing, at such other address as
shall have been notified to the sender of any such Notice or other
communication. If the location of the sender of a Notice and the address of the
addressee thereof are, at the time of sending, more than 100 miles apart, the
Notice may be sent by first-class mail, in which case it shall be deemed to have
been given three days after it is sent, or if sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately, and, if the location of the sender of a Notice and the address of
the addressee thereof are, at the time of sending, not more than 100 miles
apart, the Notice may be sent by first-class mail, in which case it shall be
deemed to have been given two days after it is sent, or if sent by messenger, it
shall be deemed to have been given on the day it is delivered, or if sent by
confirming telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately. All postage, cable, telegram, telex and
facsimile sending device charges arising from the sending of a Notice hereunder
shall be paid by the sender.
35. APPLICABILITY OF AGREEMENT TO FUNDS INDIVIDUALLY, NOT JOINTLY. The
Trust has entered into this Agreement on behalf of each Fund listed on
Attachment A individually, and not jointly. The rights and obligations of the
Trust described in this Agreement apply to each individual Fund. No Fund shall
have any liability for any costs or expenses incurred by any other Fund. In
seeking to enforce a claim against any Fund, the Custodian shall look to the
assets only of that Fund and not to the assets of any other Fund.
36. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
37. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
38. LIABILITY OF TRUSTEES AND SHAREHOLDERS. A copy of the Certificate
of Trust of the Fund is on file with the Secretary of the State of Delaware, and
notice is hereby given that this instrument is executed on behalf of the
trustees of the Fund as trustees and not individually and that the obligations
of this instrument are not binding upon any of the Trustees or shareholders
17
<PAGE> 18
individually but are binding only upon the assets and property of the Fund.
39. MISCELLANEOUS. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the parties hereto. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
KEY TRUST COMPANY OF OHIO, N.A.
Attest: __________________ By:_________________________
Name: Name:
Title: Vice President
THE VICTORY VARIABLE INSURANCE
FUNDS, on behalf of each Fund listed on
Attachment A, individually and not jointly
Attest: __________________ By:_________________________
Name: Name:
Title: Title:
19
<PAGE> 20
ATTACHMENT A
As of October 16, 1998
NAME OF FUND
- - Investment Quality Bond Fund
- - Diversified Stock Fund
- - Small Company Value Fund
20
<PAGE> 21
ATTACHMENT B
Custody Service Fees
For the services as described in this Agreement, each Fund of the Trust listed
on Attachment A hereto shall pay a custody safekeeping fee and custody
transaction fees as follows:
DOMESTIC CUSTODY SAFEKEEPING FEES
- .018% (1.8 Basis Points) on the assets of the Funds
DOMESTIC CUSTODY TRANSACTION FEES
- $15.00 per DTC or Fed Book Entry transaction
- $25.00 per physical transaction
- $40.00 per future or option wire
- $15.00 per Government Paydown
- $8.00 per wire transfer
GLOBAL CUSTODY SAFEKEEPING FEES
- .15% on first $250,000,00 in assets per Fund
- .12% on assets in excess of $250,000,000 per Fund
GLOBAL CUSTODY TRANSACTION FEES (BY COUNTRY)
<TABLE>
<CAPTION>
<S> <C>
GROUP I GROUP II
--------------------------------- ---------------------------------
Austria Australia
Belgium Canada
Denmark France
Finland Hong Kong
Germany Italy
Japan Netherlands
Norway Singapore/Malaysia
Sweden Spain
Switzerland United Kingdom
CEDEL/Euroclear Eligible Fixed Other Fixed Income
Income
--------------------------------- ---------------------------------
$40.00 PER TRANSACTION $80.00 PER TRANSACTION
</TABLE>
21
<PAGE> 1
Exhibit 99(h)(1)
FUND ACCOUNTING AGREEMENT
AGREEMENT made this 16th day of October, 1998 between THE VICTORY
VARIABLE INSURANCE FUNDS (the "Trust"), a Delaware business trust having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and
BISYS FUND SERVICES OHIO, INC. ("BISYS"), a corporation organized under the laws
of the State of Ohio and having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each investment portfolio of the Trust identified on Schedule A
hereto (individually referred to herein as a "Fund" and collectively as the
"Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS FUND ACCOUNTANT. BISYS will keep and maintain the
following books and records of each Fund pursuant to Rule 31a-1 under the
Investment Company Act of 1940, as amended (the "Rule"):
a. Journals containing an itemized daily record in detail of
all purchases and sales of securities, all receipts and disbursements of cash
and all other debits and credits, as required by subsection (b)(1) of the Rule;
b. General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, including interest
accrued and interest received, as required by subsection (b)(2)(i) of the Rule;
c. Separate ledger accounts required by subsection (b)(2)(ii)
and (iii) of the Rule; and
d. A monthly trial balanced of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of the Rule.
All such books and records shall be the property of the Trust, and BISYS agrees
to make such books and records available for inspection by the Trust or by the
Securities and Exchange commission at reasonable times and otherwise to keep
confidential all records and other information relative to the Trust; except
when requested to divulge such information by duly-constituted authorities or
court process, or when requested by the Trust.
<PAGE> 2
In addition to the maintenance of the books and records specified
above, BISYS shall perform the following account services daily for each Fund:
a. Calculate the net asset value per Share;
b. Calculate the dividend and capital gain distribution,
if any;
c. Calculate the yield;
d. Provide the following reports:
(i) a current security position report;
(ii) a summary report of transactions and pending
maturities (including the principal, cost,
and accrued interest on each portfolio
security in maturity date order); and
(iii) a current cash position report (including
cash available from portfolio sales and
maturities and sales of a Fund's Shares less
cash needed for redemptions and settlement
of portfolio purchases);
e. Such other similar services with respect to a Fund as
may be reasonable requested by the Trust.
2. COMPENSATION. See Schedule B attached.
3. EFFECTIVE DATE. This Agreement shall become effective with respect
to a Fund as of the date first written above (the "Effective Date").
4. TERM. This Agreement shall become effective on the Effective Date
and, unless earlier terminated as provided herein, shall continue as to a
particular Fund until September 30, 1999 and thereafter, if not terminated, this
Agreement shall continue automatically as to a particular Fund for successive
terms of one year; provided, that such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Trust's
Board of Trustees who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of (i) the Trust's Board of Trustees or (ii)
a majority of the outstanding voting securities of such Fund. This Agreement is
terminable with respect to a Fund (a) if its continuance is not approved in the
manner described in this Section 4, (b) upon mutual agreement of the parties, or
(c) for "cause" (as defined below) by the party alleging cause upon the
provision of sixty days' notice. After such termination, for so long as BISYS,
with the written consent of the Trust, in fact continues to perform any one or
more of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by the Trust upon such termination
shall be immediately due and payable upon and
2
<PAGE> 3
notwithstanding such termination. BISYS shall be entitled to collect from the
Trust, in addition to the compensation described under Section 2 hereof, the
amount of all of BISYS' cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its designees of the Trust's property, records,
instruments and documents, or any copies thereof. Subsequent to such termination
for a reasonable fee, BISYS will provide the Trust with reasonable access to any
Trust documents or records remaining in its possession.
For purposes of this Agreement, "cause" shall mean (a) a material
breach that has not been cured within thirty (30) days following written notice
of such breach from the non-breaching party; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; (c) financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or involvement by
way of pleading, answer, consent or acquiescence in, a voluntary or involuntary
case under Title 11 of the United States Code, as from time to time is in
effect, or any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors; or (d) any circumstance which
substantially impairs the performance of the obligations and duties of the party
to be terminated, or the ability to perform those obligations and duties, as
contemplated herein.
The parties acknowledge that, in the event of a change of control (as
defined in the Investment Company Act of 1940, as amended) of BISYS or of Key
Asset Management Inc., the Trust's investment adviser, BISYS may be replaced as
fund accountant for the Trust prior to the expiration of the initial one-year
term or any subsequent one-year term. In that connection, the parties agree
that, notwithstanding the replacement of BISYS as referenced above, the Trust
shall remain responsible for the payment of fees to BISYS hereunder for the
remainder of the then-current contract term.
5. STANDARD OF CARE; INDEMNIFICATION. BISYS shall use its best efforts
to insure the accuracy of all services performed under this Agreement, but shall
not be liable to the Trust for any action taken or omitted by BISYS in the
absence of bad faith, willful misconduct or negligence. BISYS assumes no
responsibility hereunder, and shall not be liable, for any damage, loss of data,
delay or any other loss whatsoever caused by events beyond its reasonable
control. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or non-actions with respect to the
performance of services under this Agreement with respect to such Fund or based,
if applicable, upon information, instructions or requests with respect to such
Fund given or made to BISYS by an officer of the Trust thereunto duly
authorized; provided that this indemnification shall not apply to actions or
omissions of BISYS in cases of its own willful misconduct or negligence, and
further provided that prior to confessing any claim against it which may be the
3
<PAGE> 4
subject of this indemnification, BISYS shall give the Trust written notice of
and reasonable opportunity to defend against said claim in its own name or in
the name of BISYS.
6. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
7. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
not be assignable with respect to a Fund by either of the parties hereto except
by the specific written consent of the other party.
8. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of Ohio.
9. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. A copy of
the Trust's Certificate of Trust is on file with the Secretary of the State of
Delaware, and notice is hereby given that this instrument is executed on behalf
of the Trustees of the Trust as Trustees and not individually and that the
obligations of this instrument are not binding upon any of the Trustees or
Shareholders individually but are binding only upon the assets and property of
the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE VICTORY VARIABLE INSURANCE FUNDS
By: ______________________
Title:
BISYS FUND SERVICES OHIO, INC.
By: ____________________________
Title:
4
<PAGE> 5
AMENDED SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE VICTORY VARIABLE INSURANCE FUNDS
AND BISYS FUND SERVICES OHIO, INC.
DATED AS OF OCTOBER 16, 1998
NAME OF PORTFOLIO
- -----------------
Investment Quality Bond Fund, Class A and Class B
Diversified Stock Fund, Class A and Class B
Small Company Opportunity Fund, Class A and Class B
THE VICTORY VARIABLE INSURANCE FUNDS
By: ______________________
Title:
BISYS FUND SERVICES OHIO, INC.
By: ____________________________
Title:
Dated as of December 11, 1998
<PAGE> 6
SCHEDULE B
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE VICTORY VARIABLE INSURANCE FUNDS
AND BISYS FUND SERVICES OHIO, INC.
DATED AS OF OCTOBER 16, 1998
Fund accounting fees will be determined based on a combination of
asset-based charges (subject to minimums), transaction charges, and
out-of-pocket expenses. Asset-based fees are accrued daily upon average total
net assets of a Fund.
Asset charges per Fund - Annually
- ---------------------------------
Net Assets Amounts
---------- -------
First $100 million .03%
Next $100 million .02%
Over $200 million .01%
Minimum Monthly Asset Charge
- ----------------------------
The above charge will be subject to a minimum monthly amount of $2,500
per Fund.
Transaction Charges per Fund
- ----------------------------
$5 per security transaction (including foreign exchanges, patents,
corporate actions, and margin payments).
Multiple Class Charges
- ----------------------
A $833 per month charge will be assessed for each class of shares after
the first class. This is separate from and in addition to other charges
and the minimum charge.
Out-of-Pocket Expenses
- ----------------------
Out-of-pocket expenses incurred on behalf of the Fund will be billed
monthly and include, but not be limited to:
- Payment to pricing or corporate actions vendors
- Costs in obtaining prices for non-exchange traded securities
- Postage and communication (wires, modem fees)
- Courier expenses
- Microfilming, archiving, etc.
<PAGE> 1
Exhibit 99(h)(2)
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 16th day of October,
1998 between THE VICTORY VARIABLE INSURANCE FUNDS, a Delaware business trust
(herein called the "Trust"), and BISYS Fund Services Ohio, Inc., an Ohio
corporation (herein called "BISYS").
WHEREAS, the Trust is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended, and consisting
of the investment portfolios set forth on Schedule I hereto, as such Schedule
may be revised from time to time (individually, a "Fund" and collectively, the
"Funds");
WHEREAS, the Trust offers for sale shares of beneficial interest
without par value of the Funds (herein collectively called "Shares"); and
WHEREAS, the Trust desires to retain BISYS as its Administrator to
provide it with certain administrative services with respect to each of the
Funds and their respective Shares, and BISYS is willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to BISYS copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
(a) The Trust's Certificate of Trust and all amendments thereto (such
Certificate of Trust, as presently in effect and as it shall from time to time
be amended, herein called the "Trust's Certificate");
(b) The Bylaws of the Trust (such Bylaws as presently in effect and as
they shall from time to time be amended, herein called the "Bylaws");
(c) Resolutions of the Board of Trustees of the Trust authorizing the
execution and delivery of this Agreement;
(d) The Trust's Registration Statement under the Securities Act of
1933, as amended (the "1933 Act"), and under the Investment Company Act of 1940,
as amended (the "1940 Act"), on Form N-1A as filed with the Securities and
Exchange Commission (the "Commission") relating to the Shares and any further
amendment thereto;
(e) Notification of registration of the Trust under the 1940 Act on
Form N-8A as filed with the Commission; and
<PAGE> 2
(f) Prospectuses and Statements of Additional Information of the Trust
with respect to the Funds (such prospectuses and statements of additional
information, as presently in effect and as they shall from time to time be
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints BISYS as its
Administrator for each of the Funds on the terms and for the period set forth in
this Agreement and BISYS hereby accepts such appointment and agrees to perform
the services and duties set forth in this Section II for the compensation
provided in this Section II. The Trust understands that BISYS now acts and will
continue to act as administrator of various investment companies, and the Trust
has no objection to BISYS' so acting. In addition, it is understood that the
persons employed by BISYS to assist in the performance of its duties hereunder,
will not devote their full time to such services and nothing herein contained
shall be deemed to limit or restrict the right of BISYS or any affiliate of
BISYS to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
2. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and control of the
Trust's Board of Trustees, BISYS will provide facilities, equipment, statistical
and research data, clerical services, internal compliance services relating to
legal matters, and personnel to carry out all administrative services required
for operation of the business and affairs of the Trust, other than those
investment advisory functions which are to be performed by the Trust's
investment advisers, the services of BISYS as Distributor pursuant to the
Distribution Agreement, those services to be performed by the Trust's custodian,
transfer agent and fund accounting agent, and those services normally performed
by the Trust's counsel and auditors. BISYS' responsibilities include without
limitation the following services:
(1) Overseeing the performance of the Trust's custodian and
transfer agent;
(2) Making available information concerning each Fund to its
shareholders; distributing written communications to each Fund's shareholders of
record such as periodic listings of each Fund's securities, annual and
semi-annual reports, and Prospectuses and supplements thereto; and handling
shareholder problems and calls relating to administrative matters; and
(3) Providing and supervising the services of employees whose
principal responsibility and function shall be to preserve and strengthen each
Fund's relationships with its shareholders.
(b) BISYS shall participate in the periodic updating of the
Prospectuses and shall coordinate (i) the filing, printing and dissemination of
reports to each Fund's shareholders and
2
<PAGE> 3
the Commission, including but not limited to annual reports and semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2, (ii) the preparation,
filing, printing and dissemination of proxy materials, and (iii) the preparation
and filing of post-effective amendments to the Trust's Registration Statement on
Form N-1A relating to the updating of financial information and other routine
matters.
(c) BISYS shall pay all costs and expenses of maintaining the offices
of the Trust, wherever located, and shall arrange for payment by the Trust of
all expenses payable by the Trust.
(d) BISYS, after consultation with legal counsel for the Trust, shall
determine the jurisdictions in which the Shares shall be registered or qualified
for sale and, in connection therewith, shall be responsible for the maintenance
of the registration or qualification of the Shares for sale under the securities
laws of any state. Payment of share registration fees and any fees for
qualifying or continuing the qualification of the Funds shall be made by the
Funds.
(e) BISYS shall provide the services of certain persons who may be
appointed as officers of the Trust by the Trust's Board of Trustees.
(f) BISYS shall oversee the maintenance by the Trust's custodian and
transfer agent of the books and records required under the 1940 Act in
connection with the performance of the Trust's agreements with such entities,
and shall maintain, or provide for the maintenance of, such other books and
records (other than those required to be maintained by the Trust's investment
advisers and fund accounting agent) as may be required by law or may be required
for the proper operation of the business and affairs of the Trust and each Fund.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, BISYS
agrees that all such books and records which it maintains, or is responsible for
maintaining, for the Funds are the property of the Trust and further agrees to
surrender promptly to the Trust any of such books and records upon the Trust's
request. BISYS further agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act said books and records required to be maintained by
Rule 31a-1 under said Act.
(g) BISYS shall coordinate the preparation of the Funds' federal, state
and local income tax returns.
(h) BISYS shall prepare such other reports relating to the business and
affairs of the Trust and each Fund (not otherwise appropriately prepared by the
Trust's investment adviser, transfer agent, fund accounting agent or the Trust's
counsel or auditors) as the officers and Trustees of the Trust may from time to
time reasonably request in connection with the performance of their duties.
(i) In performing its duties as Administrator of the Trust, BISYS will
act in conformity with the Trust's Certificate, Bylaws and Prospectuses and with
the instructions and directions of the Board of Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal or state laws and regulations.
3
<PAGE> 4
3. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons reasonably acceptable to
the Trust as BISYS may believe to be particularly fitted to assist in the
performance of this Agreement; provided, however, that the compensation of such
persons shall be paid by BISYS and that BISYS shall be as fully responsible to
the Trust for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
this subsection 4, BISYS shall pay all expenses incurred by it in performing its
services and duties as Administrator, including the cost of providing office
facilities, equipment and personnel related to such services and duties. Other
expenses incurred in the operation of the Trust (other than those borne by the
Trust's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of trustees who are not officers, directors, partners,
employees or holders of 5 percent or more of the outstanding voting securities
of the Trust's investment advisers or BISYS or any of their affiliates,
Securities and Exchange Commission fees and state blue sky registration or
qualification fees, advisory fees, charges of custodians, transfer and dividend
disbursing agents' fees, fund accounting agents' fees, fidelity bond and
trustees' and officers' errors and omissions insurance premiums, outside
auditing and legal expenses, costs of maintaining corporate existence, costs
attributable to shareholder services, including without limitation telephone and
personnel expenses, costs of preparing and printing Prospectuses for regulatory
purposes and for distribution to existing shareholders, costs of shareholders'
reports and Trust meetings and any extraordinary expenses will be borne by the
Trust.
5. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to this Article II, the Trust will pay BISYS a fee,
computed daily and payable monthly, at the annual rate set forth in Schedule II
hereto. Such fee as is attributable to each Fund shall be a separate (and not
joint or joint and several) obligation of each such Fund. No individual Fund
shall have any responsibility for any obligation, if any, with respect to any
other Fund arising out of this Agreement.
III. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and the Funds and
their prior or present shareholders or those persons or entities who respond to
BISYS' inquiries concerning investment in the Trust, and except as provided
below, will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, or the performance of
its responsibilities and duties with regard to any other investment portfolio
which may be added to the Trust in the future. Any other use by BISYS of the
information and records referred to above may be made only after prior
notification to and approval in writing by the Trust. Such approval shall not be
unreasonably withheld and may not be withheld where (i) BISYS may be exposed to
civil or criminal contempt proceedings for failure to divulge such information;
(ii) BISYS is
4
<PAGE> 5
requested to divulge such information by duly constituted authorities; or (iii)
BISYS is so requested by the Trust.
IV. LIMITATION OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its duties or from its
reckless disregard of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of
BISYS, who may be or become an officer, trustee, employee or agent of the Trust,
shall be deemed, when rendering services to the Trust, or acting on any business
of the Trust (other than services or business in connection with BISYS' duties
hereunder) to be rendering such services to or acting solely for the Trust and
not as an officer, director, partner, employee or agent or one under the control
or direction of BISYS even though paid by BISYS.
V. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above
written, and, unless sooner terminated as provided herein, shall continue until
September 30, 1999. Thereafter, if not terminated, this Agreement shall continue
automatically as to a particular Fund for successive terms of two years,
provided that such continuance is specifically approved (a) by a vote of a
majority of those members of the Board of Trustees of the Trust who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (b)
by the Board of Trustees of the Trust or by vote of a "majority of the
outstanding voting securities" of such Fund. This Agreement may be terminated
without penalty (i) by provision of a notice of nonrenewal in the manner set
forth below, (ii) by mutual agreement of the parties or (iii) for "cause," as
defined below, upon the provision of 60 days advance written notice by the party
alleging cause. Written notice of nonrenewal must be provided at least 60 days
prior to the end of the then-current term.
For purposes of this Agreement, "cause" shall mean (a) a material
breach that has not been cured within thirty (30) days following written notice
of such breach from the non-breaching party; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; (c) financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or involvement by
way of pleading, answer, consent or acquiescence in, a voluntary or involuntary
case under Title 11 of the United States Code, as from time to time is in
effect, or any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors; or (d) any circumstance which
substantially impairs the performance of the obligations and duties of the party
to be terminated, or the ability to perform those obligations and duties, as
contemplated herein.
5
<PAGE> 6
The parties acknowledge that, in the event of a change of control (as
defined in the 1940 Act) of BISYS or of Key Asset Management Inc., BISYS may be
replaced as administrator for the Trust prior to the expiration of the initial
two-year term or any subsequent two-year term. In that connection, the parties
agree that, notwithstanding the replacement of BISYS as referenced above, the
Trust shall remain responsible for the payment of fees to BISYS hereunder for
the remainder of the then-current contract term.
Compensation due BISYS and unpaid by the Trust upon termination of this
Agreement shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust in addition to
the compensation described in Schedule II hereto, the amount of all its cash
disbursements for services in connection with its activities in effecting such
termination, including without limitation, the delivery to the Trust and/or its
designees of the Trust's property, records, instruments and documents or any
copies thereof. Subsequent to such termination, for a reasonable fee, BISYS will
provide the Trust with reasonable access to any Trust documents or records
remaining in its possession.
VI. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Trust hereunder by BISYS shall
be in writing and shall be duly given if mailed or delivered to the Trust c/o
Mutual Fund Products, KeyCorp Management Company, 127 Public Square, Cleveland,
Ohio 44114, Attention: William J. Blake, with a copy to Kramer, Levin, Naftalis
& Frankel, 919 Third Avenue, New York, New York 10019, Attention: Carl
Frischling, or at such other address or to such individual as shall be so
specified by the Trust to BISYS. Notices of any kind to be given to BISYS
hereunder by the Trust shall be in writing and shall be duly given if mailed or
delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, Attention: Robert
D. Hingston, or at such other address or to such individual as BISYS shall
specify to the Trust.
VIII. MISCELLANEOUS
1. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Article V hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by Ohio law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Commission thereunder.
6
<PAGE> 7
2. NAMES. The names "The Victory Variable Insurance Funds" and
"Trustees of The Victory Variable Insurance Funds" refer respectively to the
Trust created and the Trustees, as trustees but not individually or personally,
acting from time to time under a Certificate of Trust filed on February 11,
1998, as amended and restated October 15, 1998, at the office of the Secretary
of State of the State of Delaware which is hereby referred to and is also on
file at the principal office of the Trust.
3. ASSIGNMENT. This Agreement and the rights and duties hereunder shall
not be assignable by either party without the written consent of the other
party. This paragraph shall not limit or in any way affect BISYS' right to
appoint a Sub-Administrator pursuant to Article II, paragraph 3 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE VICTORY VARIABLE INSURANCE
FUNDS
By: ____________________________
Attest: ____________________________
BISYS FUND SERVICES OHIO, INC.
By: _____________________________
Attest:_____________________________
7
<PAGE> 8
SCHEDULE I
----------
Investment Quality Bond Fund, Class A and Class B
Diversified Stock Fund, Class A and Class B
Small Company Opportunity Fund, Class A and Class B
Dated: As of December 11, 1998
<PAGE> 9
SCHEDULE II
-----------
FEES
----
Pursuant to ARTICLE II, Section 5 of the Agreement, BISYS shall be
entitled to receive a fee based upon the annual rate of 0.05% of each Fund's
average daily net assets.
Dated: As of October 16, 1998
<PAGE> 1
Exhibit 99(h)(3)
SUB-ADMINISTRATION AGREEMENT
----------------------------
AGREEMENT made this 16th day of October, 1998, BISYS Fund Services
Ohio, Inc. (the "Administrator"), an Ohio corporation having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and Key Asset Management
Inc. (the "Sub-Administrator"), a New York corporation having its principal
place of business at 127 Public Square, Cleveland, Ohio 44114.
WHEREAS, the Administrator has entered into an Administration
Agreement, dated October 16, 1998 (the "Administration Agreement"), with The
Victory Variable Insurance Funds (the "Trust"), a Delaware business trust,
concerning the provision of certain administrative services for the investment
portfolios of the Trust identified on Schedule A hereto, as such Schedule shall
be amended from time to time (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, the Administrator desires to retain the Sub-Administrator to
assist it in performing administrative services with respect to each Fund and
the Sub-Administrator is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS SUB-ADMINISTRATOR. As provided herein, the
Sub-Administrator will perform the following duties:
(a) assist the Trust in the supervision of all aspects of
the operations of the Funds except those performed by
the investment adviser for the Funds under its
Investment Advisory Agreement;
(b) maintain office facilities (which may be in the
office of Sub-Administrator or an affiliate);
(c) furnish statistical and research data, clerical and
internal compliance services relating to legal
matters, except for those services provided pursuant
to the terms of the Fund Accounting Agreement;
(d) assist the Administrator in the preparation of the
periodic reports to the Securities and Exchange
Commission on Form N-SAR or any replacement forms
thereto;
(e) assist the Administrator in compiling data for (after
review by the Trust's auditors) the Funds' federal
and state tax returns and required tax filings other
than those required to be made by the Trust's
Custodian and Transfer Agent;
<PAGE> 2
(f) assist the Administrator in preparing and filing
compliance filings pursuant to state securities laws
with the advice of the Trust's counsel and coordinate
with the transfer agent to monitor the sale of the
Funds' shares;
(g) assist the Trust in the preparation, mailing and
filing of the Trust's Annual and Semi-Annual Reports
to Shareholders and its Registration Statements;
(h) assist the Administrator in preparing and filing
timely Notices to the Securities and Exchange
Commission required pursuant to Rule 24f-2 under the
Investment Company Act of 1940 (the "1940 Act")
(i) assist the Administrator in preparing and filing with
the Securities and Exchange Commission all
Registration Statements on Form N-1A and all
amendments thereto with the advice of Trust's
counsel;
(j) assist the Administrator in preparing and filing with
the Securities and Exchange Commission Proxy
Statements and related documents with the advice of
Trust's counsel and coordinate the distribution of
such documents; and
(k) provide Trustee Board meeting support, including
assisting in the preparation of documents related
thereto.
The Sub-Administrator will keep and maintain all books and
records relating to its services in accordance with Rule 31a-1 under the 1940
Act.
2. COMPENSATION; EXPENSES ASSUMED AS SUB-ADMINISTRATOR. The
Administrator will pay the Sub-Administrator for the services provided under
this Agreement a fee with respect to each Fund calculated at the annual rate of
up to five one-hundredths of one percent (.05%) of such Fund's average daily net
assets. Except for the expenses that shall be borne by the Trust, as set forth
in Article II, Section 4 of the Administration Agreement, the Sub-Administrator
shall pay all expenses incurred by it in performing its services and duties as
Sub-Administrator, including the cost of providing office facilities, equipment
and personnel related to such services and duties. The fee payable hereunder
shall be calculated and paid on a monthly basis. The fee for the period from the
day of the month this Agreement is entered into until the end of that month
shall be prorated according to the proportion which such period bears the full
monthly period. Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to the Sub-Administrator,
the value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Agreement and Declaration of Trust or in the prospectus
or Statement of Additional Information
2
<PAGE> 3
respecting the Fund as from time to time in effect for the computation of the
value of such net assets in connection with the determination of the liquidating
value of the shares of such Fund.
3. EFFECTIVE DATE. This Agreement shall become effective with respect
to a Fund as of the date first written above (or, if a particular Fund is not in
existence on that date, on the date specified in the amendment to Schedule A to
this Agreement relating to such Fund or, if no date is specified, the date on
which such amendment is executed).
4. TERM. This Agreement shall continue in effect with respect to a
Fund, unless earlier terminated by either party hereto as provided hereunder,
until September 30, 1999, and thereafter shall be renewed automatically for
successive one-year terms unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term; provided, however, that after such termination for so
long as the Sub-Administrator, with the written consent of the Administrator, in
fact continues to perform any one or more of the services contemplated by this
Agreement or any schedule or exhibit hereto, the provisions of this Agreement,
including without limitation the provisions dealing with indemnification, shall
continue in full force and effect. This Agreement shall terminate automatically
upon termination of the Administration Agreement. In addition, either party to
this Agreement may terminate such Agreement prior to the expiration of the
initial term set forth above by providing the other party with written notice of
such termination at least 60 days prior to the date upon which such termination
shall become effective. Compensation due the Sub-Administrator and unpaid by the
Administrator upon such termination shall be immediately due and payable upon
and notwithstanding such termination. The Sub-Administrator shall be entitled to
collect from the Administrator, in addition to the compensation described under
paragraph 2 hereof, the amount of all the Sub-Administrator's cash disbursements
for services in connection with the Sub-Administrator's activities in effecting
such termination, including without limitation, the delivery to the
Administrator, the Trust, and/or their respective designees, of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination for a reasonable fee to be paid by the Administrator, the
Sub-Administrator will provide the Administrator and/or the Trust with
reasonable access to any Trust documents or records remaining in its possession.
5. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. The SubAdministrator shall use reasonable efforts to ensure the
accuracy of all services performed under this Agreement, but shall not be liable
to the Administrator or the Trust for any action taken or omitted by the
Sub-Administrator in the absence of bad faith, willful misfeasance, negligence
or from reckless disregard by it of its obligations and duties. The
Administrator agrees to indemnify and hold harmless the Sub-Administrator, its
affiliates, employees, agents, directors, officers and nominees from and against
any and all claims, demands, actions and suits, whether groundless or otherwise,
and from and against any and all judgments, liabilities, losses, damages, costs,
charges, counsel fees and other reasonable expenses of every nature and
character arising out of or in any way relating to the Sub-Administrator's
actions taken or nonactions with respect to the performance of services under
this Agreement with respect to a Fund or based, if applicable, upon reasonable
reliance on information, records, instructions or requests with respect to such
Fund given or made to the Sub-Administrator by the Administrator;
3
<PAGE> 4
provided that this indemnification shall not apply to actions or omissions of
the Sub-Administrator in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, the Sub-Administrator shall give the
Administrator written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of the Sub-Administrator.
The Sub-Administrator agrees to indemnify and hold harmless the
Administrator, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other reasonable expenses of every
nature and character arising out of or in any way relating to the
Sub-Administrator's bad faith, willful misfeasance, negligence or from reckless
disregard by it of its obligations and duties, with respect to the performance
of services under this Agreement, provided that prior to confessing any claim
against it which may be the subject of this indemnification, the Administrator
shall give the Sub-Administrator written notice of and reasonable opportunity to
defend against said claim in its own name or in the name of the Administrator.
6. RECORD RETENTION AND CONFIDENTIALITY. The Sub-Administrator shall
keep and maintain on behalf of the Trust all books and records that the Trust
and the Sub-Administrator are, or may be, required to keep and maintain in
connection with the services to be provided hereunder pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended. The
Sub-Administrator further agrees that all such books and records shall be the
property of the Trust and to make such books and records available for
inspection by the Trust, by the Administrator, or by the Securities and Exchange
Commission at reasonable times.
7. UNCONTROLLABLE EVENTS. The Sub-Administrator assumes no
responsibility hereunder, and shall not be liable, for any damage, loss of data,
delay or any other loss whatsoever caused by events beyond its reasonable
control.
8. RIGHTS OF OWNERSHIP. All computer programs and procedures developed
to perform the services to be provided by the Sub-Administrator under this
Agreement are the property of the Sub-Administrator. All records and other data
except such computer programs and procedures are the exclusive property of the
Trust and all such other records and data will be furnished to the Administrator
and/or the Trust in appropriate form as soon as practicable after termination of
this Agreement for any reason.
9. RETURN OF RECORDS. The Sub-Administrator may at its option at any
time, and shall promptly upon the demand of the Administrator and/or the Trust,
turn over to the Administrator and/or the Trust and cease to retain the
Sub-Administrator's files, records and documents created and maintained by the
Sub-Administrator pursuant to this Agreement which are no longer needed by the
Sub-Administrator in the performance of its services or for its legal
protection. If not so turned over to the Administrator and/or the Trust, such
documents and
4
<PAGE> 5
records will be retained by the Sub-Administrator for six years from the year of
creation. At the end of such six-year period, such records and documents will be
turned over to the Administrator and/or the Trust unless the Trust authorizes in
writing the destruction of such records and documents.
10. NOTICES. Any notice provided hereunder shall be sufficiently given
when sent by registered or certified mail to the address set forth above, or at
such other address as either party may from time to time specify in writing to
the other party pursuant to this Section.
11. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
12. ASSIGNMENT. This agreement and the rights and duties hereunder
shall not be assignable with respect to a Fund by either of the parties hereto
except by the specific written consent of the other party and with the specific
written consent of the Trust.
13. GOVERNING LAW. This Agreement shall be governed by and provisions
shall be construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES OHIO, INC. KEY ASSET MANAGEMENT INC.
By:_______________________________ By:_______________________________
Title:______________________________ Title:_______________________________
5
<PAGE> 6
SCHEDULE A
TO THE
SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES OHIO, INC.
AND
KEY ASSET MANAGEMENT INC.
Funds
- -----
Investment Quality Bond Fund, Class A and Class B
Diversified Stock Fund, Class A and Class B
Small Company Opportunity Fund, Class A and Class B
BISYS FUND SERVICES OHIO, INC. KEY ASSET MANAGEMENT INC.
By:_______________________________ By:_______________________________
Title:____________________________ Title:____________________________
Date: December 11, 1998 Date: December 11, 1998
<PAGE> 1
Exhibit 99(h)(4)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
The Victory Variable Insurance Funds
on Behalf of Various Funds
Listed on Schedule A
Individually and Not Jointly
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 Terms of Appointment; Duties of the Bank...............................................................1
Article 2 Fees and Expenses......................................................................................5
Article 3 Representations and Warranties of the Bank.............................................................6
Article 4 Representations and Warranties of the Company..........................................................6
Article 5 Data Access and Proprietary Information................................................................7
Article 6 Indemnification........................................................................................9
Article 7 Standard of Care.......................................................................................11
Article 8 Covenants of the Company and the Bank..................................................................11
Article 9 Termination of Agreement...............................................................................13
Article 10 Assignment............................................................................................14
Article 11 Amendment.............................................................................................14
Article 12 Massachusetts Law to Apply............................................................................14
Article 13 Force Majeure.........................................................................................15
Article 14 Consequential Damages.................................................................................15
Article 15 Merger of Agreement...................................................................................15
Article 16 Counterparts..........................................................................................16
Article 17 Multiple Funds........................................................................................16
Article 18 Limitation on Liability...............................................................................16
Article 19 Arbitration...........................................................................................16
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of 1998 by and between THE
VICTORY VARIABLE INSURANCE FUNDS, a Delaware business trust, having its
principal office and place of business at 3435 Stelzer Road, Columbus, Ohio (the
"Company"), on behalf of the individual Funds listed on Schedule A, individually
and not jointly, (each a "Fund" and collectively, the "Funds"), and STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company having its principal
office and place of business at 225 Franklin Street, Boston, Massachusetts 02110
("the Bank").
WHEREAS, the Company is a series Fund registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to appoint the Bank as its transfer
agent, dividend disbursing agent, custodian of certain retirement plans and
agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.01 Subject to the terms and conditions set forth in this
Agreement, the Company, on behalf of each Fund, individually and not jointly,
hereby employs and appoints the Bank to act as, and the Bank agrees to act as
its transfer agent for the Fund's authorized and issued shares of beneficial
interest, (the "Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each Fund (the "Shareholders") and
set out in the currently
<PAGE> 4
effective prospectus and statement of additional information ("prospectus") of
each Fund, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Company and the Bank, the
Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of each Fund authorized pursuant
to the Trust Instrument of the Company (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate
Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation
thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and
(iii) above, the Bank shall execute transactions directly
with broker-dealers authorized by each Fund who shall
thereby be deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any
redemption, pay over or cause to be paid over in the
appropriate manner such monies as instructed by the
redeeming Shareholders;
2
<PAGE> 5
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by each Fund;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon
receipt by the Bank of indemnification satisfactory to the
Bank and protecting the Bank and the Funds, and the Bank
at its option, may issue replacement certificates in place
of mutilated stock certificates upon presentation thereof
and without such indemnity;
(ix) Maintain records of account for and advise each Fund and
its shareholders as to the foregoing; and
(x) Record the issuance of shares of each Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total
number of shares of the Funds that are authorized, based
upon data provided to it by the Funds, and issued and
outstanding. The Bank shall also provide each Fund on a
regular basis with the total number of shares which are
authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to
monitor the issuance of such shares or to take cognizance
of any laws relating to the issue or sale of such shares,
which functions shall be the sole responsibility of the
Funds.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall: (i) perform
the customary services of a transfer agent,
3
<PAGE> 6
dividend disbursing agent, custodian of certain retirement plans and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with respect
to dividends and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders, and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total number of Shares sold
in each State.
(c) In addition, the Funds shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Company and the Bank per the attached service responsibility schedule,
established and amended from time to time by written agreement between the
Company, on behalf of each affected Fund, and the Bank. By agreement, the Bank
may at times perform only a portion of these services and the Funds or their
agent may perform these services on the Funds' behalf.
4
<PAGE> 7
(e) The Bank shall provide additional services on behalf of
each Fund (i.e., escheatment services) that may be agreed upon in writing
between the Company and the Bank.
(f) The Bank will not accept third-party checks in payment of
the Shares.
Article 2 Fees and Expenses
-----------------
2.01 For the performance by the Bank pursuant to this
Agreement, each Fund agrees to pay the Bank an annual maintenance fee for each
shareholder account as set out in the initial fee schedule attached hereto. Such
fees and out-of-pocket expenses and advances identified under Section 2.02 below
may be changed from time to time subject to mutual written agreement between the
Company and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
each Fund agrees to reimburse the Bank for out-of-pocket expenses, including but
not limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulation proxies, records storage, or advances incurred by the
Bank for the items set out in the fee schedule attached hereto. In addition, any
other expenses incurred by the Bank at the request or with the consent of the
Company will be reimbursed by the affected Fund. The parties agree that the
initial fee schedule attached hereto will remain in effect for at least two
years from the effective date of this Agreement.
2.03 Each Fund agrees to pay all fees and reimbursable
expenses within 30 days following the receipt of the respective billing notice.
Postage for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at least
seven (7) days prior to the mailing date of such materials.
5
<PAGE> 8
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It and any sub-transfer agent has and will continue to
have access to the necessary facilities, equipment and personnel to perform its
duties and obligations under this Agreement.
3.06 It and any sub-transfer agent has and will continue to be
registered as a transfer agent with the appropriate regulatory agency and to the
extent necessary with any appropriate state regulator.
Article 4 Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware.
6
<PAGE> 9
4.02 It is empowered under applicable laws and by its Trust
Instrument and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by the Trust
Instrument and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.04 It is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of
1933, as amended is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of each Fund being offered for sale.
Article 5 Data Access and Proprietary Information
---------------------------------------
5.01 Each Fund acknowledges that the data bases, computer
programs, screen formats, report formats, interactive design techniques, and
documentation manuals furnished to each Fund by the Bank as part of the Funds'
ability to access certain Fund-related data ("Customer Data") maintained by the
Bank on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. Each Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be provided hereunder. Without limiting the foregoing, each Fund agrees for
itself and its employees and agents:
7
<PAGE> 10
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any
portion of the Proprietary Information, and if such access is inadvertently
obtained, to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data
acquired hereunder from being retransmitted to any other computer facility or
other location, except with the prior written consent of the Bank;
(e) that each Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank
to protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other federal
or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The obligations of
this Article shall survive any earlier termination of this Agreement.
5.02 If the Company notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the
8
<PAGE> 11
Bank may obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and each Fund agrees to make no claim
against the Bank arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND
ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Funds include the
ability to originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information (such transactions constituting a "COEFI"),
then in such event the Bank shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further inquiry as long
as such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
Article 6 Indemnification
---------------
6.01 The Bank shall not be responsible for, and each Fund,
individually and not jointly, shall indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
9
<PAGE> 12
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer agent or
registrar.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 At any time the Bank may apply to any officer of the
Company for instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by each Fund, individually and not jointly, for
any action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of a Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction information, data,
records or documents provided the Bank or its agents or subcontractors by
10
<PAGE> 13
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Company, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which a Fund may
be required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which a Fund may be required to indemnify the
Bank except with the Fund's prior written consent.
Article 7 Standard of Care
----------------
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct of that of its employees.
Article 8 Covenants of the Company and the Bank
-------------------------------------
8.01 The Company shall promptly furnish to the Bank the
following:
11
<PAGE> 14
(a) A certified copy of the resolution of the Board of
Trustees of the Company authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Trust Instrument and By-Laws of the Fund and
all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 17A of the Securities Exchange Act of 1934, as
amended, Section 31 of the 1940 Act, and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the property of each Fund and
will be preserved, maintained and made available in accordance with such
Sections and Rules, and will be surrendered promptly to the Funds on and in
accordance with their request.
8.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of
the Shareholder records of a Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Company as to such
inspection. The Bank reserves the right, however,
12
<PAGE> 15
to exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to exhibit the Shareholder
records to such person.
Article 9 Termination of Agreement
------------------------
9.01 During the initial two year term of this Agreement, this
Agreement may be terminated by either party only for "cause" upon one hundred
twenty (120) days written notice to the other.
9.02 After the initial two year term of this Agreement, either
party may terminate this Agreement upon 120 days notice for any reason or for no
reason.
9.03 Should the Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material with
respect to each Fund will be borne by each Fund individually and not jointly.
Additionally, the Bank reserves the right to charge for any other reasonable
expenses associated with such termination and/or a charge equivalent to the
average of three (3) months' fees, provided that the Agreement has not been
terminated by the Company for "cause" (as defined in section 9.04 below).
9.04 For purposes of this Agreement, "cause" shall mean (a) a
material breach of the terms of this Agreement; (b) the failure of the Bank to
meet the performance standards set forth on the attached schedule; (c) the
material breach of a warranty, representation or covenant contained in this
Agreement; (d) the failure to meet the standard of care set forth in Article 7
of this Agreement; (e) an "assignment" (as defined in the 1940 Act) of this
Agreement by the Bank. For purposes of this Section 9.04 and Section 10.01
below, an "assignment" of the Sub-Transfer Agent Agreement (as defined below)
will considered an assignment of this Agreement.
13
<PAGE> 16
Article 10 Assignment
----------
10.01 Neither this Agreement nor any rights or obligations
hereunder may be "assigned" (as defined in the 1940 Act) or delegated by either
party without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
10.03 The Bank will, without further consent on the part of
the Company, enter into an agreement for the performance of the some or all of
the Bank's obligations set forth in this Agreement (the "Sub-Transfer Agent
Agreement") with Boston Financial Data Services, Inc. ("BFDS"), a Massachusetts
Corporation Agreement"), which is duly registered as a transfer agent pursuant
to Section 17A(c)(2) of the Securities Exchange Act of 1934, as amended
("Section 17A(c)(2)"); provided, however, that the Bank will be as fully
responsible to the Company for the acts and omissions of BFDS as it is for its
own acts and omissions.
Article 11 Amendment
---------
11.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Trustees of the Company.
Article 12 Massachusetts Law to Apply
--------------------------
12.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
14
<PAGE> 17
Article 13 Force Majeure
-------------
13.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes. The Bank warrants and represents that it has
disaster recovery facilities that are designed to reasonably assure that its
operations with respect to the Company and its shareholders will continue
uninterrupted. The Bank further warrants and represents that it has in place
disaster recovery procedures and that such procedures are periodically reviewed
and tested.
Article 14 Consequential Damages
---------------------
14.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
Article 15 Merger of Agreement
-------------------
15.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
15
<PAGE> 18
Article 16 Counterparts
------------
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
Article 17 Multiple Funds
--------------
17.01 Every reference to a Fund shall be deemed a reference
solely to the particular Fund of the Company (as set forth in Schedule A, as may
be amended from time to time). Under no circumstances shall the rights,
obligations or remedies with respect to a particular Fund constitute a right,
obligation or remedy applicable to any other Fund. In particular, and without
otherwise limiting the scope of this paragraph, the Bank shall have no right to
set off claims of a Fund by applying property of any other Fund.
Article 18 Limitation on Liability
-----------------------
Copies of the Trust Instrument, as amended, establishing the
Company are on file with the Secretary of the Trust, and notice is hereby given
that this Agreement is executed on behalf of the Company by officers of the
Company as officers and not individually and that the obligations of or arising
out of this Agreement are not binding upon any of the Trustees, officers,
shareholders, employees or agents of the Company but are binding only upon the
assets and property of the various Funds of the Company, severally and not
jointly.
Article 19 Arbitration
-----------
19.01 Any controversy, claim, or dispute arising out of or
relating to this Agreement or the Sub-Transfer Agent Agreement, or any breach
thereof, including without
16
<PAGE> 19
limitation any dispute concerning the scope of this Article 19, will be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association as supplemented herein, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
19.02 There will be three arbitrators, including at least one
practicing attorney and one certified public accountant. Pending final award,
arbitrator compensation and expenses will be advanced equally by both parties.
19.03 The AAA will hold an administrative conference with
counsel for the parties within 20 days after the filing of the demand for
arbitration. The parties and the AAA will thereafter cooperate in order to
complete the appointment of three arbitrators as quickly as possible. Within 15
days after all three arbitrators have been appointed, an initial meeting among
the arbitrators and counsel for the parties will be held for the purpose of
establishing a plan for administration of the arbitration, including:
(a) defining the issues;
(b) scope, timing, and types of discovery, which may at the
discretion of the arbitrators include production of documents in the possession
of the parties, but may not without consent of all particles include
depositions;
(c) exchange of documents and filing of detailed statement of
claim and prehearing memoranda;
(d) schedule and place of hearings; and
17
<PAGE> 20
(e) any other matters that may promote the efficient,
expeditious, and cost-effective conduct of the proceeding.
19.04 The arbitration will take place in the State of Ohio.
19.05 The final award will include pre-award interest at a
rate of interest determined by the arbitrators to approximate the cost to he
prevailing party of borrowing money during the relevant period.
19.06 The final award may grant such other, further and
different relief as authorized by the American Arbitration Association
Commercial Arbitration Rules, which may not include punitive damages.
18
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE VICTORY VARIABLE INSURANCE FUNDS,
on behalf of each of the Funds listed
on Schedule A, individually and not
jointly
By:__________________________________
ATTEST:
__________________________
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
By:__________________________________
Executive Vice President
ATTEST:
__________________________
Assistant Secretary
19
<PAGE> 22
SCHEDULE A
As of August 28, 1998
Investment Quality Bond Fund, Class A and Class B
Diversified Stock Fund, Class A and Class B
Small Company Value Fund, Class A and Class B
20
<PAGE> 23
STATE STREET BANK AND TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase of Shares. X X+
2. Issue shares and hold Shares in Shareholders X
accounts.
3. Receive redemption requests. X X+
4. Effect transactions 1-3 above directly with X X+
broker-dealers.
5. Pay over monies to redeeming Shareholders. X X+
6. Effect transfers of Shares. X X+
7. Prepare and transmit dividends distributions. X X+
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and accurate control X
book for each issue of securities.
12. Mail proxies. X
13. Mail shareholder reports. X
14. Mail prospectuses to current Shareholders. X
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
Service Performed Responsibility
----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
15. Withhold taxes on U.S. resident and non-resident X
alien accounts.
16. Prepare and file U.S. Treasury Department X
forms.
17. Prepare and mail account and confirmation X X+
statements for Shareholders.
18. Provide Shareholder account information. X
19. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Article 1.02 (a), (b) and (c) of the
Agreement.
+ Shared responsibility with each KeyCorp division responsible for their
customers represented by omnibus accounts
THE VICTORY VARIABLE INSURANCE
FUNDS, on behalf of each of the Funds listed on
Schedule A, individually and not jointly
By:_________________
ATTEST:
____________________
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY:_________________
Executive Vice President
ATTEST:
____________________
Assistant Secretary
22
<PAGE> 25
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
THE VICTORY VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
Annual Account Service Fees
- ---------------------------
Account Fee $ 13.25
Complex Base Fee* $600,000
Closed Account Fee $ 1.50
Each class is considered a fund and will be billed accordingly.
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Activity Based Fees
- -------------------
New Account Set-up $5.00/each
Manual Transactions $1.50/each
Telephone Calls $1.50/each
Correspondence $2.50/each
IRA Custodial Fees (If Applicable)
- ----------------------------------
Annual Maintenance $10.00/account
Conversion Fee
- --------------
One Time Fee $30,000
Out-of-Pocket Expenses Billed as incurred
- ----------------------
Out-of-Pocket expenses include but are not limited to: confirmation statements,
postage, forms, audio response, telephone, records retention, transcripts,
microfilm, microfiche, and expenses incurred at the specific direction of the
fund.
*This complex base fee may be allocated across the Funds at the discretion of
KeyCorp. The complex base fee is applicable up to 50 Cusips.
THE VICTORY VARIABLE INSURANCE STATE STREET BANK AND TRUST
FUNDS, on behalf of each of the Funds listed on CO.
Schedule A, individually and not jointly
By: ____________________________ By: ________________________
Title ___________________________ Title _______________________
Date ____________________________ Date ________________________
23
<PAGE> 1
Exhibit 99(h)(5)
FUND PARTICIPATION AGREEMENT
This Fund Participation Agreement ("Agreement"), dated as of the __ day of
______, 1998 is made by and between Nationwide Life Insurance Company and/or
Nationwide Life and Annuity Insurance Company (separately or collectively
"Nationwide") on behalf of the Nationwide separate accounts identified on
Exhibit A which is attached hereto and may be amended from time to time
("Variable Accounts"), and Key Asset Management Inc. and BISYS Fund Services,
Inc., which serve respectively as adviser and distributor to the mutual funds
(the "Funds") listed on Exhibit A. The Funds, Key Asset Management Inc. and
BISYS Fund Services, Inc. are collectively referred to throughout this Agreement
as "Key."
WHEREAS, the Contracts allow for the allocation of net amounts received by
Nationwide to separate sub-accounts of the Variable Accounts for investment in
shares of the Funds and other similar funds; and
WHEREAS, selection of a particular sub-account (corresponding to a particular
Fund) is made by the contract owner; or, in the case of certain group Contracts,
by participants in various types of retirement plans which have purchased such
group Contracts, and such Contract owners and/or participants may reallocate
their investment options among the sub-accounts of the Variable Accounts in
accordance with the terms of the Variable Accounts in accordance with the terms
of the Contracts; and
WHEREAS, Nationwide and Key mutually desire the inclusion of the Funds as
underlying investment media for variable life insurance policies and/or variable
annuity contracts (collectively, the "Contracts") issued by Nationwide;
NOW THEREFORE, Nationwide and Key, in consideration of the promises and
undertakings described herein, agree as follows:
1. Nationwide represents and warrants that the Variable Accounts have been
established and are in good standing under Ohio Law; and the Variable
Accounts have been registered as unit investment trusts under the
Investment Company Act of 1940 (the "1940 Act") or are exempt from
registration pursuant to section 3(c)(11) of the 1940 Act;
2. Each party recognizes that the services provided for under this Agreement
are not exclusive and that the same skill will be used in performing
services in similar contexts. Nationwide will use its best efforts to give
equal emphasis and promotion to shares of the Funds as is given to other
underlying investments of the Variable Accounts.
3. Subject to the terms and conditions of this Agreement, Nationwide shall be
appointed to, and agrees, to act as a limited agent of Key, for the sole
purpose of receiving instructions for the purchase and redemption of Fund
shares (from Contract owners or participants making investment allocation
decisions under the Contracts) prior to the close of regular trading each
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Funds calculate their net
asset value as set forth in the Funds' most recent Prospectuses and
Statements of Additional Information. Except as particularly stated in this
paragraph, Nationwide shall have no authority to act on behalf of Key or to
incur any cost or liability on its behalf.
Key will use its reasonable best efforts to provide closing net asset
value, change in net asset value, dividend or daily accrual rate
information and capital gain information by 6:00 p.m. Eastern Time each
Business Day to Nationwide. Nationwide shall use this data to calculate
unit vales. Unit values shall be used to process that same Business Day's
Variable Account transactions. Orders for purchases or redemptions shall be
placed with Key or its specified
<PAGE> 2
agent no later than 10:00 a.m. of the following Business Day. Orders for
shares of Funds shall be accepted and executed at the time they are
received by Key and at the net asset value price determined as of the close
of trading on the previous Business Day. Key will not accept any order made
on a conditional basis or subject to any delay or contingency. Nationwide
shall only place purchase orders for shares of Funds on behalf of its
customers whose addresses recorded on Nationwide's books are in a state or
other jurisdiction in which the Funds are registered or qualified for sale,
or are exempt from registration or qualification as confirmed in writing by
Key.
Payment for net purchases shall be wired to a custodial account designated
by Key and payment for net redemptions will be wired to an account
designated by Nationwide. Dividends and capital gain distributions shall be
reinvested in additional Fund shares at net asset value. Notwithstanding
the above, Key shall not be held responsible for providing Nationwide with
ex-date net asset value, change in net asset value, dividend or capital
gain information when the New York Stock Exchange is closed, when an
emergency exists making the valuation of net asset not reasonably
practicable, or during any period when the Securities and Exchange
Commission ("SEC") has by order permitted the suspension of pricing shares
for the protection of shareholders.
4. All expenses incident to the performance by Key under this Agreement shall
be paid by Key. Key shall promptly provide Nationwide, or cause Nationwide
to be provided with, a reasonable quantity of the Funds' Prospectuses,
Statements of Additional Information and any supplements.
5. Nationwide and its agents shall make no representations concerning the
Funds or Fund shares except those contained in the Funds' then current
Prospectuses, Statements of Additional Information or other documents
produced by Key (or an entity on its behalf) which contain information
about the Funds. Nationwide agrees to allow a reasonable period of time for
Key to review any advertising and sales literature drafted by Nationwide
(or agents on its behalf) with respect to the Funds prior to submitting
such material to any regulator.
6. Key or an entity on its behalf and Nationwide hereby agree and represent
that each of their information technology systems will be Year 2000
Compliant in accordance with the Year 2000 Compliance requirements of the
SEC and the National Association of Securities Dealers ("NASD"). Each party
shall notify the other if there is a change in the status of their
informational technology systems or upon having a reasonable basis for
believing that their informational technology systems will not be Year 2000
Compliant.
"Year 2000 Compliant" or "Year 2000 Compliance" shall mean that the systems
or software in question shall be able to accurately process date or
date-related data, without creating any logical or mathematical
inconsistencies, from, into and between the twentieth and twenty-first
centuries, when used in accordance with the specifications set forth for
such systems or software; provided, however, that neither party shall be
responsible for any failure of its systems or software to be Year 2000
Compliant which is caused by or related to the interaction or interface of
such systems or software with the systems or software of a third party
which are not Year 2000 Compliant.
7. Key represents that the Funds are currently qualified as regulated
investment companies under Subchapter M of the Internal Revenue Code of
1986 (the "Code"), as amended, and that the Funds shall make every effort
to maintain such qualification. Key shall promptly notify Nationwide upon
having a reasonable basis for believing that the Funds have ceased to so
qualify, or that they may not qualify as such in the future.
<PAGE> 3
Key represents that the Funds currently comply with the diversification
requirements pursuant to Section 817(h) of the Code and Section 1.817-5(b)
of the Federal Tax Regulations and that the Funds will make every effort to
maintain the Funds' compliance with such diversification requirements,
unless the Funds are otherwise exempt from section 817(h) and/or except as
otherwise disclosed in each Fund's prospectus. Key will notify Nationwide
promptly upon having a reasonable basis for believing that the Funds have
ceased to so qualify, or that the Funds might not so qualify in the future.
Unless otherwise exempt, Key shall provide to Nationwide a statement
indicating compliance with Section 817(h) and a schedule of investment
holdings, to be received by Nationwide no later than twenty-five (25) days
following the end of each calendar quarter.
Nationwide represents that the Contracts are currently treated as annuity
contracts or life insurance policies, whichever is appropriate under
applicable provisions of the Code, and that it shall make every effort to
maintain such treatment. Nationwide will promptly notify Key upon having a
reasonable basis for believing that the Contracts have ceased to be treated
as annuity contracts or life insurance policies, or that the Contracts may
not be so treated in the future.
Unless a Fund is exempt from the requirements of section 817(h), Nationwide
represents that each Variable Account is a "segregated asset account" and
that interests in each Variable Account are offered exclusively through the
purchase of a "variable contract", within the meaning of such terms
pursuant to section 1.817-5(f)(2) of the Federal Tax Regulations, that is
shall make every effort to continue to meet such definitional requirements,
and that it shall notify Key immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they may not
be met in the future.
8. Within five (5) Business Days after the end of each calendar month, Key
shall provide Nationwide a monthly statement of account, which shall
confirm all transactions made during that particular month in the Variable
Accounts.
9. Each party agrees to inform the other of the existence of, or any potential
for, any material conflicts of interest between the parties and any
possible implications of the same.
It is agreed that if it is determined by a majority of the members of the
Boards of Trustees of the Funds, or a majority of the Funds' disinterested
Trustees, that a material conflict exists caused by Nationwide, Nationwide
shall, at its own expense, take whatever steps are necessary to remedy or
eliminate such material conflict.
It is agreed that if it is determined by Nationwide that a material
conflict exists caused by Key, Key shall, at its own expense, take whatever
steps are necessary to remedy or eliminate such material conflict.
10. This Agreement shall terminate as to the sale and issuance of new Contracts:
(a) at the option of Nationwide or Key upon at least 60 days advance
written notice to the other;
(b) at any time, upon Key's election, if the Funds determine that
liquidation of the Funds is in the best interest of the Funds and their
beneficial owners. Reasonable advance notice of election to liquidate
shall be furnished by Key to permit the substitution of fund shares
with the shares of another investment company pursuant to SEC
regulation;
(c) if the Contracts are not treated as annuity contracts or life insurance
policies by the applicable regulators or under applicable rules or
regulations;
(d) if the Variable Accounts are not deemed "segregated asset accounts" by
the applicable regulators or under applicable rules or regulations;
<PAGE> 4
(e) at the option of Nationwide, if Fund shares are not available for any
reason to meet the requirements of Contracts are determined by
Nationwide. Reasonable advance notice of election to terminate (and
time to cure) shall be furnished by Nationwide;
(f) at the option of Nationwide or Key, upon institution of relevant formal
proceedings against the broker-dealer(s) marketing the Contracts, the
Variable Accounts, Nationwide or the Funds by the NASD, IRS, the
Department of Labor, the SEC, state insurance departments or any other
regulatory body;
(g) upon a decision by Nationwide, in accordance with regulations of the
SEC, to substitute such Fund shares with the shares of another
investment company for Contracts for which the Fund shares have been
selected to serve as the underlying investment medium. Nationwide shall
give at least 60 days written notice to the Funds and Key of any
proposal to substitute Fund shares;
(h) upon assignment of this Agreement unless such assignment is made with
the written consent of each other party; and
(i) in the event Fund shares are not registered, issued or sold pursuant to
Federal law, or such law precludes the use of Duns shares as an
underlying investment medium of contracts issued or to be issued by
Nationwide. Prompt written notice shall be given by either party to the
other in the event the conditions of this provision occur.
11. Each notice required by this Agreement shall be given orally and confirmed
in writing to:
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Attention: Senior Vice President - Lire Company Operations
Key Asset Management inc.
127 Public Square
Cleveland, Ohio 44114
Attention: General Counsel
BISYS Fund Services, Inc.
----------------------------------
----------------------------------
Attention: Compliance Manager - Securities
With a copy to:
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza 1-09-V3
Columbus, Ohio 43215
Attention: Compliance Manager - Securities
Any party may change its address by notifying the other party(ies) in
writing.
12. So long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners,
Nationwide shall distribute all proxy material furnished by Key (Provided
that such material is received by Nationwide at least 10 business days
prior to the date scheduled for mailing to Contract owners) and shall vote
Fund shares in accordance with instructions received from the Contract
owners who have such interests in such Fund shares. Nationwide shall vote
the Fund shares for which no instructions
<PAGE> 5
have been received in the same proportion as Fund shares for which said
instructions have been received from Contract owners, provided that such
proportional voting is not prohibited by the Contract owner's related plan
or trust document. Nationwide and its agents will in no way recommend
action in connection with or oppose or interfere with the solicitation of
proxies for the Fund shares held for the benefit of such Contract owners.
13.
(a) Nationwide agrees to reimburse and/or indemnify and hold harmless Key
and each of its directors, officers, employees, agents and each person,
if any, who controls Key within the meaning of the Securities Act of
1933 (the "1933 Act") (collectively, "Affiliated Party") against any
losses, claims, damages or liabilities ("Losses") to which Key or any
such Affiliated Party may become subject, under the 1933 Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise
out of or are based upon, but not limited to:
(i) any untrue statement or alleged untrue statement of any
material fact contained in information furnished by
Nationwide;
(ii) the omission or the alleged omission to state in the
Registration Statements or Prospectuses of the Variable
Accounts a material fact required to be stated therein or
necessary to make the statements therein not misleading;
conduct, statements ore presentations of Nationwide or its
agents, with respect to the sale and distribution of Contracts
for which Fund shares are an underlying investment;
(iv) the failure of Nationwide to provide the services and furnish
the materials under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations
contained herein; or
(vi) any failure to register the Contracts or the Variable Accounts
under federal or state securities laws, state insurance laws
or to otherwise comply with such laws, rules, regulations or
orders.
Provided however, that Nationwide shall not be liable in any such case to the
extent any such statement, omission or representation or such alleged
statement, alleged omission or alleged representation was made in
reliance upon and in conformity with written information furnished to
Nationwide by or on behalf of Key specifically for use therein.
Nationwide shall reimburse any legal or other expenses reasonably incurred by
Key or any Affiliated Party in connection with investigating or
defending any such Losses, provided, however, that Nationwide shall
have prior approval of the use of said counsel or the expenditure of
said fees.
This indemnity agreement shall be in addition to any liability which Nationwide
may otherwise have.
(b) Key agrees to indemnify and hold harmless Nationwide and each of its
directors, officers, employees, agents and each person, (collectively
"Nationwide Affiliated Party"), who controls Nationwide within the
meaning of the 1933 Act against any Losses to which Nationwide or any
such Nationwide Affiliated Party may become subject, under the 1933 Act
or otherwise, insofar as such Losses (or actions in respect thereof)
arise out of or are based upon; but not limited to:
(i) any untrue statement or alleged untrue statement of any
material fact contained in any information furnished by Key,
including but not limited to, the Registration Statements,
Prospectuses or sales literature of the Funds;
(ii) the omission or the alleged omission to state in the
Registration Statements or Prospectuses of the Funds a
material fact required to be stated therein or necessary to
make the statements therein not misleading;
<PAGE> 6
(iii) Key's failure to keep the funds fully diversified and
qualified as regulated investment companies as required by the
applicable provisions of the Code, the 1940 Act, and the
applicable regulations promulgated thereunder;
(iv) the failure of Key to provide the services and furnish the
materials under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations
contained herein; or
(vi) any failure to register the Funds under federal or state
securities laws or to otherwise comply with such laws, rules,
regulations or orders.
Provided however, that Key shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an act or omission of Nationwide or untrue statement or
omission or alleged omission made in conformity with written
information furnished to Key by Nationwide specifically for use
therein.
Key shall reimburse any reasonable legal or other expenses reasonably
incurred by Nationwide or any Nationwide Affiliated Party in connection
with investigating or defending any such Losses, provided, however,
that Key shall have prior approval of the use of said counsel or the
expenditure of said fees.
This indemnity agreement will be in addition to any liability which Key
may otherwise have.
(c) Each party shall promptly notify the other party(ies) in writing of any
situation which presents or appears to involve a claim which may be the
subject of indemnification under this Agreement and the indemnifying
party shall have the option to defend against any such claim. In the
event the indemnifying party so elects, it shall notify the indemnified
party and shall assume the defense of such claim, and the indemnified
party shall cooperate fully with the indemnifying party, at the
indemnifying party's expense, in the defense of such claim.
Notwithstanding the foregoing, the indemnified party shall be entitled
to participate in the defense of such claim at its own expense through
counsel of its own choosing. Neither party shall admit to wrong-doing
nor make any compromise in any action or proceeding which may result in
a finding of wrongdoing by the other party without the other party's
prior written consent. Any notice given by the indemnifying party to an
indemnified party or participation in or control of the litigation of
any such claim by the indemnifying party shall in no event be deemed to
be an admission by the indemnifying party of culpability, and the
indemnifying party shall be free to contest liability among the parties
with respect to the claim.
14. The forbearance or neglect of any party to insist upon strict compliance by
another party with any of the provisions of this Agreement, whether
continuing or not, or to declare a forfeiture of termination against the
other parties, shall not be construed as a waiver of any of the rights or
privileges of any party hereunder. No waiver of any right or privilege of
any party arising from any default or failure of performance by any party
shall affect the rights or privileges of the other parties in the event of
a further default or failure of performance.
15. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of Ohio, without respect to its
choice of law provisions and in accordance with the 1940 Act. In the case
of any conflict, the 1940 Act shall control.
16. Each party hereby represents and warrants to the other that the persons
executing this Agreement on its behalf are duly authorized and empowered to
execute and deliver the Agreement and that the Agreement constitutes its
legal, valid and binding obligation, enforceable against it in accordance
with its terms. Except as particularly set forth herein, neither party
assumes any responsibility hereunder, and will not be liable to the other
for any
<PAGE> 7
damage, loss of data, delay or any other loss whatsoever caused by events
beyond its reasonable control.
17. Nationwide acknowledges that the identity of Key's (and its affiliates'
and/or subsidiaries') customers and all information maintained about those
customers constitute the valuable property of Key. Nationwide agrees that,
should it come into contact or possession of any such information
(including, but not limited to, lists or compilations of the identity of
such customers), Nationwide shall hold such information or property in
confidence and shall not use, disclose or distribute any such information
or property except with Key's prior written consent or as required by law
or judicial process.
Key acknowledges that the identity of Nationwide's (and its affiliates'
and/or subsidiaries') customers and all information maintained about those
customers constitute the valuable property of Nationwide. Key agrees that,
should it come into contact or possession of any such information
(including, but not limited to, lists or compilations of the identity of
such customers), Key shall hold such information or property in confidence
and shall not use, disclose or distribute any such information or property
except with Nationwide's prior written consent or as required by law or
judicial process.
This section shall survive the expiration or termination of this Agreement.
18. Nothing in this Agreement shall be deemed to create a partnership or joint
venture by and among the parties hereto.
19. This Agreement supersedes any and all prior Fund Participation Agreements
made by and between the parties.
20. Except to amend Exhibit A, or as otherwise provided in this Agreement, this
Agreement may not be amended or modified except by a written amendment
executed by each of the parties.
<PAGE> 8
21. This Agreement may be executed by facsimile signature and it may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
NATIONWIDE LIFE INSURANCE
COMPANY AND NATIONWIDE LIFE
AND ANNUITY INSURANCE
COMPANY
_____________________________________
________________
By: Joseph P. Rath
Title: Vice President
Office of Product and Market
Compliance
KEY ASSET MANAGEMENT INC.
_____________________
By:
Title:
BISYS FUND SERVICES, INC.
By:
Title:
<PAGE> 9
EXHIBIT A
<TABLE>
<CAPTION>
this Exhibit corresponds to the Fund Participation Agreement dated ________ 1998.
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE ACCOUNTS OF NATIONWIDE CORRESPONDING NATIONWIDE CORRESPONDING FUNDS
CONTRACTS
- ----------------------------------------------------------------------------------------------------------------------------
Nationwide Variable Account Modified Single Deferred The Victory Variable Insurance Funds
Premium Variable Annuity - Investment Quality Bond Fund - Class B
Contracts (the Best of - Diversified Stock Fund - Class B
America(R) - America's Choice) - Small Company Value Fund - Class B
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 99(i)
KRAMER LEVIN NAFTALIS & FRANKEL LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
FAX
(212)
715-8000
-----
WRITER'S
DIRECT
NUMBER
(212)
715-9100
May 10, 1999
The Victory Variable Insurance Funds
3435 Stelzer Road
Columbus, Ohio 43219
Re: Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1A
File Nos. 333-62051;811-8979
----------------------------
Dear Ladies and Gentlemen:
We hereby consent to the reference of our firm as Counsel in
this Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
<PAGE> 1
Exhibit 99j
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our Firm under the caption "Independent
Accountants" in the Statement of Additional Information in the Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of The Victory
Variable Insurance Funds.
PricewaterhouseCoopers LLP
Columbus, Ohio
May 7, 1999
<PAGE> 1
Exhibit 99(1)
___________, 199__
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114-1306
Re: The Victory Variable Insurance Funds--initial investment
and redemption
Dear ____________:
It is anticipated that Key Asset Management Inc. ("KAM") will establish
and register with the Securities and Exchange Commission ("SEC") three new
portfolios, namely the Small Company Opportunity Fund, Diversified Stock Fund,
and Investment Quality Bond Fund ("Portfolios") of The Victory Variable
Insurance Funds ("Funds"), a registered investment company. The Funds will offer
Class A Shares of each Portfolio. Portfolio shares will be available only to the
separate accounts of insurance companies, and not to the general public. KAM
will serve as investment adviser to the Portfolios.
It is also anticipated that, pursuant to the terms of a Participation
Agreement and certain related documents to which the parties may agree,
Portfolio shares will be made available to certain separate accounts of
________________________________ ("______") for the purpose of funding the
benefits payable under the terms of variable life insurance policies issued by
______ ("Contracts").
KAM has estimated that, in order to appropriately establish the
Portfolios, it will require initial capital in the amount of $1,000,000 for each
Portfolio. Consequently, ______ has agreed to provide an initial investment in
the Portfolios, subject to the terms of this letter of understanding, as
follows:
1. Upon KAM's request on _________, 1999, ______ will make an
initial investment of $1,000,000 in Class A Shares of each
Portfolio, provided that each Portfolio is described in an
effective registration statement for the Funds.
2. ________'s initial investment will be made in accordance with
wire transfer instructions as directed by KAM. In return for
its initial investment in each Portfolio, _______ will acquire
Class A Shares and thus an ownership interest in the Portfolio.
3. ________'s initial investment in the Portfolios (plus
gains/minus losses) will be redeemed as the Portfolios become
adequately funded with investments attributable to Contracts
and/or other variable insurance products of insurance
companies participating in the Funds. More specifically,
<PAGE> 2
______ may begin to redeem its investment in each Portfolio
when the amount of ________ initial investment represents 20%
of the Portfolio's total assets, and redemption will be
completed when the amount of ________ initial investment
represents 10% of the Portfolio's total assets. Redemption
will be timed and otherwise accomplished in an orderly manner,
so as not to disrupt the Portfolios and/or compromise their
performance.
4. Notwithstanding the foregoing, unless ______ agrees in writing
to extend the term of its investment in any Portfolio,
________ investment in each Portfolio will be redeemed no
later than December 31, 1999.
5. The product administrator for the Contracts will record and
account for ________ investments under the terms of this
letter of understanding.
If the foregoing accurately expresses KAM's understanding and
agreement, please sign the copy of this letter and return it to me for our
files. Thank you for your attention to this matter.
Sincerely yours,
-----------------------
Title:
-----------------
THE FOREGOING ACCURATELY EXPRESSES OUR UNDERSTANDING AND AGREEMENT:
Key Asset Management Inc.
By:
------------------------
Name:
-------------------
Title:
------------------
________________________________ HEREBY ACKNOWLEDGES ITS RESPONSIBILITIES UNDER,
AND HAS RECEIVED A COPY OF, THIS LETTER OF UNDERSTANDING:
________________________________
By:
--------------------------------
Name: ___________________
Title: _______________________
<PAGE> 1
Exhibit 99(m)(1)
THE VICTORY VARIABLE INSURANCE FUNDS
CLASS A SHARES
FORM OF DISTRIBUTION AND SERVICE PLAN
1. This Distribution and Service Plan (the "Plan"), when
effective in accordance with its terms, shall be the written plan contemplated
by Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), of each of the series set forth on Schedule I (individually, a "Fund" and
collectively, the "Funds") as amended from time to time, each a duly established
series of shares of The Victory Variable Insurance Funds, a Delaware business
trust, registered as an open-end investment company under the 1940 Act (the
"Trust").
2. The Trust has entered into a separate Administration
Agreement and Distribution Agreement with respect to each Fund, under which the
Distributor uses all reasonable efforts, consistent with its other business, to
secure purchasers for each Fund's shares of beneficial interest ("Shares").
Under the Distribution Agreement, the Distributor pays, among other things, the
expenses of printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of Shares for sale to insurance
company separate accounts established as funding vehicles for variable life
insurance contracts and variable annuity policies.
3. The Funds will not make separate payments as a result of
this Plan. To the extent that any payments made by Funds' Administrator,
Distributor, Investment Adviser or any sub-adviser, directly or through an
affiliate (in each case, from its own resources), should be deemed to be
indirect financing of any activity primarily intended to result in the sale of
Shares within the context of Rule 12b-1 under the 1940 Act, then such payments
shall be deemed to be authorized by this Plan.
4. This Plan shall become effective upon the date that the
Securities and Exchange Commission declares the Trust's registration statement
effective.
5. This Plan shall, unless terminated as hereinafter provided,
remain in effect for a period of one year from the date specified above, and
from year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees of the
Trust, including a majority of the Trustees who are not interested persons of
the Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements related to
this Plan (the "Independent Trustees"), cast in person at a meeting called for
the purpose of voting on this Plan. This Plan may be amended at any time by the
Board of Trustees, provided that (a) any amendment to authorize direct payments
by each Fund to finance any activity primarily intended to result in the sale of
shares of the Funds, shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Fund, and (b) any material
amendments to this Plan shall be effective only upon approval by a majority of
the Trustees, including a majority of the Independent Trustees, and by a
majority of the outstanding voting securities of each Fund (as defined in the
1940 Act).
<PAGE> 2
6. This Plan may be terminated at any time, without the
payment of any penalty, by the vote of a majority of the Independent Trustees or
by the vote of a majority of the outstanding voting securities of the applicable
class of each Fund.
7. Consistent with the limitations of shareholder and Trustee
liability as set forth in the Trust's Trust Instrument, any obligations assumed
by a Fund, pursuant to this Plan shall be limited in all cases to each Fund
individually, and the assets of each Fund individually, and shall not constitute
obligations of any shareholder or other series or classes of shares of the Trust
or of any Trustee.
8. If any provision of this Plan shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Plan shall
not be affected thereby.
IN WITNESS WHEREOF, the Trust has executed this Plan on behalf of each Fund
listed on Schedule I, individually and not jointly, as of __________, 1998.
The Victory Variable Insurance Funds
By:
----------------------------------
2
<PAGE> 3
SCHEDULE I
This Distribution Plan shall be adopted with respect to the following series and
classes thereof of the Trust:
SERIES: CLASS:
- - Investment Quality Bond Fund Class A Shares
- - Diversified Stock Fund Class A Shares
- - Small Company Opportunity Fund Class A Shares
Dated as of December 11, 1998
<PAGE> 1
Exhibit 99(m)(2)
THE VICTORY VARIABLE INSURANCE FUNDS
CONTRACT OWNER ADMINISTRATIVE SERVICES AGREEMENT
____________________, 199__
___________________________
___________________________
___________________________
Ladies and Gentlemen:
This letter sets forth the agreement between The Victory Variable Insurance
Funds (the "Trust"), on behalf of its series of portfolios (each a "Fund")
listed on Schedule B, as amended from time to time, and you concerning certain
administrative services to be provided by you with respect to the Funds.
1. INTRODUCTION. The Trust is an open-end management investment company
organized under the laws of the State of Delaware. The Trust issues
shares of beneficial interest ("Shares") of the Funds. The Trust may
offer its Shares to life insurance companies (each, a "Life Company")
to be held by certain of their separate accounts ("Accounts")
established for the purpose of funding variable annuity contracts and
variable life insurance policies (collectively referred to herein as
"Variable Contracts"). The Shares of each Fund may be issued in
multiple classes. In this agreement, the beneficial owners of the
Variable Contracts are referred to as the "Contract Owners."
2. ADMINISTRATIVE SERVICES AND EXPENSES. You are responsible for providing
administrative services to the Accounts that invest in the Funds and
for purchasers of Variable Contracts, pursuant to a participation
agreement between the Trust, you and others (the "Participation
Agreement"). The Trust is responsible for providing administrative
services to the Funds in which the Accounts invest, and for purchasers
of Shares.
You have agreed to assist us, as we may request from time to time, with the
provision of administrative services ("Administrative Services") to the
Funds, as may relate to the investment in the Funds by the Accounts.
Administrative Services include (but shall not be limited to) those
services listed on Schedule A, attached hereto, and made a part hereof.
3. ADMINISTRATIVE EXPENSE PAYMENTS. In consideration of the anticipated
administrative expense savings resulting from the arrangements set
forth in this letter agreement, the Trust, on behalf of each Fund,
individually and not jointly, agrees to pay you on a quarterly basis an
amount set forth in Schedule B to this agreement.
For purposes of computing the payment to you under this Paragraph 3 for
each quarterly period, the total of the average daily net assets of
each Class of Shares in which the
<PAGE> 2
Accounts invest shall be multiplied by the rate shown in Schedule B
multiplied by the actual number of days in the period divided by 365.
The Trust will calculate the expense payment contemplated by this
Paragraph 3 at the end of each quarter and will pay you within 30 days
thereafter on a pro-rata basis. Payment will be accompanied by a
statement showing the calculation of the quarterly amount payable by
the Trust and such other supporting data as you may reasonably request.
4. NATURE OF PAYMENTS. The Trust and you recognize and agree that payments
made by the Trust to you relate to Administrative Services only. The
amount of administrative expense payments made by the Trust to you
pursuant to Paragraph 3 of this agreement shall not be deemed to be
conclusive with respect to actual administrative expenses or savings of
the Trust.
5. TERM. This agreement shall become effective as of the date first above
written, and, unless sooner terminated in accordance with Paragraph 6
of this letter agreement, shall continue until December 31, 2000.
Thereafter, if not terminated, this agreement shall continue
automatically as to a particular Fund or Class for successive one year
terms so long as the assets of the Funds are attributable to amounts
invested by the Accounts under the Participation Agreement, and
provided that a majority of the Trust's Trustees, including a majority
of the Trustees who are not "interested persons" (as defined in the
Investment Company Act of 1940, as amended) of the Trust (the
"Disinterested Trustees") specifically approve this agreement at least
annually.
6. TERMINATION. Either the Trust or you may terminate this agreement upon
60 days advance written notice or immediately upon termination of the
Participation Agreement, upon either party's determination (with the
advice of counsel) that the payments contemplated hereunder are in
conflict with applicable laws or upon mutual agreement in writing. In
addition, the Trust may terminate this agreement upon the vote of a
majority of the outstanding Shares of the applicable Funds or by a vote
of a majority of the Disinterested Trustees.
7. REPRESENTATIONS. You represent that you will maintain and preserve all
records as required by law to be maintained and preserved in connection
with providing the Administrative Services, and will otherwise comply
with all laws, rules and regulations applicable to the Administrative
Services.
You also represent, warrant and agree that: (i) the fact that you receive
compensation in connection with the investment of the Accounts' assets
in the Funds will be disclosed to the Contract Owners; and (ii) the
Administrative Services you provide under this agreement will in no
event be primarily intended to result in the sale of Shares of the
Funds.
8. SUBCONTRACTORS. You may, with the consent of the Trust, contract with
or establish relationships with other parties to provide the
Administrative Services or other activities
<PAGE> 3
required of you by this agreement, provided that you shall be fully
responsible for the acts and omissions of such other parties.
9. AUTHORITY. This agreement shall in no way limit the authority of the
Trust to take any action it may deem appropriate or advisable in
connection with all matters relating to the operations of the Trust
and/or sale of its Shares.
10. INDEMNIFICATION. This letter agreement will be subject to the
indemnification provisions of the Participation Agreement.
11. MISCELLANEOUS. This agreement may be amended only in writing. This
agreement will terminate in the event of its "assignment" as defined in
the Investment Company Act of 1940. This agreement, including Schedule
A and Schedule B, constitutes the entire agreement between the Trust
and you with respect to the matters dealt with herein, and supersedes
any previous agreements and documents with respect to such matters.
This agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall together constitute one and
the same instrument. You agree to notify the Trust promptly if for any
reason you are unable to perform fully and promptly any of your
obligations under this agreement.
12. NOTICES. Any notices required to be sent hereunder shall be sent in
accordance with the Participation Agreement.
13. CHOICE OF LAW. This letter agreement will be construed in accordance
with the laws of the State of Delaware.
14. BOARD APPROVAL. This letter agreement has been approved by a vote of a
majority of the Board of Trustees of the Trust, including a majority of
the Disinterested Trustees.
15. NON-EXCLUSIVITY. The Trust and you may enter into other similar
servicing agreements with any other person or persons.
16. ORGANIZATION; LIMITATION OF LIABILITY. The names "The Victory Variable
Insurance Funds" and the "Board of Trustees" refer respectively to the
Trust created, and the Trustees, as trustees but not individually or
personally, acting from time to time under, a Certificate of Trust
filed at the office of the Secretary of the State of Delaware on
February 11, 1998, as amended as of October 5, 1998.
The obligations of "The Victory Variable Insurance Funds" entered into
in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually but in such
capacities, and are not binding upon any of the Trustees, Accounts or
representatives of the Trust personally, but bind only the "Trust
Property" (as defined in the Trust Instrument of the Trust), and all
persons dealing with any class of Shares of the Trust must look solely
to the Trust Property belonging to such class for the enforcement of
any claims against the Trust.
<PAGE> 4
If this agreement reflects your understanding, please sign below and return a
signed copy to us.
Very truly yours,
THE VICTORY VARIABLE INSURANCE
FUNDS, ON BEHALF OF EACH FUND LISTED ON
SCHEDULE B, INDIVIDUALLY AND NOT JOINTLY
_________________________________
Name: ______________________
Title: _____________________
Acknowledged and Agreed:
_________________________________
_________________________________
Name: ______________________
Title: _____________________
Attachment: Schedule A
Schedule B
<PAGE> 5
SCHEDULE A
ADMINISTRATIVE SERVICES PROVIDED
WITH RESPECT TO
THE VICTORY VARIABLE INSURANCE FUNDS
I. TRUST-RELATED CONTRACT OWNERS SERVICES:
- - Dissemination of the Trust's prospectus to existing Contract Owners,
as provided in the Participation Agreement.
- - Dissemination of Trust proxies (including facilitating distribution of
proxy material to Contract Owners, tabulation and reporting).
- - Telephonic support for Contract Owners with respect to inquiries about
the Trust (not including information related to sales).
- - Communicating with Contract Owners regarding performance of the
Account and the Funds.
II. SUB-ACCOUNTING SERVICES INCLUDE:
- - Aggregating purchase and redemption orders of the Account for sales of
Shares of the Funds.
- - Recording issuance and transfers of Shares of the Funds held by the
Account.
- - Processing and reinvesting dividends and distributions of the Funds
held by the Account.
III. OTHER ADMINISTRATIVE SUPPORT INCLUDES:
- - Providing other administrative support to the Trust as mutually agreed
between the Trust and you.
Dated as of ____________ ___, 199__
<PAGE> 6
SCHEDULE B
THE VICTORY VARIABLE INSURANCE FUNDS
COMPENSATION UNDER THE
CONTRACT OWNER ADMINISTRATIVE SERVICES AGREEMENT
The Victory Variable Insurance Funds (the "Trust") agrees to
pay the following quarterly amounts calculated as a percentage of the average
daily net assets of the relevant Fund and Class thereof held in the Accounts:
<TABLE>
<CAPTION>
FUND CLASS A CLASS B
- ---- ------- -------
<S> <C> <C>
Investment Quality Bond Fund % %
Diversified Stock Fund % %
Small Company Opportunity Fund % %
</TABLE>
Dated as of __________ ___, 199__
<PAGE> 1
Exhibit 99.POA
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee
of THE VICTORY VARIABLE INSURANCE FUNDS, a Delaware business trust, (the
"Trust"), constitutes and appoints Carl Frischling and Jay G. Baris my true and
lawful attorneys-in-fact, with full power of substitution and resubstitution,
for me and in my name, place and stead, in any and all capacities as a trustee
of the Trust, to sign for me and in my name in the appropriate capacity, any and
all Registration Statements on Form N-1A of the Trust under the Securities Act
of 1933, as amended (the "Securities Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), any and all Pre-Effective Amendments to any
Registration Statement of the Trust, any and all Post-Effective Amendments to
said Registration Statements, any and all Registration Statements on Form N-14,
and any supplements or other instruments in connection therewith, and generally
to do all such things in my name and behalf in connection therewith as said
attorneys-in-fact deem necessary or appropriate, and that have been approved by
the Board of Trustees of the Trust or by the appropriate officers of the Trust,
acting in good faith and in a manner they reasonably believe to be in the best
interests of the Trust, upon the advice of counsel, such approval to be
conclusively evidenced by their execution thereof, to comply with the provisions
of the Securities Act and the 1940 Act, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof.
Witness my hand on this 29th day of December, 1998.
/s/ Theodore H. Emmerich
------------------------
Theodore H. Emmerich
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee
of THE VICTORY VARIABLE INSURANCE FUNDS, a Delaware business trust, (the
"Trust"), constitutes and appoints Carl Frischling and Jay G. Baris my true and
lawful attorneys-in-fact, with full power of substitution and resubstitution,
for me and in my name, place and stead, in any and all capacities as a trustee
of the Trust, to sign for me and in my name in the appropriate capacity, any and
all Registration Statements on Form N-1A of the Trust under the Securities Act
of 1933, as amended (the "Securities Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), any and all Pre-Effective Amendments to any
Registration Statement of the Trust, any and all Post-Effective Amendments to
said Registration Statements, any and all Registration Statements on Form N-14,
and any supplements or other instruments in connection therewith, and generally
to do all such things in my name and behalf in connection therewith as said
attorneys-in-fact deem necessary or appropriate, and that have been approved by
the Board of Trustees of the Trust or by the appropriate officers of the Trust,
acting in good faith and in a manner they reasonably believe to be in the best
interests of the Trust, upon the advice of counsel, such approval to be
conclusively evidenced by their execution thereof, to comply with the provisions
of the Securities Act and the 1940 Act, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes may do or cause to be done by virtue
hereof.
Witness my hand on this 29th day of December, 1998.
/s/ Donald E. Weston
------------------------
Donald E. Weston
