<PAGE> 1
As filed with the Securities and Exchange Commission on December 16, 1996
File No. 2-84920
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 28
(Check Appropriate Box or Boxes) /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 29 /X/
SBSF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
45 Rockefeller Plaza
New York, New York 10111
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (212) 903-1255
Leigh A. Wilson
c/o Karen F. Haber
KeyCorp Mutual Fund Advisers, Inc.
127 Public Square, 16th Floor
Cleveland, OH 44114
(Name and Address of Agent for Service)
COPIES TO:
Scott A. Englehart Robert M. Kurucza, Esq.
BISYS Fund Services Marco E. Adelfio, Esq.
3435 Stelzer Road Morrison & Foerster LLP
Suite 1000 2000 Pennsylvania Ave., NW
Columbus, OH 43219 Washington, DC 20006
It is proposed that this filing will become effective (check appropriate box)
<TABLE>
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[X] immediately upon filing pursuant to Rule 485(b), [ ] on (date) pursuant to Rule 485(b),
or or
[ ] 60 days after filing pursuant to Rule 485(a)(1), [ ] on (date) pursuant to Rule
or 485(a)(1), or
</TABLE>
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<TABLE>
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[ ] 75 days after filing pursuant to Rule 485(a)(2), [ ] on (date) pursuant to paragraph
or (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a previously filed
post-effective amendment.
</TABLE>
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of the Registrant's Common Stock, par value $.01 per share, has
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Registrant will file the notice required by Rule 24f-2 on or
before January 29, 1997 for its fiscal year ended November 30, 1996.
2
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EXPLANATORY NOTE
This Post-Effective Amendment No. 28 to the Registration Statement (the
"Amendment") of SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the "Company") is
being filed to make certain non-material changes to the Registration Statement
for three series of the Company, namely, KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund and KeyChoice Income and Growth Fund (collectively, the
"Funds"). Each of the Funds will invest substantially all of its assets in
proprietary mutual funds as a "fund of funds," pending issuance of an exemptive
order by the Securities and Exchange Commission permitting investments in
non-proprietary mutual funds. This Amendment does not affect the Registration
Statement for the Company's Key Money Market Mutual Fund, SBSF Fund, SBSF
Convertible Securities Fund, and SBSF Capital Growth Fund, or the Registration
Statement for the Company's Key Stock Index Fund and Key International Index
Fund.
3
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CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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PART A PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Expenses
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Description of Common Stock;
Investment Objectives and
Policies; Descriptions of
Proprietary Portfolios;
Item 5. Management of the Fund Management of the Funds; Expenses,
Distribution Plan and Shareholder
Servicing Plan
Item 5A. Management's Discussion of Fund
Performance Not Applicable
Item 6. Capital Stock and Other Securities Description of Common Stock;
Shareholder Reports; Dividends and
Distributions; Federal Income Taxes
Item 7. Purchase of Securities Being
Offered Management of the Funds; The Administrator,
Distributor and Fund Accountant; Expenses,
Distribution Plan and Shareholder Servicing Plan;
Determination of Net Asset Value; Purchasing Shares;
Investing for Retirement; The Systematic Investment
Plan; The Systematic Withdrawal Plan; Exchange
Privilege; Dividends and Distributions Performance;
Item 8. Redemption or Repurchase Redeeming Shares; Exchange Privilege;
Purchasing Shares; The Systematic Withdrawal Plan
Item 9. Pending Legal Proceedings Not Applicable
PART B PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Investment Objectives and Policies
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
</TABLE>
4
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<TABLE>
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Restrictions of the Funds;
Portfolio Turnover; Appendix
Item 14. Management of the Fund Management of the Funds
Item 15. Control Persons and Principal
Holders of Securities Security Holders
Item 16. Investment Advisory and Other
Services The Investment Adviser of the
Funds; Expenses, Distributor and
Distribution Plan; Shareholder
Servicing Plan; Custodian, Transfer
Agent, Shareholder Servicing Agent
and Dividend Disbursing Agent;
Independent Accountants and
Reports; Counsel
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities Additional Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Purchase, Redemption and
Pricing
Item 20. Tax Status Federal Income Taxes
Item 21. Underwriters Expenses, Distributor and
Distribution Plan
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements 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.
5
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PROSPECTUS
[KEYFUNDS LOGO]
KEYFUNDS
KEY MUTUAL FUNDS
800-KEY-FUND
Key Mutual Funds, formerly known as SBSF Funds, Inc., (the "Company") is a
professionally managed, no-load, open-end, series investment company currently
consisting of several different portfolios, three of which (collectively, the
"Funds") are described in this Prospectus. Each Fund is a separately managed
diversified portfolio with its own investment objective and policies. The Funds
have no sales charges, redemption fees or exchange fees.
Each Fund has been constructed as a "fund of funds," which means that it pursues
its investment objective primarily by allocating its investments among other
mutual funds (the "Underlying Portfolios"). The Underlying Portfolios include
portfolios of Key Mutual Funds ("KeyFunds" or "KMF") and The Victory Portfolios
("VP") (collectively, the "Proprietary Portfolios") as well as portfolios that
are not part of the same group of investment companies as the Funds (the "Other
Portfolios"). See "Investment Objectives and Policies" below for a more complete
discussion.
KeyCorp Mutual Fund Advisers, Inc. (the "Adviser" or "Key Advisers"), an
indirect wholly owned subsidiary of KeyCorp, serves as investment adviser to
each of the Funds. As of September 30, 1996, Key Advisers and its affiliates
managed approximately $49 billion for numerous clients including large corporate
and public retirement plans, Taft-Hartley plans, foundations and endowments,
high net worth individuals and mutual funds.
The Funds were created to provide investors with experienced, professional
investment management and personal service and to take advantage of the benefits
of asset allocation, including certain risk-spreading benefits derived from
investing in other mutual funds. Investors should be aware of the higher
expenses and certain potential tax implications associated with an investment in
a "fund of funds." See "Expenses, Distribution Plan and Shareholder Servicing
Plan," "Dividends and Distributions," and "Federal Income Taxes" for a more
complete discussion.
KEYCHOICE GROWTH FUND -- The investment objective of the KeyChoice Growth Fund
("Growth Fund") is to seek to provide growth of capital. The Growth Fund seeks
to achieve its objective by allocating its assets primarily among Underlying
Portfolios that invest in equity securities.
KEYCHOICE MODERATE GROWTH FUND -- The investment objective of the KeyChoice
Moderate Growth Fund ("Moderate Growth Fund") is to seek to provide growth of
capital combined with a moderate level of current income. The Moderate Growth
Fund seeks to achieve its objective by allocating its assets primarily among
Underlying Portfolios that invest in equity securities and, to a lesser extent,
fixed income securities.
KEYCHOICE INCOME AND GROWTH FUND -- The investment objective of the KeyChoice
Income and Growth Fund ("Income and Growth Fund") is to seek to provide current
income combined with moderate growth of capital. The Income and Growth Fund
seeks to achieve its objective by allocating its assets primarily among
Underlying Portfolios that invest in fixed income securities and, to a lesser
extent, equity securities.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, KEY ADVISERS, ANY KEYCORP BANK, ANY OF THEIR AFFILIATES, OR ANY
OTHER BANK. SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN
INVESTMENT IN MUTUAL FUND SHARES IS SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing. Additional information about
the Funds has been filed with the Securities and Exchange Commission (the
"Commission") in a Statement of Additional Information dated December 16, 1996,
as supplemented from time to time, which is incorporated herein by reference and
is available without charge upon request by writing to KeyFunds at P.O. Box
8527, Boston, MA 02266-8527 or calling the Funds at 800-KEY-FUND or
800-539-3863.
Investors are advised to read and retain this Prospectus for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is December 16, 1996.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Fund Expenses.................................... 1
Investment Objectives and Policies............... 4
Descriptions of Proprietary Portfolios........... 10
Management of the Funds.......................... 13
Expenses, Distribution Plan and Shareholder
Servicing Plan................................. 15
Determination of Net Asset Value................. 16
Purchasing Shares................................ 16
The Systematic Investment Plan................... 18
The Systematic Withdrawal Plan................... 18
Redeeming Shares................................. 19
Exchange Privilege............................... 20
Investing For Retirement......................... 21
Dividends and Distributions...................... 22
Federal Income Taxes............................. 22
Performance...................................... 23
Description of Common Stock...................... 24
Custodian, Transfer Agent, Servicing Agent and
Dividend Disbursing Agent...................... 25
Shareholder Reports.............................. 25
</TABLE>
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FUND EXPENSES
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EXPENSES ARE ONE OF SEVERAL FACTORS TO CONSIDER WHEN INVESTING IN THE FUNDS.
THE FOLLOWING TABLE SUMMARIZES SHAREHOLDER TRANSACTION EXPENSES AND ESTIMATED
FUND OPERATING EXPENSES FOR THE FUNDS.
<TABLE>
<CAPTION>
KEYCHOICE KEYCHOICE
KEYCHOICE MODERATE INCOME AND
GROWTH GROWTH GROWTH
FUND FUND FUND
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<S> <C> <C> <C>
Shareholder Transaction Expenses (1):
Maximum Sales Load Imposed on Purchases...................... None None None
Maximum Sales Load Imposed on Reinvested Dividends........... None None None
Deferred Sales Load.......................................... None None None
Redemption Fees.............................................. None None None
Exchange Fees................................................ None None None
Annual Fund Operating Expenses After Expense Waivers and
Reimbursements (as a percentage of average daily net assets):
Management Fee (2)........................................... .10% .10% .10%
Other Expenses (3)........................................... .10% .10% .10%
------------- ------------- -------------
Total Fund Operating Expenses (4).............................. .20% .20% .20%
=========== =========== ===========
<FN>
(1) Investors may be charged a fee if orders are placed through a broker or
agent, including affiliated banks and non-bank affiliates of KeyCorp (see
"Purchasing Shares").
(2) The Management Fee payable by the Funds has been reduced to reflect a
voluntary partial fee waiver by the Adviser. Absent such voluntary fee
waiver, "Management Fees" as a percentage of average daily net assets would
be .20%.
(3) "Other Expenses" includes administration fees and shareholder servicing fees
and estimates of such expenses as custodial and transfer agency fees, audit,
legal and other business expenses for the current fiscal year. Absent
voluntary fee waivers and expense reimbursements, "Other Expenses" are
estimated to be 1.44% for each Fund. Absent voluntary waivers, the maximum
shareholder servicing fee payable by each Fund is .25% of a Fund's average
daily net assets.
(4) Absent the fee waivers and/or expense reimbursements described in Notes 2
and 3 above, "Total Fund Operating Expenses" are estimated to be 1.64% for
the KeyChoice Growth Fund, 1.64% for the KeyChoice Moderate Growth Fund, and
1.64% for the KeyChoice Income and Growth Fund, not inclusive of indirect
expenses associated with investments in Underlying Portfolios (see pages 2
and 3). There can be no assurance that the foregoing voluntary fee waivers
and/or expense reimbursements will continue.
</TABLE>
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Funds will bear directly
("Shareholder Transaction Expenses") or indirectly ("Annual Fund Operating
Expenses"). For a more complete description of the Funds' operating expenses,
see "Expenses, Distribution Plan and Shareholder Servicing Plan." From time to
time, fees may be waived or expenses reimbursed by one or more Funds.
1
<PAGE> 9
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FUND EXPENSES [CONT.]
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Shareholders in the Funds will indirectly bear the expenses of the Underlying
Portfolios in which the Funds invest. The following table provides the estimated
total expense ratios after fee waivers and expense reimbursements for the
Proprietary Portfolios of KeyFunds and VP for their 1996 fiscal years ended
November 30, 1996 and October 31, 1996, respectively, as well as the percentage
range of each Fund's net assets that could be invested in each Proprietary
Portfolio. Absent such fee waivers and expense reimbursements, which may be
discontinued at any time, the expense ratios of the Proprietary Portfolios would
be higher.
<TABLE>
<CAPTION>
PERCENTAGE
EXPENSE PERCENTAGE OF
RATIOS PERCENTAGE OF MODERATE INCOME AND
(AFTER OF GROWTH GROWTH GROWTH
WAIVERS AND FUND'S FUND'S FUND'S
PROPRIETARY PORTFOLIO REIMBURSEMENTS) NET ASSETS NET ASSETS NET ASSETS
- --------------------------------------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
KEYFUNDS:
SBSF Fund.................................... 1.27% 0%-30% 0%-25% 0%-20%
SBSF Capital Growth Fund..................... 1.42% 0%-20% 0%-15% 0%-10%
SBSF Convertible Securities Fund............. 1.31% 0%-30% 0%-30% 0%-30%
VICTORY PORTFOLIOS:
Value Fund................................... 1.33% 0%-45% 0%-35% 0%-25%
Diversified Stock Fund*...................... 1.05% 0%-50% 0%-40% 0%-30%
Growth Fund.................................. 1.33% 0%-25% 0%-20% 0%-15%
Special Value Fund*.......................... 1.37% 0%-30% 0%-25% 0%-20%
Special Growth Fund.......................... 1.47% 0%-20% 0%-15% 0%-10%
International Growth Fund*................... 1.73% 0%-30% 0%-25% 0%-20%
Government Mortgage Fund..................... .89% 0%-20% 0%-25% 0%-30%
Investment Quality Bond Fund................. 1.01% 0%-30% 0%-40% 0%-50%
Fund for Income.............................. 1.02% 0%-15% 0%-25% 0%-35%
Intermediate Income Fund..................... .94% 0%-15% 0%-25% 0%-35%
Limited Term Income Fund..................... .86% 0%-10% 0%-10% 0%-10%
Financial Reserves Fund...................... .67% 0%-15% 0%-15% 0%-15%
Average Weighted Expense Ratios.............. 1.31% 1.22% 1.14%
<FN>
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* Denotes Class A shares only.
</TABLE>
The average weighted expense ratios for the Funds' investments in the
Proprietary Portfolios are based on a hypothetical portfolio mix that reflects
expected investments under current market conditions. These figures are
approximations of the Funds' underlying expense ratios for the Proprietary
Portfolios only. Accordingly, they do not reflect expenses charged by Other
Portfolios which, depending on such Other Portfolios' particular expense ratios,
could increase or reduce the overall expense ratios. The assets of the Funds
invested in each of the Proprietary Portfolios will vary within the ranges shown
above. As further explained under "Investment Objectives and Policies," a
portion of the assets of the Funds may be invested in Other Portfolios that are
not included in these figures.
2
<PAGE> 10
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FUND EXPENSES [CONT.]
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Using the average weighted expense ratios for each Fund, the following example
demonstrates the projected dollar amount of total cumulative expenses, including
both the Fund level direct expenses (Total Fund Operating Expenses of .20% for
each of the Funds) and the Underlying Portfolio level indirect expenses
(assuming all of the assets of each Fund are invested in Proprietary
Portfolios), that would be incurred over various periods with respect to each of
the Funds. Estimated expense ratios after waivers would be 1.51% for the Growth
Fund, 1.42% for the Moderate Growth Fund, and 1.34% for the Income and Growth
Fund.
<TABLE>
<CAPTION>
KEYCHOICE KEYCHOICE
KEYCHOICE MODERATE INCOME AND
GROWTH GROWTH GROWTH
Example FUND FUND FUND
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You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) full redemption at the
end of each time period:
1 Year....................................................... $ 15 $ 14 $ 14
3 Years...................................................... $ 48 $ 45 $ 42
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER,
WHILE THE TABLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE WILL
VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. YOU WOULD PAY
THE SAME AMOUNT OF EXPENSES ON THE SAME INVESTMENT ASSUMING NO REDEMPTION AT THE
END OF EACH TIME PERIOD.
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3
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INVESTMENT OBJECTIVES AND POLICIES
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There are three KeyChoice Funds: Growth Fund, Moderate Growth Fund, and Income
and Growth Fund. These three Funds invest in KMF and/or VP mutual funds
representing different combinations of equity securities, fixed income
securities, or cash reserves, each having varying degrees of potential
investment risk and reward. In addition, funds that are not part of the same
group of investment companies as the Funds may be used to fulfill a particular
investment niche. Each Fund will be managed based on the investment restrictions
and asset allocation policies described in this Prospectus. An investor would
choose a Fund based on personal objectives, investment time horizon, tolerance
for risk and personal financial circumstances.
As a general matter, the Funds invest between 80% and 85% of their total
assets at the time of purchase in investment portfolios of KMF and VP. A portion
of the remainder of each Fund's assets is invested primarily in shares of Other
Portfolios, which are not part of the same group of investment companies as the
Funds. During an interim period immediately following commencement of
operations, and pending the approval of the Company's Board of Directors to
increase the percentage of a Fund's assets that may be invested in Other
Portfolios, each Fund will limit its investments in Other Portfolios to a range
of 0-5% of total assets, at the time of purchase. It is anticipated that, at the
conclusion of the interim period, the approval of the Board of Directors will be
sought to increase the percentage of total assets that each Fund may invest in
Other Portfolios to 15-20% (at the time of purchase). Initial and subsequent
allocation decisions are made as a result of investment analyses undertaken by
Key Advisers within the ranges shown below.
The Funds are intended as an efficient and cost-effective method of giving
investors access to three different, yet comprehensive portfolio mixes. The
risk/return balance of each Fund is varied by the proportion of assets allocated
to the different kinds of investments. For example the Growth Fund invests a
large portion of its assets in Underlying Portfolios that invest in equity
securities. An investor seeking capital appreciation potential, with a longer
time horizon and a tolerance for volatility, might choose this Fund. Conversely,
an investor seeking a balance of income and growth, with a shorter time horizon
and less tolerance for volatility might choose the Income and Growth Fund which
invests a larger portion of its assets in Underlying Portfolios that invest in
fixed income securities.
The Funds do not pay a front-end sales load or contingent deferred sales
charge in connection with the purchase or redemption of shares of the Underlying
Portfolios. Furthermore, to the extent required by the Investment Company Act of
1940, as amended (the "1940 Act") or the terms of any exemptive order received
by the Funds from the Commission, any sales charges, distribution-related fees
and service fees relating to shares of the Funds will not exceed the limits set
forth in the Conduct Rules of the National Association of Securities Dealers,
Inc. (the "NASD") when aggregated with any sales charges, distribution-related
fees and service fees that the Funds pay relating to Underlying Portfolio
shares.
The investment objectives and policies of each of the three Funds are set
forth below.
KEYCHOICE GROWTH FUND
The investment objective of the Growth Fund is to seek to provide growth of
capital. The Growth Fund seeks to achieve this objective by allocating its
assets primarily among Underlying Portfolios that invest in equity securities.
The Growth Fund selects appropriate Proprietary Portfolios and Other
Portfolios in which to invest based on the direction of Key Advisers. As
indicated in the following table, the Growth Fund, under normal market
conditions, maintains an investment mix of 70-90% of its assets in Underlying
Portfolios that invest in equity securities, 10-30% of its assets in Underlying
Portfolios that invest in bonds and fixed income securities and 0-15% of its
assets in Underlying Portfolios that invest in money market instruments. Key
Advisers continuously monitors the allocation and rebalances or reallocates its
investments across Underlying Portfolios as market conditions warrant. All
reallocations are expected to occur within the ranges shown.
KEYCHOICE MODERATE GROWTH FUND
The investment objective of the Moderate Growth Fund is to seek to provide
growth of capital combined with a moderate level of current income. The Moderate
Growth Fund seeks to achieve this objective by allocating its assets primarily
among Underlying Port-
4
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folios that invest in equity securities and, to a lesser extent, fixed
income securities.
The Moderate Growth Fund selects appropriate Proprietary Portfolios and Other
Portfolios in which to invest based on the direction of Key Advisers. As
indicated in the following table, the Moderate Growth Fund, under normal market
conditions, maintains an investment mix of 50-70% of its assets in Underlying
Portfolios that invest in equity securities, 30-50% of its assets in Underlying
Portfolios that invest in bonds and fixed income securities, and 0-15% of its
assets in Underlying Portfolios that invest in money market instruments. Key
Advisers continuously monitors the allocation and rebalances or reallocates its
investments across Underlying Portfolios as market conditions warrant. All
reallocations are expected to occur within the ranges shown.
KEYCHOICE INCOME AND GROWTH FUND
The investment objective of the Income and Growth Fund is to seek to provide
current income combined with moderate growth of capital. The Income and Growth
Fund seeks to achieve this objective by allocating its assets primarily among
Underlying Portfolios that invest in fixed income securities and, to a lesser
extent, equity securities.
The Income and Growth Fund selects appropriate Proprietary Portfolios and
Other Portfolios in which to invest based on the direction of Key Advisers. As
indicated in the following table, the Income and Growth Fund, under normal
market conditions, maintains an investment mix of 30-50% of its assets in
Underlying Portfolios that invest in equity securities, 50-70% of its assets in
Underlying Portfolios that invest in bonds and fixed income securities and 0-15%
of its assets in Underlying Portfolios that invest in money market instruments.
Key Advisers continuously monitors the allocation and rebalances or reallocates
its investments across Underlying Portfolios as market conditions warrant. All
reallocations are expected to occur within the ranges shown.
Key Advisers may allocate a Fund's assets among Underlying Portfolios that
invest in any of the following: equity securities, fixed income securities and
money market instruments within the ranges set forth in this Prospectus. An
illustration of one possible investment mix within the ranges shown above is as
follows:
<TABLE>
<CAPTION>
KEYCHOICE KEYCHOICE
KEYCHOICE MODERATE INCOME AND
GROWTH GROWTH GROWTH
- ------------------------------------------------------
<S> <C> <C> <C>
Equities 80% 60% 40%
Money Market 2% 2% 2%
Fixed Income 18% 38% 58%
</TABLE>
A Fund's compliance with the investment ranges described in this Prospectus is
determined immediately after, and as a result of, the Fund's acquisition of
shares of an Underlying Portfolio.
5
<PAGE> 13
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The following table shows how the assets of the Growth Fund, the Moderate
Growth Fund, and the Income and Growth Fund may be divided among various types
of Underlying Portfolios:
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE PERCENTAGE OF INCOME
OF OF MODERATE AND
GROWTH GROWTH GROWTH
FUND'S FUND'S FUND'S PROPRIETARY PORTFOLIOS
INVESTMENT CATEGORY NET ASSETS NET ASSETS NET ASSETS QUALIFYING FOR PURCHASE
- ----------------------------- ------------ ------------ ------------ ----------------------------------
<S> <C> <C> <C> <C>
Equity Funds................. 70-90% 50-70% 30-50% SBSF Fund
SBSF Capital Growth Fund
Value Fund
Diversified Stock Fund
Growth Fund
Special Value Fund
Special Growth Fund
International Growth Fund
Bond/Fixed Income Funds...... 10-30% 30-50% 50-70% SBSF Convertible Securities Fund
Government Mortgage Fund
Investment Quality Bond Fund
Fund for Income
Intermediate Income Fund
Limited Term Income Fund
Money Market Fund............ 0-15% 0-15% 0-15% Financial Reserves Fund
</TABLE>
ALL FUNDS
The selection of the Proprietary Portfolios in which the Growth Fund, Moderate
Growth Fund, and Income and Growth Fund will invest, as well as the percentage
of assets which can be invested in each type of underlying mutual fund, are not
fundamental investment policies and can be changed without the approval of a
majority of the respective Fund's shareholders. Any change to the percentage
ranges shown above for allocation across types of Underlying Portfolios requires
the approval of the Company's Board of Directors. Similarly, any change to the
percentage ranges described herein concerning allocation to Proprietary
Portfolios as contrasted with Other Portfolios also requires the approval of the
Company's Board of Directors. Investors desiring more information on a
Proprietary Portfolio listed above may call KeyFunds and Victory Portfolios at
800-KEY-FUND to request a prospectus, which is available without charge. The
selection of the specific Other Portfolios is within the Adviser's discretion.
Changes in the net asset values of the Underlying Portfolios will affect a
Fund's net asset value ("NAV"). Because each Fund invests primarily in other
mutual funds, which fluctuate in value, the Funds' shares will correspondingly
fluctuate in value. Although the Funds normally seek to remain substantially
invested in the Underlying Portfolios, a Fund may invest a portion of its assets
in certain short-term obligations to maintain liquidity in order to meet
shareholder redemptions and other short-term cash needs. There may be times
when, in the opinion of Key Advisers, abnormal market or economic conditions
warrant that, for temporary defensive purposes, a Fund invest without limitation
in short-term obligations. A Fund may also borrow money for temporary or
emergency purposes.
INVESTMENT ADVISORY CONFLICTS OF INTEREST
Key Advisers and certain of its affiliates provide advisory and other services
to the Proprietary Portfolios, for which they receive compensation. In addition,
Key Advisers and certain of its affiliates may provide services to, and receive
fees from, the Other Portfolios. However, any fees received from the Other
Portfolios are likely to be substantially less than those received from the
Proprietary Portfolios. These fee differences subject Key Advisers to conflicts
of interest, in that Key Advisers could increase its fee income or that of its
affiliates by increasing the allocation of Fund assets to Proprietary Portfolios
(that pay higher fees) and decreasing the allocation to Other Portfolios.
Key Advisers also is subject to conflicts of interest in allocating Fund
assets among the various Proprietary
6
<PAGE> 14
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Portfolios because the fees payable to Key Advisers and/or its affiliates by
certain Proprietary Portfolios are higher than the fees payable by other
Proprietary Portfolios. In addition, in managing the Funds, Key Advisers will
have the authority to select and substitute Underlying Portfolios. In short, the
varying fees received by Key Advisers and/or its affiliates from the various
Underlying Portfolios subject it to a range of conflicts of interest.
To reduce, in part, these conflicts of interest, Key Advisers will be required
to obtain the approval of the Board of Directors of the Company, including a
majority of the Directors who are not interested persons of the Company, to
replace any Other Portfolio with a Proprietary Portfolio, or to change the
percentage range of assets allocated for investment in Other Portfolios. This
requirement will not, however, eliminate the conflicts of interest described
above, as the Directors may also have conflicting interests in fulfilling their
fiduciary duties to both the Funds and the Proprietary Portfolios.
In selecting Underlying Portfolios, Key Advisers is not required to select
portfolios on the basis of any specific criteria, such as prior performance.
Rather, Key Advisers has the discretion to select Underlying Portfolios,
including both Proprietary and Other Portfolios, based on various factors that
it deems relevant under the circumstances. Accordingly, a particular Underlying
Portfolio may underperform relative to the universe of funds within its category
of funds (e.g., short-term bond funds).
PERMISSIBLE INVESTMENTS AND ASSOCIATED RISKS
Investment Company Securities. The 1940 Act permits the Funds to invest
without limitation in other investment companies that are part of the same
"group of investment companies" (as defined in the 1940 Act) as the Company,
provided certain limitations are observed. Generally, these limitations require
that a fund of funds (a) limit its investments to shares of other investment
companies that are part of the same "group of investment companies" (as defined
in the 1940 Act) as the fund of funds, Government securities and short-term
paper; (b) observe certain limitations on the amount of sales loads and
distribution-related fees that are borne by shareholders of the fund of funds;
and (c) do not invest in other funds of funds. An exemptive order issued by the
Commission permits: (a) the Funds to purchase an unlimited amount of the
outstanding voting shares of each Proprietary Portfolio; (b) the securities of
each Proprietary Portfolio to have an aggregate value of as much as 100% of the
total assets of the Funds; (c) the Funds to invest up to 100% of their assets in
the securities of the Proprietary Portfolios (subject to Board approval); (d)
each of the Proprietary Portfolios to sell more than 3% of its total outstanding
voting stock to the Funds under certain conditions; and (e) a Fund to acquire,
together with its affiliates, up to 3% of the total outstanding shares of an
Other Portfolio. Without this order, the 1940 Act would prohibit any investing
by the Funds in Other Portfolios. Because other investment companies employ an
investment adviser, investments by a Fund in shares of Underlying Portfolios
will cause shareholders to bear additional fees, such as management fees, to the
extent advisory fees are not waived by Key Advisers. The KeyFunds are advised by
Spears, Benzak, Salomon & Farrell, Inc. ("Spears") or Key Advisers and the
Victory Portfolios are advised by Key Advisers and, in certain cases,
sub-advised by Society Asset Management, Inc. See "Expenses, Distribution Plan
and Shareholder Servicing Plan" for a more complete discussion of expenses.
During an interim period immediately following commencement of operations, and
pending the approval of the Company's Board of Directors to increase the
percentage of a Fund's assets that may be invested in mutual funds that are not
part of the same group of investment companies as the Funds (i.e., Other
Portfolios), each Fund will limit its investments in Other Portfolios to a range
of 0-5% of total assets, at the time of purchase. It is anticipated that, at the
conclusion of the interim period, the approval of the Board of Directors will be
sought to increase the percentage of total assets that each Fund may invest in
Other Portfolios to 15-20% (at the time of purchase). Such investment is
constrained by the terms of the Commission order and federal securities
regulations in that a Fund and its affiliates, collectively, may acquire no more
than 3% of the total outstanding stock of any Other Portfolio. Under the 1940
Act, an Other Portfolio may elect not to redeem shares in excess of 1% of its
outstanding shares during any period of less than thirty days. Accordingly, if a
Fund and its affiliates were to accumulate over 1%, but less than 3%, of an
Other Portfolio's outstanding stock, Key Advisers may have difficulty disposing
of it. Thus, to the extent that a Fund, either alone or along with its
affiliates, owns 1% or more of the outstanding shares of an Other Portfolio,
such investment will be considered to be illiquid for purposes of the Fund's 15%
(of net assets) limitation on investments in illiquid securities. In order to
avoid a possible liquidity problem, Key Advisers con-
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tinually monitors each Fund's holdings with respect to the percentage of each
Other Portfolio's shares purchased. In light of the foregoing legal constraints
on buying and selling stocks of the Other Portfolios, investors should realize
that occasions may arise when Key Advisers might not take advantage of certain
opportunities to invest in these portfolios, and may in fact seek suitable
alternatives. Some Underlying Portfolios may elect to redeem their shares wholly
or in part in portfolio securities in lieu of cash as part of an "in-kind"
redemption, which has certain expenses associated with it. If a Fund receives
securities as part of an in-kind redemption, the Fund will receive and retain
the securities (or immediately liquidate such securities) if Key Advisers
believes that it is in the best interest of shareholders, whether or not the
purchase of such securities would have been permitted by the investment
objectives and policies of the Fund. It is important to note that the Funds have
little or no knowledge or control over the daily investment activities and
management of Other Portfolios. Key Advisers will select the Other Portfolios
that may be purchased from time to time by the Funds.
Depending on an Other Portfolio's investment objective, policies and
restrictions, additional risks may be created by a Fund's investment in an Other
Portfolio. Other Portfolios may follow some or all of the investment practices
of the Proprietary Portfolios and may follow other investment practices. The
Funds have little or no control over the investment activities of the Other
Portfolios. There may, in fact, be additional investment practices, not
discussed herein or in the Statement of Additional Information, that both the
Proprietary Portfolios and Other Portfolios may engage in from time to time.
The Funds may invest in Underlying Portfolios that have concentrated their
investments (invested more than 25% of their total assets) in a single industry.
Because of this, the value of shares of such an Underlying Portfolio may be
subject to greater market fluctuation than a mutual fund which has greater
industry diversification. The Funds may be impacted indirectly by such a
concentration policy of Underlying Portfolios.
The Funds are permitted to invest in Underlying Portfolios that invest in the
following: below investment grade debt securities ("junk bonds"), mortgage-
backed securities, and forward foreign currency transactions. In addition, the
Funds are permitted to invest in Underlying Portfolios that invest in
derivatives, such as options, forward foreign currency contracts, future
contracts, and options on future contracts, among others. In general, a
derivative is a financial instrument, the value or return of which is based on,
or "derived" from, another security, index or interest rate. For a more complete
discussion of junk bonds, mortgage-backed securities, and certain derivatives in
which some Proprietary Portfolios may invest, as well as their special risks,
see "Investment Objectives and Policies" in the Statement of Additional
Information.
The Funds do not pay any front-end sales loads or contingent deferred sales
charges in connection with the purchase or redemption of shares of the
Underlying Portfolios. In addition, to the extent required by the 1940 Act or
the terms of any exemptive order received by the Funds from the Commission, the
sales charges, distribution-related fees and service fees related to shares of
the Funds will not exceed the limits set forth in the Conduct Rules of the NASD
when aggregated with any sales charges, distribution-related fees and service
fees that the Funds pay relating to Underlying Portfolio shares.
Although some of the Underlying Portfolios in which the Funds invest do not
necessarily share the same investment objective as the investing Fund, those
Underlying Portfolios will be selected by Key Advisers based on various
criteria. Among other things, Key Advisers analyzes the potential portfolio's
investment objective, policies, and investment strategy to see how it compares
to that of the Fund. Performance is also evaluated, along with strength of
management, size, and portfolio composition.
An investor in the Funds should realize that investments in the Underlying
Portfolios can be made directly. By investing in the Underlying Portfolios
indirectly through the Funds, an investor will incur not only a proportionate
share of the expenses of the Underlying Portfolios (including operating costs
and investment advisory, shareholder servicing and administration fees), but
also, similar expenses of the Funds. The Board of Directors of the Company has
determined that the advisory fees payable to Key Advisers under the advisory
contracts of the Funds are for services that are in addition to, rather than
duplicative of, services provided pursuant to any underlying mutual fund's
advisory contract. See "Expenses, Distribution Plan and Shareholder Servicing
Plan" for a more complete discussion of expenses. The Proprietary Portfolios and
Other Portfolios themselves may incur distribution plan expenses in the form of
"12b-1 fees."
In addition to the Underlying Portfolios, the Growth Fund, Moderate Growth
Fund, and Income and
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Growth Fund may each invest in high quality short-term debt obligations, such as
commercial paper, certificates of deposit, bankers' acceptances, repurchase
agreements with maturities of less than seven days, debt obligations backed by
the full faith and credit of the U.S. Government and demand and time deposits of
domestic and foreign banks and savings and loan associations.
INVESTMENT RISKS
Certain Investment Techniques. Every investment in a mutual fund involves
some risk and an investment in the Funds is no different in that respect. The
Funds are designed to help spread risk and even out swings in performance
through a comprehensive allocation program of investing in several Underlying
Portfolios. These Underlying Portfolios may invest in equity securities, bonds
and fixed-income securities, money market instruments and cash. The Funds are
consequently exposed to market risk, interest rate risk, credit risk and manager
risk. In addition, the Funds may be exposed to foreign investment risk.
Market Risk. Market risk is the possibility that equity prices in general
will fluctuate over time. In this regard, the value of equity securities held by
an Underlying Portfolio, like the broader stock market, may decline over short
or even extended periods.
Interest Rate Risk. Underlying Portfolios that invest in bonds, fixed income
instruments, and, to a lesser extent, money market instruments will be subject
to interest rate risk. This means that, generally, the price of such securities
may rise when interest rates fall and the price may fall when interest rates
rise.
Credit Risk. Debt securities that are not backed by the U.S. government are
subject to credit risk, which is the risk that the issuer may not be able to pay
principal and/or interest when due.
Manager Risk. Manager risk refers to the possibility that the investment
adviser of an underlying mutual fund may fail to execute such fund's investment
strategy effectively, and thus fail to achieve its objective. As discussed
earlier, the Funds invest most of their assets in the Proprietary Portfolios,
which are advised by Spears and Key Advisers. Key Advisers also serves as the
investment adviser to the Funds. Investors should be aware that the Funds'
performance directly correlates to the dollar-weighted investment performance of
the Underlying Portfolios in which they invest. As with any mutual fund, a
Fund's share value may decline. Changes in the net asset values of the
Underlying Portfolios affect a Fund's net asset value. Also, the Funds'
fulfillment of their investment objectives depends, in part, on the Underlying
Portfolios meeting their investment objectives. The Funds have little or no
control over the investment activities and management of the Other Portfolios.
In addition, as noted above, Key Advisers is subject to various conflicts of
interest because of the structure of the Funds.
Foreign Investment Risk. Investments by Underlying Portfolios in foreign
securities entail certain risks. These risks include, among others, restrictions
on foreign investment and repatriation of capital; fluctuations in currency
exchange rates; costs of converting foreign currency to U.S. dollars and U.S.
dollars to foreign currencies; greater price volatility and less liquidity;
settlement practices, including delays, which may differ from those customary in
U.S. markets; exposure to political and economic risks; possible imposition of
foreign taxes and exchange control and currency restrictions; lack of uniform
accounting, auditing and financial reporting standards; less governmental
supervision of securities markets, brokers and issuers of securities; less
financial information available to investors; and difficulty in enforcing legal
rights outside the U.S.
There may develop additional expenses, ultimately borne by investors,
proceeding from the structure of the Funds. For example, the structure of the
Funds possibly may give rise to what are considered "wash" transactions, which
achieve no true investment purpose. These transactions might occur when the
investment adviser of one Underlying Portfolio purchases the same securities
that the investment adviser of another is selling. In effect, these events would
result in an indirect expense of transaction charges and commissions to a Fund
with no corresponding investment benefit.
To the extent that one or more Underlying Portfolios invests more than 25%
(i.e., concentrates) of its/their total assets in one industry, a Fund may,
through its investments in such Underlying Portfolios, invest 25% or more of its
total assets in such industry. Such indirect concentration may subject shares of
a Fund to greater fluctuation in value than would be the case in the absence of
such concentration. This indirect concentration would be in addition to the
Funds' concentration in the mutual fund industry as each Fund is expected to
invest substantially all of its assets in Proprietary and Other Portfolios.
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OTHER INFORMATION
The investment objectives of the Funds are not fundamental policies, which
means they may be changed without a vote of the holders of a majority of a
Fund's outstanding shares (as defined in the Statement of Additional
Information). The investment policies of the Funds may be changed without an
affirmative vote of the holders of a majority of shares of the respective Funds
unless (1) a policy is expressly stated to be a fundamental policy of a Fund or
(2) a policy is expressly stated to be changeable only by such majority vote.
There can be no assurance that a Fund will achieve its investment objective. In
addition, investments in a Fund are not insured against loss of principal. While
the Funds offer a greater level of diversification than many other types of
mutual funds, a single Fund may not provide a complete investment program for an
investor.
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DESCRIPTIONS OF PROPRIETARY PORTFOLIOS
- --------------------------------------------------------------------------------
PERFORMANCE OF PROPRIETARY PORTFOLIOS
The following table summarizes the average annual total return (after the
deduction of fund operating expenses, but before the deduction of any applicable
sales loads) for the following Proprietary Portfolios for the periods ended
October 31, 1996:
<TABLE>
<CAPTION>
DATE OF
COMMENCEMENT
OF
PROPRIETARY PORTFOLIO(1) OPERATIONS INCEPTION ONE YEAR FIVE YEARS TEN YEARS
- --------------------------------------------------- ----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
KEYFUNDS:
SBSF Fund.......................................... 10/17/83 13.07% 20.34% 12.97% 12.03%
SBSF Capital Growth Fund........................... 11/1/93 8.44% 5.08% N/A N/A
SBSF Convertible Securities Fund................... 4/14/88 11.82% 19.78% 12.51% N/A
VICTORY PORTFOLIOS:
Value Fund......................................... 12/3/93 16.84% 24.66% N/A N/A
Diversified Stock Fund -- Class A.................. 10/20/89 14.48% 27.16% 16.49% N/A
Growth Fund........................................ 12/3/93 16.57% 25.66% N/A N/A
Special Value Fund -- Class A...................... 12/3/93 15.12% 20.60% N/A N/A
Special Growth Fund................................ 1/11/94 13.19% 19.73% N/A N/A
International Growth Fund -- Class A............... 5/18/90 6.23% 5.65% 8.51% N/A
Intermediate Income Fund........................... 12/10/93 4.58% 4.56% N/A N/A
Investment Quality Bond Fund....................... 12/10/93 5.03% 4.65% N/A N/A
Fund for Income.................................... 5/8/87 8.42% 6.35% 6.28% N/A
Government Mortgage Fund........................... 5/18/90 8.33% 5.54% 6.94% N/A
Limited Term Income Fund........................... 10/20/89 6.51% 4.94% 5.39% N/A
<FN>
- ---------------
(1) The total return information set forth above does not reflect the deduction
of front-end sales charges, if any, which may be imposed in connection with
purchases of shares of the Victory Portfolios because the KeyChoice Funds
will not pay otherwise applicable front-end or contingent deferred sales
charges in connection with purchases and redemptions of shares of Underlying
Portfolios in reliance on waivers of such charges. There are no front-end or
contingent deferred sales charges imposed on purchases or redemptions of
shares of the KeyFunds. Investors in certain of the Proprietary Portfolios
listed above who do not qualify for such waivers would pay front-end sales
charges of up to 4.75% in connection with investments in such Funds. Had
such sales charges been factored into the total return information set
forth, such total return data would be lower. Investors are reminded that
the Proprietary Portfolios' total return information set forth above is not,
and should not be viewed as, indicative of the future performance of either
the Proprietary Portfolios or the KeyChoice Funds. A Fund's investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
</TABLE>
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DESCRIPTION OF UNDERLYING KEYFUNDS
SBSF Fund. The SBSF Fund's investment objective is to seek a high total
return over the long term consistent with reasonable risk. In seeking its
objective, the SBSF Fund will invest primarily in common stocks which in the
opinion of its adviser have the potential for capital appreciation in excess of
market averages during periods of market strength while attempting to preserve
capital during periods of market weakness.
SBSF Capital Growth Fund. The SBSF Capital Growth Fund's investment objective
is to seek capital appreciation. The SBSF Capital Growth Fund seeks to achieve
its objective by investing in equity securities of companies which its adviser
believes are likely to have rapid growth in earnings or cash flow. The SBSF
Capital Growth Fund will invest primarily in the securities of small to medium
capitalization companies.
SBSF Convertible Securities Fund. The SBSF Convertible Securities Fund's
investment objective is to seek a high level of current income together with
long-term capital appreciation. The SBSF Convertible Securities Fund will invest
primarily in convertible bonds, corporate notes, convertible preferred stocks
and other securities convertible into common stock.
DESCRIPTION OF UNDERLYING VICTORY PORTFOLIOS
Value Fund. The Value Fund seeks to provide long-term growth of capital and
dividend income. The fund pursues this objective by investing primarily in a
diversified group of common stocks with an emphasis on companies with above
average total return potential.
Diversified Stock Fund. The Diversified Stock Fund seeks to provide long-term
growth of capital. The fund pursues this investment objective by investing
primarily in common stocks and securities convertible into common stocks issued
by established domestic and foreign companies.
Growth Fund. The Growth Fund seeks to provide long-term growth of capital.
The fund pursues this objective by investing primarily in common stocks of
issuers listed on a nationally recognized exchange with an emphasis on companies
with superior prospects for long-term earnings growth and price appreciation.
Special Value Fund. The Special Value Fund seeks to provide long-term growth
of capital and dividend income. The fund pursues this objective by investing
primarily in common stocks of small and medium-sized companies listed on a
nationally recognized exchange with an emphasis on companies with above average
total return potential.
Special Growth Fund. The Special Growth Fund seeks capital appreciation. The
fund pursues this investment objective by investing primarily in equity
securities of companies that have market capitalizations of $750 million or less
at the time of purchase.
International Growth Fund. The International Growth Fund seeks to provide
capital growth consistent with reasonable investment risk. The fund pursues this
objective by investing primarily in equity securities of foreign corporations,
most of which will be denominated in foreign currencies.
Government Mortgage Fund. The Government Mortgage Fund seeks to provide a
high level of current income consistent with safety of principal. The fund
pursues this objective by investing exclusively in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Investment Quality Bond Fund. The Investment Quality Bond Fund seeks to
provide a high level of income. The fund pursues this objective by investing
primarily in investment-grade bonds issued by corporations and the U.S.
Government and its agencies or instrumentalities.
Fund For Income. The Fund for Income seeks to provide a high level of current
income consistent with preservation of shareholders' capital. The fund pursues
this objective by investing primarily in selected mortgage-related securities.
Intermediate Income Fund. The Intermediate Income Fund seeks to provide a
high level of income. The fund pursues this objective by investing in debt
securities issued by corporations and the U.S. Government and its agencies and
instrumentalities.
Limited Term Income Fund. The Limited Term Income Fund seeks to provide
income consistent with limited fluctuation of principal. The fund pursues this
objective by investing in a portfolio of high grade, fixed income securities
with a dollar-weighted average maturity of one to five years, based on remaining
maturities.
Financial Reserves Fund. The Financial Reserves Fund seeks to obtain as high
a level of current income
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as is consistent with preserving capital and providing liquidity. The fund
pursues this investment objective by investing primarily in a portfolio of
high-quality U.S. dollar denominated money market instruments. The Fund seeks to
maintain a constant net asset value of $1.00 per unit of beneficial interest,
and shares of the Fund are offered at net asset value.
ADDITIONAL INFORMATION REGARDING CERTAIN OF THE PROPRIETARY PORTFOLIOS'
INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which certain Proprietary Portfolios may invest in accordance with
their respective investment objectives, policies and limitations. The following
also includes a brief description of certain risk factors associated with
certain of the investment activities of the Proprietary Portfolios. Additional
relevant information is provided in the Statement of Additional Information. The
prospectuses and statements of additional information of the Proprietary
Portfolios also detail permissible investment activities and associated risk
factors for each Proprietary Portfolio. Copies of the prospectuses and
statements of additional information for the Proprietary Portfolios may be
obtained upon request and without charge by calling KeyFunds at 800-KEY-FUND.
- Short-Term Obligations. Certain of the Proprietary Portfolios may hold
short-term obligations generally limited to "investment grade" liquid debt
securities such as commercial paper, certificates of deposit, bankers'
acceptances, repurchase agreements with maturities of less than seven days and
debt obligations backed by the full faith and credit of the U.S. Government.
Bankers' acceptances are instruments of domestic banks which are drafts or bills
of exchange "accepted" by a bank or trust company as an obligation to pay on
maturity. "Investment grade" obligations are those rated at the time of purchase
within the four highest rating categories assigned by a nationally recognized
statistical rating organization ("NRSRO") or, if unrated, are obligations that
the adviser or sub-adviser to the Proprietary Portfolio determine to be of
comparable quality. The applicable securities ratings are described in Appendix
A to the Statement of Additional Information.
- Futures Contracts. Certain Proprietary Portfolios may enter into contracts
for the future delivery of securities or foreign currencies and futures
contracts based on a specific security, class of securities, or an index, may
purchase or sell options on any such futures contracts and may engage in related
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
Futures transactions may require a Proprietary Portfolio to segregate assets
to cover contracts that require the Proprietary Portfolio to purchase securities
or currencies. A Proprietary Portfolio 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 the Proprietary Portfolio had not entered into any
futures transactions. In addition, the value of the Proprietary Portfolio's
futures positions may not prove to be perfectly or even highly correlated with
the value of its portfolio securities or foreign currencies, limiting the
Proprietary Portfolio's ability to hedge effectively against interest rate,
exchange 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.
- Securities Lending. In order to generate additional income, certain of the
Proprietary Portfolios may, from time to time, lend their portfolio securities.
Generally, the Proprietary Portfolio must receive collateral equal to 100% of
the securities' value in the form of cash or U.S. Government securities, plus
any interest due which collateral must be marked to market daily by the
Proprietary Portfolio's adviser or sub-adviser. Should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Proprietary Portfolio. During the time portfolio securities are on loan, the
borrower pays the Proprietary Portfolio amounts equal to any dividends or
interest paid on such securities plus any interest negotiated between the
parties to the lending agreement. Loans are subject to termination by the
Proprietary Portfolio or the borrower at any time. While a Proprietary Portfolio
does not have the right to vote securities on loan, the Proprietary Portfolios
intend to terminate any loan and regain the right to vote if that is considered
important with respect to the Proprietary Portfolio's investment.
- Options. Certain of the Proprietary Portfolios may purchase and sell (i.e.,
write) options on securities, indexes, and foreign currencies. Certain of the
Proprietary Portfolios may engage in writing call options from time to time as a
hedging device. Some of
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the Proprietary Portfolios will write only covered call options which,
generally, means that so long as the Proprietary Portfolio is obligated as the
writer of a call option, the Proprietary Portfolio will either own the
underlying securities subject to the call, or hold a call at the same exercise
price, for the same exercise period, and on the same securities as the call
written. Generally, such options must be listed on a national securities
exchange and issued by the Options Clearing Corporation.
Certain of the Proprietary Portfolios may write covered call options and
"covered" put options. A "covered" put option generally means that so long as
the Proprietary Portfolio is obligated as the writer of the put option, the
Proprietary Portfolio will maintain liquid assets with a value equal to the
exercise price in a segregated account with its custodian, or hold a put on the
same underlying security at an equal or greater exercise price. Options in which
certain Proprietary Portfolios invest may be traded on exchanges and in the
over-the-counter market.
Options can be volatile investments and involve certain risks, such as the
inability to close out the option because of an illiquid secondary market,
losses incurred due to poor correlation with other investments, or losses due to
application of a hedge at an inappropriate time or poor judgment of market
conditions by an investment adviser.
- Convertible Securities. Certain of the Proprietary Portfolios will purchase
convertible securities (typically a bond or preferred stock that may be
converted at a stated price within a specified period of time into a specified
number of shares of common stock of the same or a different issuer) which may or
may not be rated by an NRSRO, or may be rated below investment grade by an
NRSRO. Securities rated below investment grade are sometimes referred to as
"high yield" or "junk bonds." Further information concerning "junk bonds" is
discussed in the Statement of Additional Information.
As a fixed income security, a convertible security tends to increase in market
value when interest rates decline and decrease in value when interest rates
rise. However, because the price of a convertible security is also influenced by
the market value of the security's underlying common stock, the price of a
convertible security tends to increase as the market value of the underlying
stock increases, and decrease as the market value of the underlying stock
declines. While no securities investment is without some risk, investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.
- Illiquid Securities. Certain of the Proprietary Portfolios may invest a
portion of their net assets in illiquid securities, including securities
restricted as to disposition under the federal securities laws, securities as to
which there are no readily available market quotations and repurchase agreements
with a maturity in excess of seven days. However, illiquid securities for
purposes of this limitation generally do not include securities eligible for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "1933 Act"), which the Proprietary
Portfolio's Board of Directors or Trustees or its investment adviser has
determined are liquid. Such a determination would take into consideration, among
other factors, valuation, liquidity and availability of information. An
insufficient number of qualified institutional buyers interested in purchasing
Rule 144A securities held by the Proprietary Portfolios could adversely affect
the liquidity of such securities. A Proprietary Portfolio might be unable to
dispose of such securities promptly or at reasonable prices.
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MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The Directors, in addition to reviewing the actions of the Funds' Adviser,
Administrator and Distributor, as set forth below, decide upon matters of
general policy. The Company's officers conduct and supervise the daily business
operations of the Funds. The names, addresses and business affiliations of the
Directors and officers of the Company are set forth in the Statement of
Additional Information.
THE INVESTMENT ADVISER
The investment adviser to the Funds is KeyCorp Mutual Fund Advisers, Inc., an
Ohio corporation that is registered as an investment adviser with the
Commission. The Adviser is a wholly owned subsidiary of KeyCorp Asset Management
Holdings, Inc. and is an indirect wholly owned subsidiary of KeyBank National
Association, which is a wholly owned subsidiary of KeyCorp, one of the largest
financial services holding
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companies in the United States. KeyCorp's principal offices are located at 127
Public Square, Cleveland, Ohio 44114.
The Adviser and its affiliates, as of September 30, 1996, managed
approximately $49 billion in assets for numerous clients including large
corporate and public retirement plans, Taft-Hartley plans, foundations and
endowments, high net worth individuals and mutual funds. The Adviser's principal
offices are located at 127 Public Square, Cleveland, Ohio 44114. Key Advisers is
newly formed, but many of its professionals have managed mutual funds in their
capacity as employees of other subsidiaries of KeyCorp. Key Advisers was
organized as an Ohio corporation on July 27, 1995, and is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended.
Pursuant to an Asset Management Agreement, the Adviser furnishes a continuous
investment program for the Funds, makes the day-to-day investment decisions for
the Funds, executes purchase and sale orders for the portfolio transactions of
the Funds and generally manages the Funds' investments in accordance with the
stated policies of the Funds, subject to the general supervision of the Board of
Directors of the Company.
The Asset Management Agreement also provides that Key Advisers may delegate a
portion of its responsibilities to a sub-adviser. In addition, the Asset
Management Agreement provides that Key Advisers may render services through its
own employees or through the employees of one or more affiliated companies that
are qualified to act as investment adviser to 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 that is managed by authorized officers of Key
Advisers.
Under the Asset Management Agreement, as compensation for the services
rendered and related expenses borne by the Adviser, each Fund will pay the
Adviser a fee, computed daily and payable monthly, equal to 0.20% per annum of
the Fund's average daily net assets. Key Advisers may periodically waive all or
a portion of its advisory fees.
Each Fund's investments are managed by the KeyChoice Allocation Committee of
Key Advisers, and no one person is primarily responsible for making investment
recommendations to the Committee.
THE ADMINISTRATOR, DISTRIBUTOR AND
FUND ACCOUNTANT
BISYS Fund Services ("BISYS" or the "Administrator") serves as the
administrator for the Funds. The Administrator generally assists in all aspects
of the Funds' administration and operation. Pursuant to the Administration
Agreement between the Administrator and the Company, for expenses incurred and
services provided as Administrator, BISYS receives a fee from each Fund,
computed daily and paid monthly, at an annual rate of 0.01% of a Fund's average
daily net assets. The Administrator may periodically waive all or a portion of
its administration fee with respect to a Fund.
BISYS also serves as the independent underwriter and distributor of the shares
of the Funds (the "Distributor"). Pursuant to the Distribution Agreement between
the Company and the Distributor, BISYS is obligated to use its best efforts to
sell shares of the Funds. In addition, under the Distribution Agreement, BISYS
may enter into agreements with selected dealers for the distribution of shares.
Key Advisers neither participates in nor is responsible for the underwriting of
Fund shares.
The Distributor, at its own expense, may provide cash compensation to dealers
in connection with sales of shares of the Funds. The maximum cash compensation
payable by the Distributor is 0.25%, on an annual basis, of the net asset value
of the shares of a Fund. In addition, the Distributor will, from time to time
and at its own expense, provide compensation, including financial assistance, to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding one or more
Key Mutual Funds and/or other dealer-sponsored special events, including payment
for travel expenses and lodging incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging; (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Funds' shares to
qualify for this compensation if prohibited by the laws of any state or any
self-regulatory organization, such as
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the NASD. None of the aforementioned compensation is paid for by the Funds or
their shareholders.
BISYS Fund Services, Inc. ("BISYS, Inc." or the "Fund Accountant") provides
the Funds with certain accounting services pursuant to a Fund Accounting
Agreement with the Company, and receives a fee from each Fund for such services.
Morrison & Foerster LLP, counsel to the Company, has advised the Company that
Key Advisers and its affiliates may perform the services contemplated by the
Asset Management Agreement and this Prospectus without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial and administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If such entities were prohibited from performing any of such services,
it is expected that new arrangements would be proposed or entered into with
another entity or entities qualified to perform such services.
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EXPENSES, DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
- --------------------------------------------------------------------------------
Except as set forth above under "Management of the Funds" and as set forth
below, each of the Funds bears the expenses directly applicable to it and a
portion of the general administrative expenses, applicable to all the Funds,
which may be allocated among the Funds in a manner believed to be fair and
equitable. Expenses that are directly applicable to a Fund include expenses of
portfolio transactions, shareholder servicing costs, expenses of registering the
shares under federal and state securities laws, pricing costs (including the
daily calculation of net asset value), interest, certain taxes, legal and
auditing expenses directly incurred by the Fund, and charges of Key Advisers,
BISYS, the Custodian, the Fund Accountant, the Servicing Agent and the Transfer
Agent. General expenses which would be allocated include directors' fees,
general corporate legal and auditing expenses, state franchise taxes, costs of
printing and mailing proxies, shareholder reports and prospectuses sent to
existing shareholders, trade association fees, Commission fees and accounting
costs. For further information see "Expenses, Distributor and Distribution Plan"
in the Statement of Additional Information.
The expenses associated with investing in a "fund of funds," such as the
Growth, Moderate Growth, and Income and Growth Funds, are generally higher than
those of investment companies that do not invest in other mutual funds. These
increased expenses stem from the fact that investors must indirectly pay a
portion of the operating costs of the Underlying Portfolios. The structure of
the Funds will avoid layering of costs to a meaningful extent based on the fact
that (a) any advisory fees charged are based on services that are in addition
to, and not duplicative of, services provided under any Underlying Portfolio's
advisory contract; (b) the Funds pay no front-end or contingent deferred sales
charges in connection with the purchase or redemption of shares of the
Underlying Portfolios; (c) to the extent required by the 1940 Act or Commission
exemptive order any sales charges, distribution-related fees or service fees
related to the shares of the Funds do not exceed the limits set forth in the
NASD's Conduct Rules when aggregated with any sales charges,
distribution-related fees or service fees that the Funds may pay relating to
acquisition, holding or disposition of Underlying Portfolio shares; (d)
administrative and other fees charged by both the Funds and the Underlying
Portfolios are not redundant inasmuch as distinct services are being provided at
each level; and (e) any additional incremental cost incurred by investing in the
Funds is in return for a substantial investment management service, namely the
initial and ongoing asset allocation of investments made in the Underlying
Portfolios, and provision of meaningful additional diversification benefits.
The Company has adopted a Shareholder Servicing Plan for the Funds. In
accordance with the Shareholder Servicing Plan, the Company, on behalf of the
Funds, may enter into shareholder service agreements under which each Fund may
pay fees of up to 0.25% of its average daily net assets for fees incurred in
connection with the personal service and the maintenance of accounts holding the
shares of the Funds. Such agreements are entered between the Company, on behalf
of the Funds, and various shareholder servicing agents, including the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each a "Shareholder
15
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Servicing Agent"). Each Shareholder Servicing Agent generally will provide
support services to shareholders by establishing and maintaining accounts and
records, processing dividend and distribution payments, providing account
information, arranging for bank wires, responding to routine inquiries,
providing recordkeeping services, forwarding shareholder communications,
assisting in the processing of purchase, exchange and redemption requests and
assisting shareholders in changing dividend options, account designations and
addresses. Shareholder Servicing Agents may periodically waive all or a portion
of their respective shareholder servicing fees with respect to the Funds.
The Company has also adopted a Distribution Plan (the "Distribution Plan") for
the Funds pursuant to Rule 12b-1 under the 1940 Act. No separate payments are
authorized to be made by the Funds under the Plan. Rather, the Plan provides
that to the extent any portion of the fees payable under the Shareholder
Servicing Plan or any Shareholder Servicing Agreement (described above) is
deemed to be for services primarily intended to result in the sale of Fund
shares, such fees are deemed approved and may be paid pursuant to the Plan and
in accordance with Rule 12b-1.
Each Fund is actively managed and has no restrictions upon portfolio turnover.
The annual turnover rate of each Fund is not expected to exceed 100%.
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DETERMINATION OF NET ASSET VALUE
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The net asset values ("NAV") of the shares of the Growth Fund, Moderate Growth
Fund, and Income and Growth Fund are determined and their shares are priced as
of the close of regular trading of the New York Stock Exchange ("NYSE"), which
is normally at 4:00 P.M. Eastern time, each Business Day (the "Valuation Time").
A "Business Day" is a day on which the NYSE is open for trading. The NYSE is
closed in observance of the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
In general, a Fund's net asset value per share is determined by dividing the
total value of all underlying fund investments and securities held (valued at
current market value or by other methods approved by the respective Board of the
Underlying Portfolios) and other assets, less liabilities, by the total number
of shares outstanding.
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PURCHASING SHARES
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Shares may be purchased directly or through an Investment Professional of a
securities broker or other financial institution that has entered into selling
or servicing agreements with KeyFunds or BISYS. An Investment Professional is a
salesperson, financial planner, investment adviser or trust officer who provides
you with information regarding the investment of your assets. Shares are also
available to clients of bank trust departments who have qualified trust
accounts. The minimum investment is $500 ($250 for Individual Retirement
Accounts) for the initial purchase and $25 thereafter. Accounts set up through a
bank trust department or an Investment Professional may be subject to different
minimums, features, requirements and fees. Your Investment Professional will
provide this information to you.
Shares of the Funds are sold at the net asset value per share (see
"Determination of Net Asset Value") next determined after receipt and acceptance
by Boston Financial Data Services, Inc., the Funds' servicing agent (the
"Servicing Agent"), of an order to purchase shares. There are no front-end or
contingent deferred sales charges.
Purchases of shares will be effected only on a Business Day of the Fund (as
defined in "Determination of Net Asset Value"). An order received prior to the
Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on that Business Day. An order received
after the Valuation Time on any Business Day will be executed at the net asset
value determined as of the Valuation Time on the next Business Day of KeyChoice
Funds.
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INVESTING DIRECTLY
BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum investment
requirement to:
KeyFunds
P.O. Box 8527
Boston, MA 02266-8527
Subsequent purchases may be made in the same manner.
BY TELEPHONE:
Subsequent purchases of shares of the Funds may be made by telephone if you
have checked the Telephone Authorization box and supplied the necessary bank
information on the Account Application. In order to complete your transaction by
ACH or wire, you should read the following sections.
BY ACH:
If an Account Application has been previously received by the Servicing Agent,
the purchase amount can be transferred between the bank account designated and
your fund account via Automated Clearing House ("ACH"). Only a bank account
maintained in a domestic financial institution which is an ACH member may be so
designated. The Funds may modify or terminate the telephone and/or ACH privilege
at any time or charge a service fee upon notice to shareholders. No such fee is
currently contemplated. If the designated bank account does not contain
sufficient assets at the time your order is processed, the order may be
cancelled, and you could be liable for resulting fees and/or losses. Note that
this service requires approximately 15 days to establish. Therefore, it may not
be appropriate to request your initial purchase utilizing this method.
BY WIRE:
If an Account Application has been previously received by the Servicing Agent,
you may purchase shares by wiring funds to: State Street Bank and Trust Company,
ABA #011000028, for Credit to DDA Account #9905-201-1, for Further Credit to
KeyFunds Account # (insert your account number, name and control number assigned
by the Servicing Agent). The Transfer Agent does not charge a wire fee. PRIOR TO
WIRING ANY FUNDS AND IN ORDER TO ENSURE THAT WIRE ORDERS ARE INVESTED PROMPTLY,
YOU MUST CALL THE FUNDS' SERVICING AGENT AT 800-KEY-FUND.
INVESTING THROUGH INVESTMENT PROFESSIONALS OR A BANK TRUST DEPARTMENT
Shares may be purchased by investors who designate an Investment Professional
or a bank trust department through procedures established by the Servicing Agent
in connection with requirements of qualified accounts maintained by or on behalf
of certain persons by Investment Professionals and bank trust departments. An
Investment Professional is a salesperson, financial planner, investment adviser
or trust officer who provides you with information regarding the investment of
your assets. With respect to such purchases, it is the responsibility of the
Investment Professional or a bank trust department to transmit purchase orders
to the Servicing Agent and to deliver federal funds for purchase on a timely
basis in order to obtain the price then in effect. Accounts set up through an
Investment Professional or bank trust department may be subject to different
minimums, features, requirements and fees in connection with purchases and
redemptions of shares. Contact your Investment Professional or trust
representative for complete information. Investors should note that they may not
be able to access their account on days on which the Funds are open for business
but their Investment Professional's office or bank trust department is closed.
The services rendered by your bank trust department, including affiliates of
Key Advisers, in the management of its accounts are not duplicative of any of
the services for which Key Advisers is compensated. The additional fees paid by
clients of bank trust departments, their affiliates, or an Investment
Professional should be considered in calculating the net yield on an investment
in a Fund, although such charges do not affect the Fund's dividends or
distributions.
ADDITIONAL INVESTMENT REQUIREMENTS
All purchases must be made in U.S. dollars. Checks must be drawn on U.S.
banks. No cash will be accepted. All purchases made by check should be made
payable to KeyFunds, or, in the case of a retirement account, to the custodian
or trustee. Third party checks will not be accepted. When purchases are made by
check or periodic account investment, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 calendar days. If you
make a purchase with more than one check, each
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check must have a value of at least $25, and the minimum investment requirement
still applies. KeyFunds and its servicing agents reserve the right to limit the
number of checks processed at one time. If your check does not clear, your
purchase may be canceled and you could be liable for any losses and/or fees
incurred. Payment for purchase is expected at the time of the order. If payment
is not received within three business days of the order, the order may be
canceled, and you could be held liable for resulting fees and/or losses.
Although the Funds continuously offer their shares for sale, each Fund reserves
the right to reject any purchase request.
You may initiate most transactions by telephone through your Investment
Professional or bank trust department. Subsequent investments by telephone may
also be made directly by calling the Servicing Agent toll-free at 800-KEY-FUND.
Note that the Company and its agents will not be responsible for any losses
resulting from unauthorized telephone transactions if they follow reasonable
procedures designed to verify the identity of the caller. These procedures may
include requesting additional information or using personalized security codes.
Your Investment Professional or the Servicing Agent may also record calls, and
you should verify the accuracy of your confirmation statements immediately after
you receive them. The Servicing Agent may reject any purchase order for the
Funds' shares within its sole discretion.
Periodically, you will receive a statement reflecting all transactions that
affect the share balance or the registration of your Fund account. You will
receive a confirmation after every transaction that affects the share balance of
your Fund account, except for dividend reinvestment, systematic investment and
systematic withdrawal transactions. These transactions will be detailed in your
Fund account statement. The Funds do not issue share certificates.
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THE SYSTEMATIC INVESTMENT PLAN
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Under the Systematic Investment Plan, you may make regular systematic
purchases of shares of a Fund through automatic deductions from your bank
account(s). Upon obtaining your authorization, the Servicing Agent will deduct
the specified amount from your designated bank account, which will then be
automatically invested in shares of the relevant Fund at the net asset value
next determined. Bank accounts will be debited on any day from the 1st through
the 28th of each month, as selected by the shareholder. You must first meet a
Fund's initial investment requirement of $500, then investments may be made
monthly, quarterly, semi-annually or annually by automatically deducting $25 or
more from your bank account. For officers, trustees, directors and employees,
including retired directors and employees, of Key Advisers, Spears, KeyFunds,
BISYS, KeyCorp and their affiliates, (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required.
To participate in the Systematic Investment Plan, complete the appropriate
section of the Account Application and attach a voided personal check with the
bank's magnetic ink coding number across the front. If your account is jointly
owned, all owners must sign. Account applications can be obtained by calling the
Servicing Agent. To change or discontinue existing Systematic Investment Plan
instructions, submit a written request to or call the Servicing Agent at 800-
KEY-FUND.
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THE SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
The Systematic Withdrawal Plan enables shareholders to make regular monthly,
quarterly, semi-annual or annual redemptions of shares. With your authorization,
the Servicing Agent will automatically redeem shares at the net asset value on
the date of the withdrawal and have the proceeds transferred according to your
written instructions. Fund accounts will be debited on any day you select from
the 1st through the 28th of each month.
You may have proceeds sent from your Fund account directly to you, to your
bank account or to a third person. If you opt to have the proceeds sent to your
bank account, a voided personal check with the bank's magnetic ink coding number
across the front must be attached to the Account Application. The proceeds
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will be transferred between your Fund account and the bank account via ACH. If
the bank account is jointly owned, all owners must sign.
To participate in the Systematic Withdrawal Plan, the required minimum balance
is $5,000. The required minimum withdrawal is $25.
Systematic Withdrawal Plan payments are drawn from share redemptions. If
Systematic Withdrawal Plan redemptions exceed dividend income and capital gain
distributions earned on Fund shares, the Fund account may be depleted. Purchases
of additional shares concurrent with withdrawals may be disadvantageous to
certain shareholders because of tax liabilities. The Systematic Withdrawal Plan
is not necessarily appropriate for use in conjunction with the Systematic
Investment Plan. To change or terminate Systematic Withdrawal Plan instructions,
submit a written request to, or call the Servicing Agent at 800-KEY-FUND. Your
account cannot be closed automatically by depleting the assets in your
Systematic Withdrawal Plan. The Systematic Withdrawal Plan may be modified or
terminated at any time without notice.
If the amount of the automatic withdrawal exceeds the income accrued for the
period, the principal balance invested will be reduced as shares are redeemed.
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REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares may ordinarily be redeemed by mail or telephone. However, all or part
of your shares may be redeemed in accordance with instructions and limitations
pertaining to your account with an Investment Professional. For example, if you
have agreed with an Investment Professional to maintain a minimum balance in
your account, and the balance in that account falls below that minimum, you may
be obligated to redeem, or the Investment Professional may redeem for you and on
your behalf, all or part of your shares.
BY MAIL:
In order to redeem shares by mail, send a written request to:
KeyFunds
P.O. Box 8527
Boston, MA 02266-8527
The Servicing Agent may require a signature guarantee by an eligible guarantor
institution. A signature guarantee is designed to protect you, the Fund, and the
Fund's agents from fraud. A written redemption request requires a signature
guarantee for redemptions of more than $10,000 worth of shares; if your Fund
account registration has changed within the last 15 days; if the check is not
being mailed to the address on your account; if the check is not being made out
to the account owner; or if the redemption proceeds are being transferred to
another account within KeyFunds or The Victory Portfolios with a different
registration. The following institutions should be able to provide you with a
signature guarantee: banks, brokers, dealers, credit unions (if authorized under
state law), securities exchanges and associations, clearing agencies, and
savings associations. A signature guarantee may not be provided by a notary
public. The Servicing Agent reserves the right to reject any signature guarantee
if (1) it has reason to believe that the signature is not genuine, (2) it has
reason to believe that the transaction would otherwise be improper, or (3) the
guarantor institution is a broker or dealer that is neither a member of a
clearing corporation nor maintains net capital of at least $100,000.
BY TELEPHONE:
Arrangements for the payment of redemption proceeds may be made by telephone
if you have checked the Telephone Authorization box and supplied the necessary
bank information on the Fund's Account Application. Proceeds may be wired to a
domestic financial institution, sent via ACH, mailed to the address of record,
or mailed to a previously designated alternate address. If you select the ACH
method, only a bank account maintained in a domestic financial institution which
is an ACH member may be so designated.
It is not necessary to confirm telephone redemption requests in writing. If
you did not originally select the telephone authorization privilege, you must
provide written instructions as well as a signature guarantee to the Servicing
Agent to add this feature. Neither the Company nor its service agents will be
liable for any loss, damages, expense or cost arising out of any telephone
redemption effected in accordance with the Company's telephone redemption
procedures and pursuant to instructions reasonably believed to be
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genuine. The Company will employ procedures designed to provide reasonable
assurance that instructions by telephone are genuine; if these procedures are
not followed, the Company or its service agents may be liable for any losses due
to unauthorized or fraudulent instructions. These procedures include, but are
not limited to, recording of phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verifying account
name and account number or tax identification number, and sending redemption
proceeds to the address of record, a previously designated bank account or
alternate address. For telephone redemptions, call the Servicing Agent at
800-KEY-FUND. If you are unable to reach the Servicing Agent by telephone (for
example, during time of unusual market activity), consider placing your order by
mail directly to the Servicing Agent at the above address.
ADDITIONAL REDEMPTION INFORMATION
Redemption orders are effected at the net asset value per share next
determined after the shares are properly tendered for redemption, as previously
described. The proceeds paid upon redemption of shares in a Fund may be more or
less than the amount invested. A redemption, including those under the
Systematic Withdrawal Plan, may therefore result in a gain or loss for federal
income tax purposes. Generally, payment to shareholders for shares redeemed will
be made within three business days after receipt by the Servicing Agent of the
request for redemption in proper form.
At various times, redemption of shares of a Fund may be requested for which
good payment has not yet been received. Redemption proceeds from the sale of
shares purchased by check may be held until the purchase check has cleared. The
Funds intend to pay cash for all shares redeemed.
Due to the relatively high cost of handling small investments, KeyFunds
reserves the right to redeem, at net asset value, shares in your account if,
because of redemptions of shares by you or on your behalf, your account with
respect to a Fund has a value of less than $500 (except with respect to
officers, trustees, directors and employees, including retired directors and
employees, of Key Advisers, Spears, KeyFunds, BISYS, KeyCorp and their
affiliates (and family members of each of the foregoing), participating in the
Systematic Investment Plan, to whom no minimum balance requirement applies).
Before KeyFunds exercises the right to redeem such shares and to send the
proceeds to you, you will be given notice that the value of the shares in your
account is less than the minimum amount and will be allowed 60 days to make
additional investments in the Fund which will increase the value of the account
to at least $500, if applicable. In some cases, involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders. IRA and retirement accounts are exempt from this mandatory redemption.
KeyFunds reserves the right to reject any order for the purchase of its shares
in whole or in part. The Funds may suspend the right of redemption during any
period when (a) trading on the NYSE is restricted as determined by the
Commission or such Exchange is closed, other than customary weekend and holiday
closings; (b) the Commission has by order permitted such suspension or
postponement; or (c) an emergency, as defined by rules of the Commission, exists
making disposal of portfolio securities or determination of the value of assets
of the Funds not reasonably practicable. In case of a suspension of the right of
redemption, the offer of redemption may be withdrawn by the shareholder or
payment will be sent to the shareholder at the net asset value next determined
after the suspension has been terminated.
The redemption price for shares of a Fund will vary from day to day because
the value of the securities in the Fund fluctuates, and the value of your shares
may be more or less than their original cost.
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EXCHANGE PRIVILEGE
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Shares of a Fund may be exchanged for:
- - Shares of another fund of KeyFunds;
- - Key Class shares of a Victory Portfolio, when and if they become available;
and
- - Shares of money market funds of The Victory Portfolios.
Such exchanges will be made on the basis of the relative net asset value of
the shares of the respective funds.
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Shares of a Fund may also be exchanged for Class A or Class B shares of The
Victory Portfolios. However, to the extent that the particular class of shares
of the Fund into which you desire to exchange imposes a front-end or contingent
deferred sales charge, such sales charge will be applicable, absent an available
waiver. In this regard, you should note that:
- - A front-end sales charge of up to 4.75% will be imposed at the time of the
exchange into Class A Shares of a Victory Portfolio; and
- - An exchange into Class B Shares of a Victory Portfolio will be effected at net
asset value, but a contingent deferred sales charge of up to 5.0% may be
imposed at the time such Class B Shares are redeemed (depending on the number
of years the investment in the Class B Shares is maintained).
Shares of a KeyChoice Fund may be exchanged at net asset value for Class A
shares of a Victory Portfolio if the transaction qualifies for a waiver of the
applicable sales charge. See the prospectus for The Victory Portfolio into which
you wish to exchange for information concerning applicable front-end or
contingent deferred sales charges.
To exchange shares, several conditions must be met:
(1) Shares of the fund selected for exchange must be available for sale in your
state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy must
offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days,
you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you purchase by
exchange.
(5) The registration and tax identification numbers of the two accounts must be
identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH TO
PURCHASE BY EXCHANGE.
Telephone exchange requests may be made either by calling your Investment
Professional or the Servicing Agent at 800-KEY-FUND prior to Valuation Time on
any Business Day. (See "Determination of Net Asset Value.")
Exchanges of shares involve a redemption of the shares exchanged and a
purchase of the shares acquired. There are certain exchange policies you should
be aware of:
- - Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Servicing Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern
time for non-money market funds) that is in proper form. Either fund may delay
the issuance of shares of the fund into which you are exchanging if it
determines it would be disadvantaged by a same-day transfer of the proceeds to
buy shares. For example, the receipt of multiple exchange requests from a
dealer in a "market-timing" strategy might create excessive turnover in the
Fund's portfolio and associated expenses disadvantageous to the Fund.
- - Excessive shareholder trading can hurt fund performance and harm other
shareholders. The Funds reserve the right to refuse any exchange request or
multiple exchange requests submitted by a shareholder or a dealer if they are
excessive or could cause harm to other shareholders.
- - Key Mutual Funds may amend, suspend or terminate the exchange privilege at any
time upon 60 days' written notice to shareholders.
- - If the Servicing Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible will be exchanged.
- - Each exchange may result in a gain or loss for federal income tax purposes.
See "Redeeming Shares -- By Telephone" for a discussion of certain limitations
on the liability of the Funds and the Servicing Agent in connection with
unauthorized telephone transactions.
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INVESTING FOR RETIREMENT
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You may wish to invest in KeyFunds in connection with Individual Retirement
Accounts (IRAs) and other retirement plans such as Simplified Employee Pension
Plans (SEP/IRA), Salary Reduction Simplified Employee Pensions Plans
(SAR-SEP/IRA), Savings Incentive Match Plans for Employees (SIMPLE Plans),
401(k) Plans, and 403(b) Plans. For more information about investing in KeyFunds
through tax-deferred accounts, call 800-KEY-FUND.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund ordinarily declares and pays dividends from net investment income,
each calendar quarter. Each Fund's realized capital gains, if any, are
distributed to shareholders annually. Unless a Fund's shareholder instructs
otherwise, such dividends and capital gain distributions will be reinvested in
additional shares, at net asset value as of the close of the NYSE on the date
fixed by the Board of Directors when the dividend or distribution is declared.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want your
dividends and distributions handled. Currently, there are five available
options:
1. Reinvestment Option. Your dividends and capital gain distributions, if any,
will be automatically reinvested in additional shares of the Fund. Dividends
and capital gain distributions will be reinvested at the net asset value of
the Fund as of the day after the record date. If you do not indicate a choice
on your Account Application, you will be assigned this option.
2. Cash Option. You will receive a check for each dividend and/or capital gain
distribution, if any. Checks will be mailed no later than seven days after
the distribution payment date, which may be more than seven days after the
dividend record date.
3. Income Earned Option. You will have your capital gain distributions, if any,
reinvested automatically in the Fund at the NAV as of the day after the
record date, and have your dividends paid in cash.
4. Directed Dividends Option. You will have dividends and/or capital gain
distributions automatically reinvested in shares of another KeyFund, in
shares of a Victory Fund or in Key Class shares of a Victory Fund, when and
if such shares become available, as you have designated. Shares will be
purchased at the NAV as of the day after the record date. If you are
reinvesting dividends of a fund sold without a sales charge in shares of a
fund sold with a sales charge, the shares will be purchased at the public
offering price (i.e., subject to the applicable sales charge). Similarly, if
you are reinvesting dividends of a fund that does not impose a contingent
deferred sales charge upon redemption in shares of a fund which does impose
such a charge, a contingent deferred sales charge may be imposed on the
redemption of the shares acquired with reinvested dividends. Distributions
can be directed only to an existing account with a registration that is
identical to that of your Fund account.
5. Directed Bank Account Option. You will have your dividends and/or capital
gain distributions automatically transferred to your bank checking or savings
account. The amount will be determined on the dividend record date and will
normally be transferred to your account within seven days of the record date.
Distributions can be directed only to an existing account with a registration
that is identical to that of your Fund account. Please call or write the
Servicing Agent to learn more about this option.
Any election or revocation of any of the above dividend and distribution
options may be made in writing to a Fund and sent to KeyFunds, P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Servicing Agent at 800-KEY-FUND, and
will become effective with respect to dividends/distributions having record
dates after receipt of the Account Application or request by the Servicing
Agent.
Reinvested dividend or capital gain distributions receive the same tax
treatment as dividend or capital gain distributions paid in cash.
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FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), as a regulated investment company so long as
it is in the best interest of its shareholders to do so. This qualification
relieves each Fund (but not their shareholders) from incurring federal income
tax on taxable income which it distributes to shareholders, assuming certain
distribution and investment requirements are met. These investment requirements
may limit a Fund's ability to dispose of shares of Underlying Portfolios held
less than three months. Dividends paid from net investment income and any net
short-term capital gains will be taxable to Fund shareholders as ordinary income
and distributions from net
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<PAGE> 30
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long-term capital gains (the excess of long-term capital gain over short-term
capital loss) will be taxable to Fund shareholders as capital gain, regardless
of how long Fund shares are held. Such dividends and capital gain distributions
will generally be taxable to recipient shareholders, irrespective of whether
such payments are taken in cash or automatically reinvested in Fund shares.
Corporate shareholders may be eligible for the dividends received deduction on
the dividends paid by a Fund to the extent that the Fund's income is derived
from certain dividends received from domestic corporations, as long as the
corporate shareholder holds the Fund share upon which the eligible dividends
were paid for at least 46 days.
Generally, dividends and distribution of capital gains are taxable to
shareholders when paid. However, such dividends and distributions declared in
October, November or December and made payable to shareholders of record in such
a month are treated as paid and are therefore taxable as of December 31,
provided that the dividends and distributions are actually paid no later than
January 31 of the following year. In addition, a 4% nondeductible excise tax
will be imposed on each Fund (other than to the extent of the Fund's tax-exempt
income) to the extent it does not meet certain minimum distribution requirements
by the end of each calendar year. Each Fund will either actually, or be deemed
to, distribute substantially all of its net investment income and net capital
gains by the end of each calendar year and, thus, expects not be subject to the
excise tax.
Dividends and capital gain distributions have the effect of reducing the NAV
per share by the amount distributed. Although a dividend or capital gain
distribution paid to a shareholder on newly issued or acquired Fund shares
shortly after purchase would represent, in substance, a return of capital, the
distribution would nevertheless be attributable to net investment income or net
realized capital gains, and therefore be taxable to the shareholder.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year.
Notwithstanding the above, any loss realized by a shareholder upon the sale of
shares in a Fund held six months or less will be treated as long-term capital
loss to the extent of any long-term capital gain distributions received by the
shareholder.
The Servicing Agent will inform you of the amount and nature of dividends and
capital gain distributions made during the calendar year in January of the
following year. You should keep all statements you receive to assist you in your
record keeping. The Company may be required to withhold, subject to certain
exemptions, at the rate of 31% on dividends, capital gain distributions and
redemption proceeds (and deemed proceeds from exchanges) paid or credited to a
shareholder, unless the shareholder provides a correct tax identification number
(generally, the shareholder's social security number) and, upon establishing an
account with the Servicing Agent, certifies on the account application that the
shareholder is not subject to backup withholding, or the IRS notifies the Fund
that the shareholder is subject to back-up withholding. Moreover, failure to
furnish a correct tax identification number to the Servicing Agent could subject
an investor to penalties imposed by the IRS.
Dividends and distributions are generally subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
For additional tax-related information, see "Federal Income Taxes" in the
Statement of Additional Information.
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PERFORMANCE
- --------------------------------------------------------------------------------
From time to time a Fund may present the "yields" and "total return" of its
shares in advertisements, sales literature and in reports to shareholders. Yield
and total return figures are based on historical earnings and are not intended
to indicate future performance. The yield on shares of a Fund will be calculated
by dividing the net investment income per share during a recent 30-day (or one
month) period by the maximum public offering price per share of the Fund on the
last day of that period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. The "total return" of shares may be
calculated on an average annual total return basis or an aggregate total return
basis. Average annual total return refers to
23
<PAGE> 31
- --------------------------------------------------------------------------------
the average annual compounded rates of return on shares over one-, five-, and
ten-year periods or the life of the Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of the stated period to
the ending redeemable value of the investment, assuming the reinvestment of all
dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
Investors may also judge, and KeyFunds may at times advertise, the performance
of the Funds by comparing any such Fund's performance to the performance of
other mutual funds with comparable investment objectives and policies, which
performance may be contained in various unmanaged mutual fund or market indices
or rankings such as those prepared by Dow Jones & Co., Inc., Lehman Brothers,
Merrill Lynch and Salomon Brothers, Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey, Ibbottson
Associates, Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Investor, U.S.A. Today and local newspapers. In addition,
general information about a Fund that appears in publications such as those
mentioned above may also be quoted or reproduced in advertisements, sales
literature or in reports to shareholders.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts and similar investment alternatives which often
provide for an agreed-upon or guaranteed fixed yield for a stated period of
time. Additional information regarding the performance of each of the Funds is
included in the Statement of Additional Information which is available free of
charge by calling 800-KEY-FUND. In addition, each Fund's annual report will
contain additional performance information and will be available without charge
upon request.
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company is an open-end, series management investment company, incorporated
under Maryland law on May 26, 1983. Pursuant to the Articles of Incorporation,
the Board of Directors has authorized the issuance of nine series of shares,
each representing shares in one of nine separate Funds. Pursuant to such
authority, the Board of Directors may authorize the creation of additional
series of shares. The par value of the shares of each of the Funds is $.01 per
share. The assets of each Fund are segregated and separately managed and a
shareholder's interest is in the assets and earnings of the Fund in which shares
are held. Each share of a Fund represents an equal proportionate interest in
that portfolio with each other share of the same series. In the event of the
liquidation or dissolution of the Company, shares of a Fund are entitled to
receive the assets belonging to that portfolio that are available for
distribution and a proportionate distribution, based upon the relative net
assets of the respective Funds, of any general assets not belonging to any
particular portfolio that are available for distribution. Shareholders are
entitled to one vote for each share held and will vote in the aggregate and not
by portfolio except as otherwise required by the 1940 Act or Maryland law. It is
anticipated that the Company will not hold annual shareholder meetings except
when required to do so by the 1940 Act or Maryland law.
24
<PAGE> 32
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CUSTODIAN, TRANSFER AGENT, SERVICING AGENT
AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114, is
the custodian for the Funds' cash and securities ("Key Trust" or the
"Custodian"). Key Trust does not assist in any way, and is not responsible for,
investment decisions involving assets of the Funds. Key Trust is a subsidiary of
KeyCorp and an affiliate of the Adviser and receives compensation from the Funds
for the services it performs as Custodian.
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110,
the Funds' Transfer Agent, subcontracts the performance of required services to
Boston Financial Data Services, Inc., at Two Heritage Drive, Quincy, MA 02171,
which also acts as the Dividend Disbursing Agent and Servicing Agent for the
shares of the Funds and receives a fee for these services.
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS
- --------------------------------------------------------------------------------
The Funds will prepare and send to shareholders unaudited semi-annual and
audited annual reports which will include a list of the Underlying Portfolio
shares and other investment securities held by each of the Funds.
Shareholders of the Funds will also receive information periodically
summarizing their Fund's investment performance. In addition, shareholders may
receive an updated Prospectus or supplements to this Prospectus. The Funds
intend to eliminate duplicate mailings of communications to an address which
more than one shareholder of record with the same last name has indicated that
mail is to be delivered. Shareholders may receive additional copies of any
materials at no cost by writing to the Funds at the address below or by calling
800-KEY-FUND or 800-539-3863. In addition, shareholders of the Funds will
receive a periodic cumulative account statement for the calendar year.
Shareholder inquiries should be addressed to the Funds at KeyFunds, P.O. Box
8527, Boston, MA 02266-8527. Shareholders may also call the Funds at 800-KEY
FUND.
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KEY MUTUAL
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY KEY
MUTUAL FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
25
<PAGE> 33
KEY MUTUAL FUNDS
INVESTMENT ADVISER
KeyCorp Mutual Fund Advisors, Inc.
127 Public Square
Cleveland, OH 44114
DISTRIBUTOR & ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Washington, DC 20006
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
SERVICING AGENT
Boston Financial Data Services, Inc.
Two Heritage Drive
Quincy, MA 02171
The date of this Prospectus is December 16, 1996
<PAGE> 34
KEY MUTUAL FUNDS
KEYCHOICE GROWTH FUND
KEYCHOICE MODERATE GROWTH FUND
KEYCHOICE INCOME AND GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 16, 1996
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of Key Mutual Funds for KeyChoice Growth
Fund, KeyChoice Moderate Growth Fund, and KeyChoice Income and Growth Fund,
dated December 16, 1996, as supplemented from time to time. This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus for the KeyChoice Growth Fund, KeyChoice Moderate Growth Fund, and
KeyChoice Income and Growth Fund. A copy of the Prospectus may be obtained by
writing to Key Mutual Funds at P.O. Box 8527, Boston, MA 02266-8527, or by
telephoning toll free 800-KEY-FUND or 800-539-3863.
<PAGE> 35
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES 3
Additional Information on Fund Investments 3
Additional Information Regarding Certain of the
Proprietary Portfolios' Investments 6
INVESTMENT RESTRICTIONS OF THE FUNDS 23
PORTFOLIO TURNOVER 26
MANAGEMENT OF THE FUNDS 26
MANAGEMENT OF THE PROPRIETARY PORTFOLIOS 29
SECURITY HOLDERS 31
THE INVESTMENT ADVISER OF THE FUNDS 31
The Investment Advisers of the Proprietary Portfolios 33
ADMINISTRATOR OF THE FUNDS 38
EXPENSES, DISTRIBUTOR AND DISTRIBUTION PLAN 40
SHAREHOLDER SERVICING PLAN 41
CUSTODIAN, TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 42
PERFORMANCE INFORMATION 42
PORTFOLIO TRANSACTIONS AND BROKERAGE 45
PURCHASE, REDEMPTION AND PRICING 47
FEDERAL INCOME TAXES 48
ADDITIONAL INFORMATION 52
INDEPENDENT ACCOUNTANTS AND REPORTS 53
COUNSEL 53
APPENDIX A 54
2
<PAGE> 36
INVESTMENT OBJECTIVES AND POLICIES
Key Mutual Funds, formerly known as SBSF Funds, Inc. (the "Company") is
a professionally managed, no-load, open-end series investment company consisting
of several different portfolios, three of which (each a "Fund" and,
collectively, the "Funds") are described in this Statement of Additional
Information. Each Fund is a separately managed, diversified mutual fund with its
own investment objective and policies. The Funds have no sales loads, redemption
fees or exchange fees. Each Fund has been constructed as a "fund of funds,"
which means that it pursues its investment objective primarily by allocating its
investments among funds of Key Mutual Funds ("KeyFunds" or "KMF") and The
Victory Portfolios ("VP") (collectively, the "Proprietary Portfolios"). The
Funds also may invest a portion of their assets in shares of investment
companies that are not part of the same group of investment companies as Key
Funds (the "Other Portfolios"). (Proprietary Portfolios and Other Portfolios
are sometimes referred to herein as "Underlying Portfolios.")
The three Funds and their investment objectives are:
KEYCHOICE GROWTH FUND
The investment objective of the KeyChoice Growth Fund (the "Growth
Fund") is to seek to provide growth of capital. The Growth Fund seeks to achieve
its objective by allocating its assets primarily among Underlying Portfolios
that invest primarily in equity securities.
KEYCHOICE MODERATE GROWTH FUND
The investment objective of the KeyChoice Moderate Growth Fund (the
"Moderate Growth Fund") is to seek to provide growth of capital combined with a
moderate level of current income. The Moderate Growth Fund seeks to achieve its
objective by allocating its assets among Underlying Portfolios that invest in
equity securities and, to a lesser extent, fixed income securities.
KEYCHOICE INCOME AND GROWTH FUND
The investment objective of the KeyChoice Income and Growth Fund (the
"Income and Growth Fund") is to seek to provide current income combined with
moderate growth of capital. The Income and Growth Fund seeks to achieve its
objective by allocating its assets among Underlying Portfolios that invest in
fixed income securities and, to a lesser extent, equity securities.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
The Investment Company Act of 1940, as amended (the "1940 Act") permits
the Funds to invest without limitation in other investment companies that are
part of the same "group of investment companies" (as defined in the 1940 Act) as
the Company, provided that certain limitations are observed. Generally, these
limitations require that a fund of funds (a) limit its investments to shares of
other investment companies that are part of the same "group of investment
companies" (as defined in the 1940 Act) as the fund of funds, government
securities
[/R]
3
<PAGE> 37
and short-term paper; (b) observe certain limitations on the amount of sales
loads and distribution-related fees that are borne by shareholders of the fund
of funds; and (c) do not invest in other funds of funds. Pursuant to an
Exemptive Order issued by the Securities and Exchange Commission (the
"Commission), the Funds may invest in investment portfolios of KMF and of VP
(the "Proprietary Portfolios") and in shares of non-proprietary mutual funds
(the "Other Portfolios") that are not part of the same group of investment
companies as the Funds. During an interim period immediately following
commencement of operations, and pending the approval of the Company's Board of
Directors to increase the percentage of a Fund's assets that may be invested in
Other Portfolios, each Fund will limit its investments in Other Portfolios to a
range of 0-5% of total assets, at the time of purchase. It is anticipated that,
at the conclusion of the interim period, the approval of the Board of Directors
will be sought to increase the percentage of total assets that each Fund may
invest in Other Portfolios to 15-20% (at the time of purchase). A Fund and its
affiliates, collectively, may acquire no more than 3% of the total outstanding
stock of any Other Portfolio.
Because of their investment objectives and policies, the Funds will
concentrate (i.e. invest 25% or more of their total assets) in the mutual fund
industry. In addition, a Fund may invest in a Proprietary Portfolio or Other
Portfolio (collectively, the "Underlying Portfolios") which concentrates 25% or
more of its total assets in any one industry. Investments by a Fund in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or in repurchase agreements collateralized by the foregoing
equalling 25% or more of the Fund's total assets will not be considered
"concentration" by such Fund in the industry of the issuer(s) of such
securities.
The Prospectus more fully addresses the subject of each Fund's and each
Proprietary Portfolio's investment objectives, as well as the investment
policies that the Funds apply in seeking to meet those objectives. The following
disclosures will supplement that information more specifically by detailing the
types of securities and other instruments in which the Proprietary Portfolios
may invest, the strategies behind, and the risks associated with, such
investing. Note that there can be no assurance given that the respective
investment objectives of the Funds or the Proprietary Portfolios will be
achieved.
KEYFUNDS:
SBSF Fund. The SBSF Fund's investment objective is to seek a high total
return over the long-term consistent with reasonable risk. In seeking its
objective, the SBSF Fund invests primarily in common stocks which, in the
opinion of its adviser, have the potential for capital appreciation in excess of
market averages during periods of market strength while attempting to preserve
capital during periods of market weakness.
SBSF Capital Growth Fund. The SBSF Capital Growth Fund's investment
objective is to seek capital appreciation. The SBSF Capital Growth Fund seeks to
achieve its objective by investing in equity securities of companies which its
adviser believes are likely to have rapid growth in earnings or cash flow. The
SBSF Capital Growth Fund invests primarily in the securities of small to medium
capitalization companies.
SBSF Convertible Securities Fund. The SBSF Convertible Securities
Fund's investment objective is to seek a high level of current income together
with long-term capital appreciation. The SBSF Convertible Securities Fund
invests primarily in
4
<PAGE> 38
convertible bonds, corporate notes, convertible preferred stocks and other
securities convertible into common stock.
VICTORY PORTFOLIOS:
Value Fund. The Value Fund seeks to provide long-term growth of capital
and dividend income. The fund pursues this objective by investing primarily in
a diversified group of common stocks with an emphasis on companies with above
average total return potential.
Diversified Stock Fund. The Diversified Stock Fund seeks to provide
long-term growth of capital. The fund pursues this investment objective by
investing primarily in common stocks and securities convertible into common
stocks issued by established domestic and foreign companies.
Growth Fund. The Growth Fund seeks to provide long-term growth of
capital. The fund pursues this objective by investing primarily in common stocks
of issuers listed on a nationally recognized exchange with an emphasis on
companies with superior prospects for long-term earnings growth and price
appreciation.
Special Value Fund. The Special Value Fund seeks to provide long-term
growth of capital and dividend income. The fund pursues this objective by
investing primarily in common stocks of small and medium-sized companies listed
on a nationally recognized exchange with an emphasis on companies with above
average total return potential.
Special Growth Fund. The Special Growth Fund seeks capital
appreciation. The fund pursues this investment objective by investing primarily
in equity securities of companies that have market capitalizations of $750
million or less at the time of purchase.
International Growth Fund. The International Growth Fund seeks to
provide capital growth consistent with reasonable investment risk. The fund
pursues this objective by investing primarily in equity securities of foreign
corporations, most of which will be denominated in foreign currencies.
Government Mortgage Fund. The Government Mortgage Fund seeks to provide
a high level of current income consistent with safety of principal. The fund
pursues this objective by investing exclusively in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Investment Quality Bond Fund. The Investment Quality Bond Fund seeks to
provide a high level of income. The fund pursues this objective by investing
primarily in investment-grade bonds issued by corporations and the U.S.
Government and its agencies or instrumentalities.
Fund For Income. The Fund For Income seeks to provide a high level of
current income consistent with preservation of shareholders' capital. The fund
pursues this objective by investing primarily in selected mortgage-related
securities.
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<PAGE> 39
Intermediate Income Fund. The Intermediate Income Fund seeks to provide
a high level of income. The fund pursues this objective by investing in debt
securities issued by corporations and the U.S. Government and its agencies and
instrumentalities.
Limited Term Income Fund. The Limited Term Income Fund seeks to provide
income consistent with limited fluctuation of principal. The fund pursues this
objective by investing in a portfolio of high grade, fixed income securities
with a dollar-weighted average maturity of one to five years, based on remaining
maturities.
Financial Reserves Fund. The Financial Reserves Fund seeks to obtain as
high a level of current income as is consistent with preserving capital and
providing liquidity. The fund pursues this objective by investing primarily in a
portfolio of high-quality U.S. denominated money market instruments. The fund
seeks to maintain a constant net asset value of $1.00 per unit of beneficial
interest, and shares of the Fund are offered at net asset value.
OTHER INVESTMENTS
Short-Term Obligations. Normally, each of the Funds will be
predominantly invested in shares of other mutual funds. Under certain
circumstances, however, a Fund may invest in short-term obligations. To the
extent that a Fund's assets are so invested, they will not be invested so as to
meet its investment objective. The instruments may include high quality liquid
debt securities such as commercial paper, certificates of deposit, bankers'
acceptances, repurchase agreements with maturities of less than seven days and
debt obligations backed by the full faith and credit of the U.S. Government.
These instruments are described below in the section of this Statement of
Additional Information describing the permissible investments of the Proprietary
Portfolios.
ADDITIONAL INFORMATION REGARDING CERTAIN OF THE PROPRIETARY PORTFOLIOS'
INVESTMENTS
The following policies supplement the descriptions of the investment
objectives and policies of the Proprietary Portfolios as set forth above and in
the Prospectus.
Bankers' Acceptances and Certificates of Deposit. Certain of the
Proprietary Portfolios may invest in bankers' acceptances, certificates of
deposit, and demand and time deposits. 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. 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 earn a specified return.
6
<PAGE> 40
Certain of the Proprietary Portfolios also may invest in Eurodollar
Certificates of Deposit ("ECDs") which 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 ("Yankee CDs") which 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 ("ETDs")
which are U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or
a foreign bank, and Canadian Time Deposits ("CTDs") which are U.S.
dollar-denominated certificates of deposit insured by Canadian offices of major
Canadian Banks.
LOWER-RATED DEBT SECURITIES. Certain of the Proprietary Portfolios may
purchase lower-rated debt securities commonly referred to as "junk bonds" (those
rated below Baa by Moody's Investors Service, Inc. or below BBB by Standard
and Poor's Corporation) that have poor protection with respect to the payment
of interest and repayment of principal, or may be in default. These securities
are often considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The market
prices of lower-rated debt securities may fluctuate more than those of
higher-rated debt securities and may decline significantly in periods of
general economic difficulty, which may follow periods of rising interest rates.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980s brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructuring. Past experience may not
provide an accurate indication of future performance of the high yield bond
market, especially during periods of economic recession. In fact, from 1989 to
1991, the percentage of lower-rated debt securities that defaulted rose
significantly above prior levels, although the default rate decreased in 1992.
The market for lower-rated securities may be thinner and less active
than that for higher-rated debt securities, which can adversely affect the
prices at which the former are sold.
If market quotations are not available, lower-rated debt securities
will be valued in accordance with procedures established by the Proprietary
Portfolio's Board, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield corporate debt securities than is
the case for securities for which more external sources for quotations and
last-sale information are available. Adverse publicity and changing investor
perceptions may affect the ability of outside pricing services to value
lower-rated debt securities and the Proprietary Portfolio's ability to sell
these securities.
Since the risk of default is higher for lower-rated debt securities,
the Proprietary Portfolio's research and credit analysis are an especially
important part of managing securities of this type held by the Proprietary
Portfolio. In considering investments for the Proprietary Portfolio, its
investment adviser will attempt to identify those issuers of high-yielding
debt securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. Analysis
by the Proprietary Portfolio's investment adviser focuses on relative values
based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
A Proprietary Portfolio may choose, at its expense or in conjunction
with others, to pursue litigation or otherwise exercise its rights as security
holder to seek to protect the interest of security holders if it determines this
to be in the best interest of the Proprietary Portfolio's shareholders.
Commercial Paper. Certain of the Proprietary Portfolios may purchase
rated or unrated commercial paper. Commercial paper consists of unsecured
promissory notes issued by corporations, banks, broker-dealers and other
entities. 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.
Variable Amount Master Demand Notes. Certain of the Proprietary
Portfolios may purchase variable amount master demand notes, which 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 Proprietary
Portfolio 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 Proprietary Portfolio
to dispose of a variable amount master demand note if the issuer defaulted on
its payment obligations, and a Proprietary Portfolio could, for this or other
reasons, suffer a loss to the extent of the default. While the notes are not
typically 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 Proprietary Portfolios' investment adviser will
continuously monitor 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 Proprietary Portfolio 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 Proprietary
Portfolio's investment policies, a variable amount master demand note will be
deemed to have a
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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.
Foreign Investment. Certain of the Proprietary Portfolios may invest in
securities issued by foreign issuers. Such investments may subject a Proprietary
Portfolio to investment risks that differ in some respects from those associated
with investments in obligations of U.S. domestic issuers or in U.S. securities
markets. Such risks include future adverse political and economic developments,
possible seizure, nationalization, or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, and the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore many securities traded in these markets may be less liquid and
their prices more volatile than U.S. securities, and the risk that custodian and
brokerage costs may be higher. Permissible investments include obligations or
securities of foreign issuers (including, in certain cases, American Depositary
Receipts), foreign branches of U.S. banks and of foreign banks.
U.S. Government Obligations. Certain of the Proprietary Portfolios may
invest in 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. A Proprietary Portfolio will invest in obligations of such agencies
and instrumentalities only when its investment adviser believes that the credit
risk with respect thereto is minimal. U.S. Government obligations are subject to
interest rate risks.
Securities Lending. Certain of the Proprietary Portfolios may lend
portfolio securities to broker-dealers, banks or institutional borrowers of
securities. Generally, a Proprietary Portfolio must receive a minimum of 100%
collateral, plus any interest due in the form of cash or U.S. Government
securities. This collateral must be valued daily and should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the Proprietary Portfolio. During the time portfolio securities are on loan,
the borrower will pay the Proprietary Portfolio 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 a Proprietary
Portfolio or the borrower at any time. While a Proprietary Portfolio will not
have the right to vote securities on loan, it intends to terminate the loan and
regain the right to vote if that is considered important with respect to the
investment. A Proprietary Portfolio will only enter into loan arrangements with
broker-dealers, banks or other institutions which its investment adviser has
determined are creditworthy under guidelines established by its Board of
Directors or Trustees.
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Variable and Floating Rate Notes. Certain of the Proprietary Portfolios
may acquire variable and floating rate notes, subject to the Proprietary
Portfolio's investment objective, policies and restrictions. A variable rate
note is one whose terms provide for the readjustment of its interest rate on set
dates and which, upon such readjustment, can reasonably 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, can reasonably be expected to have
a market value that approximates its par value. Such notes are frequently not
rated by credit rating agencies; unrated variable and floating rate notes
purchased by a Proprietary Portfolio will generally only be those determined by
its investment adviser, under guidelines established by KMF or VP, to pose
minimal credit risks and to be of comparable quality, at the time of purchase,
to rated instruments eligible for purchase under the Proprietary Portfolio's
investment policies. In making such determinations, its investment 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 Proprietary Portfolio, the
Proprietary Portfolio may resell the note at any time to a third party. The
absence of an active secondary market, however, could make it difficult for the
Proprietary Portfolio to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the
Proprietary Portfolio 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 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 by a Proprietary Portfolio to have a maturity equal
to the period remaining until the next readjustment of the
interest rate.
2. A variable 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 a Proprietary Portfolio to have a
maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature
scheduled to be paid in one year or more will be deemed by a
Proprietary Portfolio 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 floating rate note that is subject to a demand feature will
be deemed by a Proprietary Portfolio to have a maturity equal
to the period remaining until the principal amount can be
recovered through demand.
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Certain of the following investments may be considered to be derivative
securities:
Forward Foreign Currency Contracts. Certain of the Proprietary
Portfolios may purchase and sell forward foreign currency contracts. Foreign
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. Generally, a Proprietary
Portfolio may purchase and sell forward foreign currency contracts (a) to hedge
against foreign exchange risk arising from the Proprietary Portfolio's
investment or anticipated investment in securities denominated in foreign
currencies; and (b) to attempt to minimize the risk to the Proprietary Portfolio
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward foreign currency contract (a "forward contract") is an
obligation to purchase or sell a specific currency for an agreed price at a
future date (usually less than one year), which is individually negotiated and
privately traded by currency traders and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. Although foreign exchange dealers do not charge a fee for
commissions, they do realize a profit based on the difference between the price
at which they are buying and selling various currencies. Although these
contracts are intended to minimize the risk of loss due to a decline in the
value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
While a Proprietary Portfolio may enter into forward contracts to
reduce currency exchange risks, changes in currency exchange rates may result in
poorer overall performance for the Proprietary Portfolio than if it had not
engaged in such transactions. Moreover, there may be an imperfect correlation
between a Proprietary Portfolio's holdings of securities denominated in a
particular currency and forward contracts entered into by the Proprietary
Portfolio. Such imperfect correlation may prevent the Proprietary Portfolio from
achieving the intended hedge or expose the Proprietary Portfolio to the risk of
currency exchange loss.
Certain of the Proprietary Portfolios also may purchase and sell
options on foreign currencies and foreign currency futures contracts and related
options. (See "Options on Foreign Currencies" and "Currency Futures" in this
Statement of Additional Information.)
Generally, a Proprietary Portfolio will hold cash, cash equivalents or
U.S. Government securities and other liquid assets in a segregated account with
its custodian in an amount equal (on a daily marked-to-market basis) to the
amount of the commitments under these contracts. At the consummation of the
forward contract, a Proprietary Portfolio may either make delivery of the
foreign currency or terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting contract obligating it to purchase at the
same maturity date the same amount of such foreign currency. If the Proprietary
Portfolio chooses to make delivery of the foreign currency, it may be required
to obtain such currency for delivery through the sale of portfolio securities
denominated in such currency or through conversion of other assets of the
Proprietary Portfolio into such currency. If the Proprietary Portfolio engages
in an offsetting transaction, the Proprietary Portfolio will realize a gain or
a loss to the extent that there has been a change in forward contract prices.
Closing purchase transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract. However, there can be no assurance that a liquid market will exist in
which to close a forward contract, in which case the Proprietary Portfolio may
suffer a loss. In addition, a Proprietary Portfolio is not required to enter
into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by its investment
adviser.
It should be realized that this method of protecting the value of the
Proprietary Portfolios' portfolio securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which can be achieved at
some future point in time. It also reduces any potential gain which may have
otherwise occurred had the currency value increased above the settlement price
of the contract.
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Options on Securities and Indexes. Certain of the Proprietary
Portfolios may purchase and sell ("write") call options on securities and
indexes. Similarly, certain of the Proprietary Portfolios may purchase and write
put options on securities and indexes.
An option on a security (or index) is a contract that gives the holder
of the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation, upon exercise of the option, to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.) Options in which certain of the
Proprietary Portfolios may invest generally will be issued by the Options
Clearing Corporation and listed on a national securities exchange; some
Proprietary Portfolios may invest in options traded in the over-the-counter
market.
Certain of the Proprietary Portfolios may write "covered" call and put
options. A call option on a security is "covered" if the Proprietary Portfolio
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount are
placed in a segregated account by its custodian) upon conversion or exchange of
other securities held by the Proprietary Portfolio. A call option on an index is
covered if the Proprietary Portfolio maintains with its custodian cash or cash
equivalents equal to the contract value. A call option also is covered if the
Proprietary Portfolio owns a call on the same security or index as the call
written where the exercise price of the call held is (1) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written, provided the difference is maintained by the Proprietary
Portfolio in cash or cash equivalents in a segregated account with its
custodian. A put option on a security or an index is "covered" if the
Proprietary Portfolio maintains cash or cash equivalents equal to the exercise
price in a segregated account with its custodian. A put option also is covered
if the Proprietary Portfolio holds a put on the same security or index as the
put written where the exercise price of the put held is (i) equal to or greater
than the exercise price of the put written, or (ii) less than the exercise price
of the put written, provided the difference is maintained by the Proprietary
Portfolio in cash or cash equivalents in a segregated account with its
custodian.
If an option written by a Proprietary Portfolio expires, the
Proprietary Portfolio realizes a gain equal to the premium received at the time
the option was written. If an option purchased by a Proprietary Portfolio
expires unexercised, the Proprietary Portfolio realizes a loss equal to the
premium paid.
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Prior to the earlier of exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Proprietary Portfolio desires.
A Proprietary Portfolio will realize a gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Proprietary Portfolio will
realize a loss. If the premium received from a closing sale transaction is more
than the premium paid to purchase the option, the Proprietary Portfolio will
realize a loss. The principal factors affecting the market value of a put or
call option include the supply and demand, interest rates, the current market
price of the underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
The premium paid for a put or call option purchased by a Proprietary
Portfolio is an asset of the Proprietary Portfolio. The premium received for an
option written by a Proprietary Portfolio is recorded as a deferred credit. The
value of an option purchased or written is marked to market daily and is valued
at the closing price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between the last bid
and asked prices.
The staff of the Securities and Exchange Commission has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid.
Risks Associated with Options on Securities and Indexes. The purchase
and writing of options involves certain risks. The writer of the option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities at the
exercise price. If a put or call option purchased by a Proprietary Portfolio
is not sold when it has remaining value, and if the market price of the
underlying security, in the case of a put, remains equal to or greater than the
exercise price, the Proprietary Portfolio will lose its entire investment in the
option. If a Proprietary Portfolio were unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security unless the option expired without exercise. Furthermore,
during the option period, the covered call writer has, in return for the premium
received for the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. In addition, except to the extent that
a call option on an index written by a Proprietary Portfolio is covered by an
option on the same index purchased by the Proprietary Portfolio, movements in
the index may result in a loss to the Proprietary Portfolio.
There can be no assurance that a liquid market will exist when a
Proprietary Portfolio seeks to close out an option position. Additionally, if
trading restrictions or suspensions are imposed on the options markets, a
Proprietary Portfolio may be unable to close out a position. The writing of
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call options could result in increases in a Proprietary Portfolio's portfolio
turnover rate, particularly during periods when market prices of the underlying
securities appreciate.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Moreover, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives.
Options on Foreign Currencies. Certain of the Proprietary Portfolios
may purchase and sell ("write") put and call options on foreign currencies,
either on exchanges or in the over-the-counter market. A put option on a foreign
currency gives the purchaser of the option the right to sell a foreign currency
at the exercise price until the option expires. A call option on a foreign
currency gives the purchaser of the option the right to purchase the currency at
the exercise price until the option expires. Currency options traded on U.S. or
other exchanges may be subject to position limits which may limit the ability of
a Proprietary Portfolio to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between the buyer and seller,
and generally do not have as much market liquidity as exchange-traded options.
Certain Proprietary Portfolios may purchase and sell options on foreign
currencies for hedging purposes. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated will reduce the
dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, a Proprietary Portfolio may purchase put options on the
foreign currency. If the value of the currency does decline, that Proprietary
Portfolio will have the right to sell such currency for a fixed amount of
dollars which exceeds the market value of such currency, resulting in a gain
that may offset, in whole or in part, the negative effect of currency
depreciation on the value of a Proprietary Portfolio's securities denominated
in that currency.
Conversely, if a rise in the dollar value of a foreign currency in
which securities to be acquired are denominated is projected, thereby increasing
the cost of such securities, a Proprietary Portfolio may purchase call options
on such currency. If the value of such currency does increase, the purchase of
such call options would enable the Proprietary Portfolio to purchase currency
for a fixed amount of dollars which is less than the market value of such
currency, resulting in a gain that may offset, at least partially, the effect of
any currency-related increase in the price of securities the Proprietary
Portfolio intends to acquire. As in the case of other types of options
transactions, however, the benefit the Proprietary Portfolio derives from
purchasing foreign currency options will be reduced by the amount of the premium
and related transaction costs. In addition, if currency exchange rates do not
move in the direction or to the extent anticipated, the Proprietary Portfolio
could sustain losses on transactions in foreign currency options which would
deprive it of a portion or all of the benefits of advantageous changes in such
rates.
Certain Proprietary Portfolios also may write options on foreign
currencies for hedging purposes. For example, if a Proprietary Portfolio
anticipates a decline in the dollar value of
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foreign currency-denominated securities due to declining exchange rates, it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received by a Proprietary Portfolio.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a
Proprietary Portfolio could write a put option on the relevant currency. If
rates move in the manner projected, the put option will expire unexercised and
allow the Fund to offset such increased cost up to the amount of the premium. As
in the case of other types of options transactions, however, the writing of a
foreign currency option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If unanticipated
exchange rate fluctuations occur, the option may be exercised and the
Proprietary Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be fully offset by the amount of the premium.
As a result of writing options on foreign currencies, a Proprietary Portfolio
also may be required to forego all or a portion of the benefits which might
otherwise have been obtained from favorable movements in currency exchange
rates.
A call option written on foreign currency by a Proprietary Portfolio is
"covered" if the Proprietary Portfolio owns the underlying foreign currency
subject to the call or securities denominated in that currency or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Proprietary
Portfolio holds a call on the same foreign currency for the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the amount of the difference is
maintained by a Proprietary Portfolio in cash and liquid high grade debt
securities in a segregated account with its custodian.
Futures Transactions. A futures contract is an agreement to buy or sell
a security or currency (or to deliver a final cash settlement price in the case
of a contract relating to an index or otherwise not calling for physical
delivery at the end of trading in the contracts), for a set price in a future
month. Certain of the Proprietary Portfolios may enter into contracts for the
future delivery of securities, stock index futures contracts and futures
contracts based on foreign currencies. Some Proprietary Portfolios also may use
foreign currency futures contracts and related options for the purpose of
hedging against changes in currency exchange rates or to enhance returns.
Certain of the Proprietary Portfolios also may purchase and write put
and call options on futures contracts of the type into which such Proprietary
Portfolio is authorized to enter and may engage in related closing transactions.
In the United States, futures on securities, stock index futures, foreign
currency futures and related options will be traded on exchanges that are
regulated by the Commodity Futures Trading Commission ("CFTC"). Subject to
compliance with applicable CFTC rules, certain of the Proprietary Portfolios
also may enter into futures contracts traded on foreign futures exchanges as
long as trading on the aforesaid foreign futures exchanges does not subject the
Proprietary Portfolio to risks that are materially greater than the risks
associated with trading on U.S. exchanges. In the United States, futures
contracts are traded on
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boards of trade which have been designated "contract markets" by the CFTC.
Futures contracts trade on these markets through an "open outcry" auction on the
exchange floor. Currently, there are futures contracts based on a variety of
instruments, indexes and currencies.
When a purchase or sale of a futures contract is made by a Proprietary
Portfolio, the Proprietary Portfolio is required to deposit with its custodian
(or broker, if legally permitted) a specified amount of cash or U.S. Government
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin requirement may be as low as 2% or less
of a contract's face value. The initial margin is in the nature of a performance
bond or good faith deposit on the futures contract which is returned to the
Proprietary Portfolio upon termination of the contract assuming all contractual
obligations have been satisfied. Each Proprietary Portfolio expects to earn
interest income on its initial margin deposits. A futures contract held by a
Proprietary Portfolio is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Proprietary Portfolio pays or
receives cash, called "daily settlement," equal to the daily change in value of
the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Proprietary Portfolio but is
instead a settlement between the Proprietary Portfolio and the broker of the
amount one would owe the other if the futures contract expired. In computing
daily net asset value, each Proprietary Portfolio will mark to market its open
futures positions.
A Proprietary Portfolio is also required to deposit and maintain margin
with respect to put and call options on futures contracts written by it. Such
margin deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market value
of the option, and other futures positions held by the Proprietary Portfolio.
Positions taken in the futures markets are not normally held until
delivery or final cash settlement is required, but are instead liquidated
through offsetting transactions which may result in a gain or a loss. While
futures positions taken by a Proprietary Portfolio will usually be liquidated in
this manner, a Proprietary Portfolio may instead make or take delivery of
underlying securities (or currencies) whenever it appears economically
advantageous to the Proprietary Portfolio to do so. A clearing organization
associated with the exchange on which futures are traded assumes responsibility
for closing-out transactions and guarantees that as between the clearing
members of the exchange, the sale and purchase obligations will be performed
with regard to all positions that remain open at the termination of the
contract.
Stock Index Futures. A stock index futures contract does not require
the physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the contract is based. A stock
index is designed to reflect overall price trends in the market for the equity
securities.
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Currency Futures. Certain of the Proprietary Portfolios may purchase
and sell futures contracts on foreign currencies. A sale of a currency futures
contract creates an obligation by the Proprietary Portfolio, as seller, to
deliver the amount of currency called for in the contract at a specified future
time for a specified price. A purchase of a currency futures contract creates an
obligation by the Proprietary Portfolio, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. The
Proprietary Portfolio may sell a currency futures contract if its investment
adviser anticipates that exchange rates for a particular currency will fall, as
a hedge against a decline in the value of the Proprietary Portfolio's
securities denominated in such currency. If the investment adviser anticipates
that exchange rates will rise, the Proprietary Portfolio may purchase a
currency futures contract to protect against an increase in the price of
securities denominated in a particular currency the Proprietary Portfolio
intends to purchase. Although the terms of currency futures contracts specify
actual delivery or receipt, in most instances the contracts are closed out
before the settlement date without the making or taking of delivery of the
currency. Closing out of a currency futures contract is effected by entering
into an offsetting purchase or sale transaction. To offset a currency futures
contract sold by the Proprietary Portfolio, the Proprietary Portfolio purchases
a currency futures contract for the same aggregate amount of currency and
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Proprietary Portfolio is immediately paid the difference.
Similarly, to close out a currency futures contract purchased by the
Proprietary Portfolio, the Proprietary Portfolio sells a currency futures
contract. If the offsetting sale price exceeds the purchase price, the
Proprietary Portfolio realizes a gain, and if the offsetting sale price is less
than the purchase price, the Proprietary Portfolio realizes a loss.
A risk in employing currency futures contracts to protect against the
price volatility of portfolio securities denominated in a particular currency is
that changes in currency exchange rates or in the value of the futures position
may correlate imperfectly with changes in the cash prices of a Proprietary
Portfolio's securities. The degree of correlation may be distorted by the fact
that the currency futures market may be dominated by short-term traders seeking
to profit from changes in exchange rates. This would reduce the value of such
contracts for hedging purposes over a short-term period. Such distortions are
generally minor and would diminish as the contract approached maturity. Another
risk is that an investment adviser could be incorrect in its expectation as to
the direction or extent of various exchange rate movements or the time span
within which the movements take place.
Options on Futures. For bona fide hedging and other appropriate risk
management purposes, certain of the Proprietary Portfolios purchase and write
call and put options on futures contracts which are traded on exchanges that are
licensed and regulated by the CFTC for the purpose of options trading, or,
subject to applicable CFTC rules, on foreign exchanges. A "call" option on a
futures contract gives the purchaser the right, in return for the premium paid,
to purchase a futures contract (assume a "long" position) at a specified
exercise price at any time before the option expires. A "put" option gives the
purchaser the right, in return for the premium paid, to sell a futures contract
(assume a "short" position), for a specified exercise price at any time before
the option expires. The writer of an option on a futures contract, unlike the
holder, is subject to initial margin and variation margin requirements on the
option position.
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<PAGE> 50
Upon the exercise of a "call," the writer of the option is obligated to
sell the futures contract (to deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (deliver
a "short" position to the option holder) at the option exercise price, which
will presumably be higher than the current market price of the contract in the
futures market. When an entity exercises an option and assumes a long futures
position, in the case of a "call," or a short futures position, in the case of a
"put," its gain will be credited to its futures margin account, while the loss
suffered by the writer of the option will be debited to its account. However, as
with the trading of futures, most participants in the options markets do not
seek to realize their gains or losses by exercise of their option rights.
Instead, the writer or holder of an option will usually realize a gain or loss
by buying or selling an offsetting option at a market price that will reflect an
increase or a decrease from the premium originally paid.
Options on futures contracts can be used by a Proprietary Portfolio to
hedge substantially the same risks and for the same duration and risk management
purposes as might be addressed or served by the direct purchase or sale of the
underlying futures contracts. If the Proprietary Portfolio purchases an option
on a futures contract, it may obtain benefits similar to those that would result
if it held the futures position itself.
The purchase of put options on futures contracts is a means of hedging
a Proprietary Portfolio's portfolio against the risk of declining securities
prices or declining exchange rates for a particular currency. The purchase of a
call option on a futures contract represents a means of hedging against a market
advance affecting securities prices or currency exchange rates when the
Proprietary Portfolio is not fully invested. Depending on the pricing of the
option compared to either the futures contract upon which it is based or upon
the price of the underlying securities or currencies, it may or may not be less
risky than ownership of the futures contract or underlying securities or
currencies.
In contrast to a futures transaction, in which only transaction costs
are involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, the Proprietary Portfolio will not be subject
to a risk of loss on the option transaction beyond the price of the premium it
paid plus its transaction costs, and may consequently benefit from a favorable
movement in the value of its portfolio securities or the currencies in which
such securities are denominated that would have been more completely offset if
the hedge had been effected through the use of futures.
If a Proprietary Portfolio writes options on futures contracts, the
Proprietary Portfolio will receive a premium but will assume a risk of adverse
movement in the price of the underlying futures contract comparable to that
involved in holding a futures position. If the option is not exercised, the
Proprietary Portfolio will realize a gain in the amount of the premium, which
may partially offset unfavorable changes in the value of securities held by or
to be acquired for the Proprietary Portfolio. If the option is exercised, the
Proprietary Portfolio will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which
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<PAGE> 51
may partially offset favorable changes in the value of its portfolio securities
or the currencies in which such securities are denominated.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the underlying securities or the
currencies in which such securities are denominated. If the futures price at
expiration is below the exercise price, the Proprietary Portfolio will retain
the full amount of the option premium, which provides a partial hedge against
any decline that may have occurred in the Proprietary Portfolio's holdings of
securities or the currencies in which such securities are denominated.
The writing of a put option on a futures contract is analogous to the
purchase of a futures contract. For example, if a Proprietary Portfolio writes a
put option on a futures contract on securities related to securities that the
Proprietary Portfolio expects to acquire and the market price of such securities
increases, the net cost to a Proprietary Portfolio of the securities acquired by
it will be reduced by the amount of the option premium received. Of course, if
market prices have declined, the Proprietary Portfolio's purchase price upon
exercise may be greater than the price at which the securities might be
purchased in the securities market.
While the holder or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, a Proprietary Portfolio's ability to establish and close out
options positions at fairly established prices will be subject to the
maintenance of a liquid market. A Proprietary Portfolio will not purchase or
write options on futures contracts unless the market for such options has
sufficient liquidity such that the risks associated with such options
transactions are not at unacceptable levels.
Limitations on Purchase and Sale of Futures Contracts and Options on
Futures Contracts. In general, the Proprietary Portfolios permitted to engage
in transactions in futures contracts and related options will do so only for
bona fide hedging and other appropriate risk management purposes, and not for
speculation. In addition, with respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Proprietary
Portfolio will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Proprietary Portfolio's total assets. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds
the value of the futures contract that is the subject of the option.
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Certain additional limitations on a Proprietary Portfolio's engaging
in futures transactions and related options, including asset coverage and
segregation requirements, are included in the relevent Proprietary Portfolios'
prospectuses and/or statements of additional information.
The requirements for qualification as a regulated investment company
also may limit the extent to which a Proprietary Portfolio may enter into
futures or futures options. See "Federal Income Taxes."
Risks Associated With Futures and Futures Options. There are several
risks associated with the use of futures contracts and futures options as
hedging techniques. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Proprietary Portfolio's securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the
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<PAGE> 53
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at the time
when a Proprietary Portfolio seeks to close out a futures or futures option
position, and that Proprietary Portfolio would remain obligated to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options
on Futures Contracts, and Forward Currency Exchange Contracts and Options
Thereon. Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political, legal and economic
factors, (ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in a Proprietary Portfolio's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States, (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (v)
lesser trading volume.
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Securities of Other Investment Companies. Certain of the Proprietary
Portfolios may invest up to 5% of their assets in the securities of any one
investment company, but may not own more than 3% of the total outstanding
securities of any one investment company or invest more than 10% of its total
assets in the securities of other investment companies. Pursuant to an
exemptive order issued by the Commission, certain of the Proprietary Portfolios
may invest in the money market funds of other investment companies advised by
Key Advisers or its affiliates. The adviser to a Proprietary Portfolio will
waive its fee with respect to assets of the Proprietary Portfolio invested in a
money market fund that it or its affiliate advises. Because such other
investment companies employ an investment adviser, such investment by a
Proprietary Portfolio will cause shareholders to bear duplicative fees, such as
management fees, to the extent advisory fees are not waived by the investment
adviser to the Proprietary Portfolio.
Repurchase Agreements. Securities held by certain of the Proprietary
Portfolios may be subject to repurchase agreements. Under the terms of a
repurchase agreement, a Proprietary Portfolio would generally acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by its investment adviser pursuant to guidelines adopted by the
Directors/Trustees of the relevant investment company, 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 the repurchase obligation or become
insolvent, the Proprietary Portfolio holding such obligation 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 Proprietary Portfolio is delayed pending
court action.
Reverse Repurchase Agreements. Certain of the Proprietary Portfolios
may borrow funds for temporary purposes by entering into reverse repurchase
agreements. Pursuant to such agreements, a Proprietary Portfolio would sell
portfolio securities to financial institutions such as banks and broker-
dealers, and agree to repurchase them at a mutually agreed-upon date and price.
At the time a Proprietary Portfolio enters into a reverse repurchase
agreement, it will place in a segregated custodial account assets (such as cash
or other liquid high-grade securities) consistent with such Proprietary
Portfolio'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 continuously monitored to ensure
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<PAGE> 55
that such equivalent value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by a Proprietary Portfolio
may decline below the price at which the Proprietary Portfolio is obligated to
repurchase the securities.
"When-Issued" Securities. Certain of the Proprietary Portfolios may
purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). The payment obligation and
interest rate that will be received on when-issued securities are fixed at the
time the buyer enters into the commitment. When a Proprietary Portfolio agrees
to purchase securities on a "when-issued" basis, the Proprietary Portfolio's
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, a
Proprietary Portfolio 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 Proprietary Portfolio's commitment. It may be
expected that any such Proprietary Portfolio'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. To the extent cash is set aside in a
separate account, it will not be available for new investment or to meet
redemptions.
When a Proprietary Portfolio 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 Proprietary Portfolio incurring a loss or missing the opportunity
to obtain a price considered to be advantageous. The Proprietary Portfolios do
not intend to purchase "when-issued" securities for speculative purposes, but
only in furtherance of their investment objectives.
Receipts. Certain of the Proprietary Portfolios may purchase 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").
STRIPS, CUBES, TRs, TIGRs AND CATs are sold as zero coupon securities,
which means that they are sold at a substantial discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. This discount is amortized over the life of the security, and such
amortization will constitute the income earned on the security for both
accounting and tax purposes. Because of these features, these securities may be
subject to greater fluctuations in value due to changes in interest rates than
interest-paying U.S. Treasury obligations.
Mortgage-Backed Securities. Certain of the Proprietary Portfolios may
purchase mortgage-backed securities. Mortgage-backed securities are securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government and
non-government entities such as banks, mortgage lenders or other financial
institutions. A mortgage-backed security may be an obligation of the issuer
backed by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
Other types of mortgage-backed securities will likely be developed in the
future, and certain of the Proprietary Portfolios may invest in them if their
respective advisers determine they are consistent with the respective
Proprietary Portfolio's investment objective and policies.
The investment characteristics of mortgage-related securities differ
from traditional debt securities. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. The major differences include more frequent interest and
principal payments, and the possibility that prepayments of principal may be
made at any time. Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic, social and other factors. During
periods of declining interest rates, prepayment rates can be expected to
accelerate. Under certain interest rate and prepayment rate scenarios, a
Proprietary Portfolio may fail to recoup fully its investment in
mortgage-backed securities (and incur capital losses) notwithstanding direct or
indirect governmental or agency guarantee. In general, changes in the rate of
prepayments on a mortgage-related security will change the security's market
value and its yield to maturity. When interest rates fall, high prepayments
could force a Proprietary Portfolio to reinvest principal at a time when
investment opportunities are not attractive. Thus, mortgage-backed securities
may not be an effective means for a Proprietary Portfolio to lock in long-term
interest rates. Conversely, during periods when interest rates rise, slow
prepayments could cause the average life of the security to lengthen and the
value to decline more than anticipated. However, during periods of rising
interest rates, principal repayments by mortgage-backed securities allow a
Proprietary Portfolio to reinvest at increased interest rates. The value of
mortgage-backed securities may change due to shifts in the market's perception
of issuers. In addition, regulatory or tax changes may adversely affect the
mortgage securities market as a whole. Non-government, mortgage-backed
securities may offer higher yields than those issued by government entities,
but also may be subject to greater price changes (and greater risk) than
government issues.
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The yield which will be earned on mortgages-backed securities may vary
from their coupon rates for the following reasons: (i) certificates may be
issued at a premium or discount, rather than at par; (ii) certificates may
trade in the secondary market at a premium or discount after issuance; (iii)
interest is earned and compounded monthly which has the effect of raising the
effective yield earned on the certificates; and (iv) the actual yield of each
certificate is affected by the prepayment of mortgages included in the mortgage
pool underlying the certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Proprietary Portfolio.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS are usually structured with two classes that receive
different proportions of the interest and principal distributions from a pool
of mortgage loans or mortgage pass-through securities.
A common type of SMBS is structured so that one class recieves some of
the interest and most of the principal from the mortgage loans or mortgage
pass-through securities, while the other class recieves most of the interest
and the remainder of the principal. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Proprietary Portfolio may
fail to fully recoup its initial investment in these securities. The market
value of any class which consists primarily or entirely of principal payments
generally is unusually volatile in response to changes in interest rates.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. 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, mortgage
refinancing, or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments. Estimated average life
will be determined by the investment adviser to a Proprietary Portfolio and used
for the purpose of determining the average weighted maturity and duration of
the Proprietary Portfolio.
Collateralized Mortgage Obligations. Certain of the Proprietary
Portfolios may invest in mortgage-related securities which may also include
collateralized mortgage obligations ("CMOs"). CMOs are debt obligations issued
generally by finance subsidiaries or trusts that are secured by mortgage-backed
certificates, including, in many cases, certificates issued by government-
related guarantors, including GNMA, FNMA and FHLMC, together with certain
funds and other collateral. CMOs are structured into multiple classes, each
bearing a different stated maturity. Actual maturity and average life will
depend upon the prepayment experience of the collateral. CMOs provided for a
modified form of call protection through a de facto breakdown of the underlying
pool of mortgages according to how quickly the loans are repaid. Monthly
payment of principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
prepayments.
Nevertheless, principal prepayments on an underlying mortgage pool
may cause CMOs to be retired substantially earlier than their stated maturities
or final distribution dates, resulting in a loss of all or part of the premium
if any has been paid. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semiannual basis. Although payment of the principal of
and interest on the mortgage-backed certificates pledged to secure the CMOs
may be guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely
of the issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any
other governmental agency, or by any other person or entity. The issuers of the
CMOs typically have no significant assets other than those pledged as
collateral for the obligations.
The investment policies of the Proprietary Portfolios set forth above
may be changed or altered by the Boards of Directors/Trustees of the respective
Proprietary Portfolios, except to the extent they are stated to be fundamental.
Moreover, the foregoing description of investment policies and practices of
the Proprietary Portfolios is not and does not purport to be a complete
description of all investment policies, practices and techniques of all of the
Proprietary Portfolios. Information concerning other securities in which the
Proprietary Portfolios may purchase or hold, other investment practices and
techniques in which the Proprietary Portfolios may engage, and applicable
parameters on such investment policies, practices and techniques, is
included in such Portfolios' prospectuses and statements of additional
information. Such securities, practices and techniques include, among others,
participation interests, extendible debt securities, zero coupon bonds,
short-term funding agreements, temporary investments, loans and other direct
debt, restricted securities, warrants, municipal securities, private placement
investments, investment-grade & high quality securities, bonds, notes &
debentures of U.S. corporate issuers, international bonds, mortgage-related
securities issued by non-governmental entities, real estate mortgage investment
conduits, asset-backed securities, eurodollars and "synthetic convertibles."
Copies of the prospectuses and statements of additional information of
Proprietary Portfolios may be obtained upon request and without charge by
calling KeyFunds or VP at 800-KEY-FUND or 800-539-3863. In addition, some or
all of the investment practices described above may be followed by the
Other Portfolios in which the Funds may invest. The Funds have no control over
the investment activities of Other Portfolios. THERE MAY, IN FACT, BE
ADDITIONAL INVESTMENT PRACTICES AND UNDERLYING RISKS, NOT DISCUSSED HEREIN,
THAT BOTH THE PROPRIETARY PORTFOLIOS AND OTHER PORTFOLIOS MAY ENGAGE IN FROM
TIME TO TIME.
INVESTMENT RESTRICTIONS OF THE FUNDS
The following investment restrictions are fundamental policies of each
of the Funds and may only be changed if approved by the holders of a majority of
the outstanding voting securities of the affected Fund. Under the Investment
Company Act of 1940, as amended ("1940 Act") such approval requires the
affirmative vote, at a meeting of shareholders of a Fund, of (i) at least 67% of
the shares of the Fund present at the meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present in person or by represented
proxy; or (ii) more than 50% of the outstanding shares of the Fund, whichever is
less.
The Funds may not:
1. Make investments for the purpose of exercising control or
management (but this shall not prevent a Fund from purchasing
a controlling interest in one or more Underlying Portfolios
consistent with its investment objectives and policies).
2. Purchase or sell physical commodities or commodities contracts
(but this shall not prevent a Fund from investing in
Underlying Portfolios that purchase or sell options and
futures contracts, or from investing in securities or other
instruments backed by physical commodities).
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3. Purchase or sell real estate (but this shall not prevent a Fund
from investing in Underlying Portfolios that invest in marketable
securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
4. Issue any senior security (as defined in the 1940 Act), except
that (a) a Fund may invest in Underlying Portfolios that 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) a
Fund may invest in Underlying Portfolios that 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, a Fund may borrow money as
authorized by the 1940 Act; and (d) a Fund may issue multiple
classes of shares in accordance with SEC regulations or
exemptions under the 1940 Act.
5. Borrow money, except that (a) a Fund may invest in Underlying
Portfolios that have the authority to borrow money to the extent
pemissible under applicable regulations and interpretations of
the 1940 Act or an exemptive order; (b) a Fund may invest in
Underlying Portfolios that borrow money from banks for temporary
or emergency purposes, including meeting redemption requests, in
an amount not exceeding 5% of the lower of market value or the
cost of its total assets at the time when the loan is made, in
which case it may pledge, mortgage or hypothecate any of its
assets as security for such borrowing, but not to an extent
greater than 5% of the market value of its assets; and (c) a Fund
may borrow money for temporary or emergency purposes in an amount
not exceeding 10% 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.
6. Lend any security or make any other loan if, as a result, more
than 33-1/3% of a Fund's total assets would be lent to other
parties, except that a Fund may invest in Underlying Portfolios
that lend portfolio securities consistent with their investment
objectives and policies, but this limitation does not apply to
purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that
a Fund (or an Underlying Portfolio) may be deemed an underwriter
within the meaning of the Securities Act of 1933 in the
disposition of portfolio securities.
The following investment restrictions are non-fundamental and may be
changed without a vote of the shareholders of a Fund:
1. A Fund will not invest more than 5% of its total assets in the
securities of issuers which, together with any predecessors, have
a record of less than three years of continuous operation (except
for the Proprietary Portfolios), but a Fund may invest in
Underlying Portfolios that do so invest.
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2. A Fund will not invest more than 15% of its net assets in
illiquid securities. An illiquid security is a security which
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 it. 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 and securities acquired in a transaction or chain of
transactions pursuant to Section 4(2) of, or securities otherwise
subject to restrictions or limitations on resale under, the 1933
Act ("Restricted Securities") shall not be deemed illiquid
solely by reason of being unregistered.
3. A Fund will not make short sales of securities, other than short
sales "against the box," 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.
4. A Fund may not purchase securities on margin except for
short-term credits necessary for clearance of portfolio
transactions, and neither may a Fund invest in Underlying
Portfolios that purchase securities on margin.
5. A Fund will not participate on a joint, or a joint and several,
basis in any trading account in securities, except pursuant to a
Commission exemptive order or otherwise permitted by the 1940
Act; the "bunching" of orders for the sale or purchase of
portfolio securities with other funds advised by the Adviser or
its affiliates to reduce brokerage commissions or otherwise to
achieve best overall execution is not considered participation in
a trading account in securities.
The policies and limitations listed above supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's net assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, compliance with 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 1940 Act). Accordingly, any subsequent change in values, net assets,
or other circumstances will not be considered when determining whether the
investment complies with the Fund's investment policies and limitations.
Certain Proprietary Portfolios may be subject to undertakings to state
securities commissions that are more restrictive than the investment policies
described herein and/or in their respective prospectuses and statements of
additional information.
Moreover, notwithstanding the foregoing restrictions, the Proprietary
Portfolios and Other Portfolios in which the Funds may invest have adopted
certain investment restrictions which may be more or less restrictive than those
listed above, thereby allowing a Fund to participate in certain investment
strategies indirectly that are prohibited under the fundamental and
non-fundamental
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investment restrictions listed above. The investment restrictions of these
Underlying Portfolios are set forth in their respective statements of additional
information.
PORTFOLIO TURNOVER
Purchases and sales of securities are made at such times as Key
Advisers deems to be in the best interest of the Funds' shareholders without
regard to the rate of portfolio turnover, about which there are no restrictions.
A Fund may purchase or sell shares of the Underlying Portfolios or other
securities to: (a) accommodate purchases and sales of its shares, (b) change the
percentage of its assets invested in each of the Underlying Portfolios in
response to market conditions, and (c) reallocate and rebalance its assets among
the equity, bond and fixed-income securities, money market funds, and cash, and
among these Underlying Portfolios within the percentage limits set forth in the
Prospectus. From time to time, the Funds may trade in securities for the short
term. It is anticipated that the annual portfolio turnover rate of the Growth
Fund, Moderate Growth Fund and the Income and Growth Fund each will not exceed
100%. In any particular year, market conditions could result in portfolio
activity at a greater or lesser rate than anticipated. Portfolio turnover rate
is, generally, the percentage computed by dividing the lesser of purchases or
sales by the average daily net assets of the portfolio for the time period. High
portfolio turnover may involve correspondingly higher brokerage commission
expenses which are borne directly by the Funds. In addition, the effect of
engaging in options transactions may be to increase portfolio turnover.
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
Conflicts of Interest. The Directors and officers of KMF are subject to
conflicts of interest in managing both the Funds described here and some of the
underlying Proprietary Portfolios. This conflict is most evident in the Board's
supervision of Key Advisers. Key Advisers and certain of its affiliates may
provide services to, and receive fees from, not just the Funds, but also some of
the Proprietary and Other Portfolios. Their selection of investments and
allocation of Fund assets will be continuously and closely scrutinized by the
Board in order to avoid even the appearance of improper practices. It is
possible, however, that a situation might arise where one course of action for a
Fund would be detrimental to a Proprietary Portfolio, or vice versa. In that
unlikely event, the Directors and officers of KMF will exercise good business
judgment in upholding their fiduciary duties to each set of funds. Thus, such
conflicts, if any, can be minimized.
Officers and employees of Key Advisers are not permitted to serve as
officers or directors of KMF due to certain regulatory restrictions imposed on
banking organizations and their subsidiaries. See "Investment Adviser and
Administrator" below. The persons who have been elected to serve as officers and
directors of KMF, their position with KMF and their principal occupations during
the last five years are set forth below:
26
<PAGE> 60
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND PRINCIPAL POSITION(S) HELD
OCCUPATION DURING PAST FIVE YEARS WITH KEYFUNDS
- --------------------------------- -------------
<S> <C>
EDWARD P. CAMPBELL, Age: 46. 28601 Clemens Director
Road, Westlake, Ohio 44145. From July 1996 to present, President and
Chief Operating Officer of Nordson Corporation (manufacturer of application
equipment); from March 1994 to July 1996, Executive Vice President and
Chief Operating Officer of Nordson Corporation; from May 1988 to March
1994, Vice President of Nordson Corporation; from 1987 to December 1994,
member of the Supervisory Committee of Society's Collective Investment
Retirement Fund; from May 1991 to August 1994, Trustee, Financial Reserves
Fund and from May 1993 to August 1994, Trustee, Ohio Municipal Money Market
Fund; Trustee of the Victory Portfolios.
EUGENE J. MCDONALD, Age: 62. 2200 West Main Street, Director
Suite 1000, Durham, North Carolina 27705. Executive Vice President for
Asset Management of Duke University and President of Duke Management Co.;
Director of Central Carolina Financial Corp. and Sphinx Pharmaceuticals,
Inc.
FRANK A. WEIL, Age: 64. 147 E. 47th Street, New York, Non-Executive
New York 10017. Chairman and Chief Executive Officer Chairman and
of Abacus & Associates, Inc. (private investment firm). and Director
Chairman of the Council for Excellence in Government and Director and
President of the Norman and Hickrill Foundations.
*LEIGH A. WILSON, Age: 51. 53 Sylvan Road N., President and Director
Westport, CT 06880. From 1989 to present, Chairman and Chief Executive
Officer of Glenleigh International Limited (merchant bank); from
1993 to present, President of The Victory Funds. Currently,
Principal of New Century Living, Inc.; Director of Chimney Rock Vineyard
and President of Chimney Rock Winery; and Trustee of The Victory
Portfolios mutual fund complex. Previously, Chief Executive Officer,
Paribas North America and Paribas Corporation.
WILLIAM B. BLUNDIN, Age: 57. 125 West 55th Street, Vice President
New York, NY 10019. Senior Vice President, BISYS.
SCOTT A. ENGLEHART, Age: 34. 3435 Stelzer Road, Vice President
Columbus, Ohio 43219. Vice President of Client Services, and Assistant
BISYS Fund Services, Inc. (October 1990 to present). Secretary
</TABLE>
27
<PAGE> 61
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND PRINCIPAL POSITION(S) HELD
OCCUPATION DURING PAST FIVE YEARS WITH KEYFUNDS
- --------------------------------- -------------
<S> <C>
KEVIN L. MARTIN, Age: 35. 3435 Stelzer Road, Columbus, Ohio 43219. Treasurer
Vice President of Accounting Services, BISYS Fund
Services, Inc. (February 1996 to present); Senior Manager at Ernst &
Young (1984 to February 1996).
KAREN A. DOYLE, Age: 39. 125 West 55th Street, New York, NY 10019. Secretary
Director of Client Services, BISYS Fund Services, Inc.,
(October 1994 to present); Assistant Treasurer at The Bank of New York
(April 1979 to October 1994).
ROBERT L. TUCH, Age: 45. 3435 Stelzer Road, Columbus, Ohio 43219. Assistant
Employee of BISYS Fund Services, Inc. (June 1991 to present). Secretary
ALAINA V. METZ, Age: 29. 3435 Stelzer Road, Columbus, Ohio 43219. Assistant
Chief Administrator, Administrative and Regulatory Services, BISYS Secretary
Fund Services Limited Partnership (June 1995 to present); Supervisor,
Mutual Fund Legal Department, Alliance Capital Management (May 1989
to June 1995).
<FN>
* Mr. Wilson is an "interested person" of the Company solely by
reason of his position as President.
</TABLE>
Directors who are not "interested persons" of either an investment
adviser to or principal underwriter for KeyFunds receive an annual fee of
$7,500 plus $750 per meeting of the Board of Directors attended and reasonable
out-of-pocket expenses incurred in connection with attending such meetings. Each
Director who is an "interested person" of either an investment adviser to or
principal underwriter for KeyFunds does not receive any compensation from the
Company.
28
<PAGE> 62
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM KEYFUNDS TOTAL
FOR THE FISCAL COMPENSATION
YEAR ENDED FROM THE KEYFUNDS/
NAME NOVEMBER 30, 1996 VICTORY FUND COMPLEX
- ---- ----------------- --------------------
<S> <C> <C>
Edward P. Campbell $11,250 $50,250(1)
Eugene J. McDonald $11,250 $11,250(2)
Frank A. Weil $11,250 $11,250(2)
Leigh A. Wilson $11,250 $50,250(1)
<FN>
(1) These amounts include compensation received from KeyFunds and The Victory
Portfolios. There were 24 operating portfolios in the KeyFunds/Victory
"Fund Complex" from which Messrs. Campbell and Wilson received
compensation.
(2) Total compensation paid with respect to service on the Board of Directors
of KMF only.
</TABLE>
MANAGEMENT OF THE PROPRIETARY PORTFOLIOS
The Funds are shareholders in the Proprietary Portfolios. A brief
description of the management of KeyFunds and VP is set forth below.
KEY MUTUAL FUNDS' DIRECTORS AND OFFICERS:
The persons who have been elected to serve as officers and directors of
KeyFunds, their position(s) with KeyFunds and their principal occupations
during the last five years are identical to the information listed immediately
above for the Funds.
VICTORY PORTFOLIOS' BOARD OF TRUSTEES:
Overall responsibility for management of the Victory Portfolios rests
with the Trustees, who are elected by the shareholders of the Victory
Portfolios. The Victory Portfolios are managed by the Trustees in accordance
with the laws of the State of Delaware governing business trusts. There are
currently seven Trustees, six of whom are not "interested persons" of the
Victory Portfolios within the meaning of that term under the 1940 Act
("Independent Trustees"). The Trustees, in turn, elect the officers of the
Victory Portfolios to actively supervise its day-to-day operations.
29
<PAGE> 63
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, AGE, ADDRESS AND PRINCIPAL THE VICTORY
OCCUPATION DURING PAST FIVE YEARS PORTFOLIOS
- --------------------------------- ----------
<S> <C>
*LEIGH A. WILSON, Age: 51. 53 Sylvan Road N., Westport, CT 06880. From 1989 to Trustee and
present, Chairman and Chief Executive Officer of Glenleigh International President
Limited (merchant bank); from 1993 to present, President of The Victory
Funds and of KeyFunds and Director of KeyFunds. Currently, Principal
of New Century Living, Inc.; Director of Chimney Rock Vineyard and
President of Chimney Rock Winery; and Director of Key Mutual Funds;
Previously, Chief Executive Officer, Paribas North America and Paribas
Corporation.
ROBERT G. BROWN, Age: 73. 3239 Bremerton Road, Pepper Pike, OH 44124. Retired Trustee
from October 1983 to November 1990, President Cleveland Advanced
Manufacturing Program (non-profit corporation engaged in regional economic
development).
EDWARD P. CAMPBELL, Age: 46. Nordson Corporation, 28601 Clemens Road, Westlake, Trustee
OH 44145. From July 1996 to present, President and Chief Operating Officer
of Nordson Corporation (manufacturer of application equipment); from March
1994 to July 1996, Executive Vice President and Chief Operating Officer of
Nordson Corporation; from May 1988 to March 1994, Vice President of Nordson
Corporation; from 1987 to December 1994, member of the Supervisory
Committee of Society's Collective Investment Retirement Fund; from May 1991
to August 1994, Trustee, Financial Reserves Fund and from May 1993 to
August 1994, Trustee, Ohio Municipal Money Market Fund; Director of Key
Mutual Funds.
DR. HARRY GAZELLE, Age: 69. 17822 Lake Road, Lakewood, Ohio 44107. Retired Trustee
radiologist, Drs. Hill and Thomas Corp.; Trustee, The Victory Funds.
STANLEY I. LANDGRAF, Age: 71. 41 Traditional Lane, Loudonville, NY 12211. Trustee
Retired; currently, Trustee, Rensselaer Polytechnic Institute; Director,
Elenel Corporation and Mechanical Technology, Inc.; Member, Board of
Overseers,
</TABLE>
30
<PAGE> 64
<TABLE>
<CAPTION>
POSITION(S)
HELD WITH
NAME, AGE, ADDRESS AND PRINCIPAL THE VICTORY
OCCUPATION DURING PAST FIVE YEARS PORTFOLIOS
- --------------------------------- ----------
<S> <C>
School of Management, Rensselaer Polytechnic Institute; Member, The Fifty
Group (a Capital Region business organization); Trustee, The Victory
Funds.
DR. THOMAS F. MORRISSEY, Age: 63. Weatherhead School of Trustee
Management, Case Western Reserve University, 10900 Euclid Avenue,
Cleveland, OH 44106-7234. 1995 Visiting Scholar, Bond University,
Queensland, Australia; Professor, Weatherhead School of Management, Case
Western Reserve University; from 1989 to 1995, Associate Dean of
Weatherhead School of Management; from 1987 to December 1994, Member of the
Supervisory Committee of Society's Collective Investment Retirement Fund;
from May 1991 to August 1994, Trustee, Financial Reserves Fund and from May
1993 to August 1994, Trustee, Ohio Municipal Money Market Fund; Trustee,
The Victory Funds.
DR. H. PATRICK SWYGERT, Age: 53. Howard University, Trustee
2400 6th Street, N.W., Suite 320, Washington, DC 20059. President,
Howard University; formerly President, State University of New York at
Albany; formerly, Executive Vice President, Temple University; Trustee,
The Victory Funds.
<FN>
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
</TABLE>
SECURITY HOLDERS
The name, address and percentage of ownership of each person who is
known by the Registrant to have owned of record or beneficially 5 percent or
more of any of the KMF Funds' shares as of November 30, 1996 is:
<TABLE>
<CAPTION>
SHARES OWNED (PERCENT OF CLASS)*
KEY MONEY SBSF CONVERTIBLE SBSF CAPITAL KEY STOCK
NAME AND ADDRESS SBSF FUND MARKET MUTUAL FUND SECURITIES FUND GROWTH FUND INDEX FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles Schwab & Co./FBO Cust. 726,680.280
101 Montgomery Street 12.09%
San Francisco, CA 94104
MAC & Co. 354,450.450 336,727.561
c/o Mellon Bank 5.78% 5.60%
Mutual Funds Operation
P.O. Box 3198
Pittsburgh, PA 15230-3198
Brookdale Hospital Medical Center 348,010.159 1,351,460.064
Linden Blvd At Brookdale Plaza 5.68% 22.48%
Brooklyn, NY 11212
Donaldson, Lufkin & Jenrette Sec. 321,597.603
Mutual Funds Dept. 5.35%
P.O. Box 2052
Jersey City, NJ 07303-2052
Norman/Weil Office 306,515.800
c/o Abacus & Associates 5.10%
147 East 48th Street
New York, NY 10017
Key Trust 2,613,469.655
Attn: Jim Osborne 70.16%
4990 Tiedeman Road
P.O. Box 93971
Brooklyn, OH 44101
Richard E. Salomon 2,165,123.300
45 Rockerfeller Plaza 5.14%
New York, New York 10111
Summit County Treasurer 15,000,000.000
175 South Main Street 35.58%
Akron, OH 44308
Lucas County Treasurer 4,005,187.870
One Government Center 9.50%
Toledo, OH 43604
ADP of Roseland Inc. 2,204,176.040
1 A.D.P. Blvd 5.23%
Roseland, NJ 07068-1728
Key Trust Co. of the Northwest 58,434.669
Investment Manager for the 5.9%
Totem Resources Corp.
P.O. Box 24908
Seattle, WA 98124
Foss Maritime Company 79,143.75
Attn: Mr. Lane Tanabe 7.9%
660 West Ewing Street
Seattle, WA 98119
KeyCorp 401(k) Plan 561,559.152
127 Public Square 56.4%
Cleveland, OH 44114
</TABLE>
THE INVESTMENT ADVISER OF THE FUNDS
INVESTMENT ADVISER. The investment adviser of the Funds is KeyCorp
Mutual Fund Advisers, Inc. ("Key Advisers" or the "Adviser"). Key Advisers was
organized as an Ohio Corporation on July 27, 1995 and is registered with the
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended. Key Advisers is a wholly owned subsidiary of KeyCorp Asset
Management Holdings, Inc. ("KAMHI"), which is a wholly owned subsidiary of
KeyBank National Association ("KeyBank"). KeyBank is a wholly owned subsidiary
of KeyCorp, one of the largest financial services holding companies in the
United States. As of September 30, 1996, Key Advisers and its affiliates managed
approximately $49 billion in assets for numerous clients, including large
corporate and public retirement plans, Taft-Hartley plans, foundations and
endowments and high net worth individuals.
31
<PAGE> 65
As of September 30, 1996, KeyCorp had an asset base of $65 billion,
with banking offices in 26 states from Maine to Alaska, and trust and investment
offices in 16 states. KeyCorp is the resulting entity of the 1994 merger of
Society Corporation, the bank holding company of which KeyBank, formerly Society
National Bank, was a wholly-owned subsidiary, and KeyCorp, the former bank
holding company. KeyCorp's major business activities include providing
traditional banking and associated financial services to consumer, business and
commercial markets. KeyCorp's non-bank subsidiaries include investment advisory,
securities brokerage, insurance, bank credit card processing and leasing
companies. KeyBank is the lead affiliate bank of KeyCorp, which is headquartered
at 127 Public Square, Cleveland, Ohio 44114.
Pursuant to the Asset Management Agreement between the Company, on
behalf of the Funds, and Key Advisers (the "Asset Management Agreement"), dated
December 16, 1996, Key Advisers furnishes a continuous investment program for
the Funds', conducts investment research, makes the day-to-day investment
decisions for the Funds, executes the purchase and sale orders for the
portfolio transactions of the Funds and generally manages and supervises the
Funds' investments in accordance with the stated policies of the Funds, subject
to the general supervision of the Board of Directors of the Funds.
Key Advisers continuously monitors the allocation of each Fund's
investment in Underlying Portfolios in three distinct investment categories
according to certain percentage ranges predetermined by the Directors as
follows:
<TABLE>
<CAPTION>
MODERATE INCOME AND
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
Equity Funds 70-90% 50-70% 30-50%
Bond/Fixed Income Funds 10-30% 30-50% 50-70%
Money Market Funds/Cash 0-15% 0-15% 0-15%
</TABLE>
Key Advisers rebalances or reallocates the Funds' investments across Underlying
Portfolios as market conditions warrant. All reallocations are expected to occur
within the above-described ranges.
The selection of the Proprietary Portfolios in which the Growth Fund,
Moderate Growth Fund and Income and Growth Fund will invest, as well as the
percentage of assets which can be invested in each type of underlying mutual
fund, are not fundamental investment policies and can be changed without the
approval of a majority of the respective Fund's shareholders. Any changes to the
percentage ranges shown above for allocation across types of Underlying
Portfolios or for allocation in Proprietary Portfolios and Other Portfolios
requires the approval of the Company's Board of Directors. Investors desiring
more information on a Proprietary Portfolio listed above may call KeyFunds and
Victory Portfolios at 800-KEY-FUND to request a prospectus, which is available
without charge. The selection of the Other Portfolios also is within the
Adviser's discretion.
32
<PAGE> 66
Changes in the value of the Underlying Portfolios may affect cash
income, if any, derived from these investments and will affect a Fund's net
asset value. Because each Fund invests primarily in other mutual funds, which
fluctuate in value, the Funds' shares will correspondingly fluctuate in value.
Although the Funds normally seek to remain substantially fully invested in the
Underlying Portfolios, a Fund may invest temporarily in certain short-term
obligations. Such obligations may be used to invest uncommitted cash balances or
to maintain liquidity to meet shareholder redemptions. A Fund also may borrow
money for temporary or emergency purposes.
As compensation for the services rendered and related expenses borne by
Key Advisers under the Asset Management Agreement, the Funds pay Key Advisers a
fee, computed daily and payable monthly, equal to 0.20% per annum of the Fund's
average daily net assets.
Unless sooner terminated, the Asset Management Agreement, provides that
it will continue in effect for an initial two-year term and, with respect to
each Fund, for consecutive one-year terms thereafter, provided that such
continuance is approved at least annually by the Board of Directors of the
Company or by a vote of a majority of the outstanding voting securities of a
Fund (as defined in the 1940 Act), and, in either case, by a majority of the
Directors who are not parties to the Asset Management Agreement or interested
persons (as defined in the 1940 Act) of any such party, by votes cast in person
at a meeting called for such purpose.
The Asset Management Agreement is terminable as to a Fund at any time
on 60 days' written notice without penalty by the Directors, by vote of a
majority of the outstanding voting securities of the Fund, or by Key Advisers.
The Asset Management Agreement also terminates automatically in the event of its
assignment, as defined in the 1940 Act.
The Asset Management Agreement provides that Key Advisers shall not be
liable for any error of judgment or mistake of law or for any loss suffered by a
Fund in connection with the performance of its services pursuant to the Asset
Management 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 Key
Advisers in the performance of its duties, or from reckless disregard by it of
either duties or obligations thereunder.
The Asset Management Agreement also provides that Key Advisers may
delegate a portion of its responsibilities to a sub-adviser. In addition, the
Asset Management Agreement provides that Key Advisers may render services
through its own employees or through the employees of one or more affiliated
companies that are qualified to act as an investment adviser to 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 that is managed by
authorized officers of Key Advisers.
Due to certain regulatory restrictions on banking organizations and
their subsidiaries, employees of Key Advisers are not permitted to serve as
officers or directors of the Company.
THE INVESTMENT ADVISERS OF THE PROPRIETARY PORTFOLIOS
As a shareholder in the Proprietary Portfolios, the Funds will bear
their proportionate share
33
<PAGE> 67
of the investment advisory fees paid by those Funds. Set forth below is a
description of the investment advisory agreements for each Proprietary
Portfolio.
KEYFUNDS
Spears, Benzak, Salomon & Farrell, Inc. ("Spears"), a New York
corporation that is registered as an investment adviser with the Commission,
serves as investment adviser to the SBSF Fund, the SBSF Convertible Securities
Fund, the SBSF Capital Growth Fund (the "KMF Funds") and Key Money Market
Mutual Fund. Spears is a wholly owned subsidiary of KAMHI and is an indirect
wholly owned subsidiary of KeyBank, which is wholly owned subsidiary of KeyCorp,
one of the largest financial services holding companies in the United States.
KeyCorp's principal offices are located at 127 Public Square, Cleveland, Ohio
44114.
Spears was, at September 30, 1996, investment adviser for assets
aggregating in excess of $4.6 billion. In addition to the KMF Funds, Spears'
advisory clients include individuals, pension and profit-sharing trusts,
partnerships, endowments and foundations. Spears' principal offices are located
at 45 Rockefeller Plaza, New York, NY 10111.
Pursuant to an Investment Advisory Agreement, Spears furnishes a
continuous investment program for the KMF Funds, makes the day-to-day investment
decisions for the KMF Funds, executes the purchase and sale orders for the
portfolio transactions of the KMF Funds and generally manages the KMF Funds'
investments in accordance with the stated policies of the KMF Funds, subject to
the general supervision of the Board of Directors of the KMF Funds.
Pursuant to a Sub-Administration Agreement between Spears and BISYS,
Spears provides the KMF Funds (and Key Money Market Mutual Fund) with certain
sub-administrative and fund accounting services. For its services as
sub-administrator, BISYS pays Spears an annual fee of $500,000.
The persons primarily responsible for the investment management of the
KeyFunds are as follows:
<TABLE>
<CAPTION>
Fund Portfolio Manager Managing Fund Since Experience
---- ----------------- ------------------- ----------
<S> <C> <C> <C>
SBSF Fund Louis R. Benzak Commencement of Operations Principal Portfolio Manager. Managing
Director and Vice Chairman of Spears
since 1978.
SBSF Fund Christopher C. Grisanti April, 1996 Co-Portfolio Manager. Vice President,
Analyst and Portfolio Manager since 1994;
formerly, Attorney with Simpson, Thacher &
Bartlett.
SBSF Capital Growth Fund Charles G. Crane Commencement of Operations Principal Portfolio Manager. Managing
Director of Spears and has been associated
with Spears since 1988.
SBSF Capital Growth Fund Annette Longnon Geddes April, 1996 Co-Portfolio Manager. Managing Director
of Spears. Associated with Spears since
April 1996. Portfolio Manager with
Steinhardt Management Company during
1995. Managing Director of Trust Company
of the West from 1987 to 1994.
SBSF Convertible Louis R. Benzak Commencement of Operations Principal Portfolio Manager. Managing
Securities Fund Director and Vice Chairman of Spears
since 1978.
SBSF Convertible Richard A. Janus April, 1996 Co-Portfolio Manager. Vice President of
Securities Fund Spears. Senior Managing Director and
Chief Investment Officer of Convertible
Securities Investments for Society Asset
Management, Inc. ("Society"), an affiliate
of Spears and an indirect wholly owned
</TABLE>
34
<PAGE> 68
<TABLE>
<CAPTION>
Fund Portfolio Manager Managing Fund Since Experience
---- ----------------- ------------------- ----------
<S> <C> <C> <C>
subsidiary of KeyCorp. Employed by
Society (including predecessors) since
1977.
SBSF Convertible James K. Kaesberg April, 1996 Co-Portfolio Manager. Vice President of
Securities Fund Spears. Associated with Society
(including its predecessors) since 1985,
and currently holds the position of Vice
President and Portfolio Manager, Convertible
Securities.
</TABLE>
Under the Investment Advisory Agreement, as compensation for the
services rendered and related expenses borne by Spears, the KMF Funds each is
obligated to pay Spears a fee, computed daily and payable monthly, equal to
0.75% per annum of each such KMF Fund's average daily net assets. This fee is
higher than that paid by most investment companies, although it is believed that
this fee is comparable to fees paid by other investment companies with
investment objectives comparable to each such KMF Fund. Spears is obligated to
reimburse the KMF Funds in the event any Fund's expenses exceed certain
prescribed limits. See "Expenses and Distribution Plan."
VICTORY PORTFOLIOS
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the
Victory Portfolios. Key Advisers directs the investment of the VP Funds' assets,
subject at all times to the supervision of the Victory Portfolios' Board of
Trustees. Key Advisers continually conducts investment research and supervision
for the Funds and is responsible for the purchase and sale of the VP
investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and
is registered with the Commission as an investment adviser under the Investment
Advisers Act of 1940, as amended. It is a wholly owned subsidiary of KAMHI,
which is a wholly owned subsidiary of KeyBank, a wholly owned subsidiary of
KeyCorp, a financial services holding company. Key Advisers and its affiliates
managed approximately $49 billion, as of September 30, 1996, for numerous
clients including large corporate and public retirement plans, Taft-Hartley
plans, foundations and endowments, high net worth individuals and mutual funds.
35
<PAGE> 69
As of September 30, 1996, KeyCorp had an asset base of $65 billion,
with banking offices in 26 states from Maine to Alaska, and trust and investment
offices in 16 states. KeyCorp is the resulting entity of the merger in 1994 of
Society Corporation, the bank holding company of which KeyBank, formerly Society
National Bank, was a wholly-owned subsidiary, and KeyCorp, the former bank
holding company. KeyCorp's major business activities include providing
traditional banking and associated financial services to consumer, business and
commercial markets. KeyCorp's non-bank subsidiaries include investment advisory,
securities brokerage, insurance, bank credit card processing, and leasing
companies. KeyBank is the lead affiliate bank of KeyCorp, which is
headquartered at 127 Public Square, Cleveland, Ohio 44114.
The persons primarily responsible for the investment management of the
Victory Portfolios are as follows:
<TABLE>
<CAPTION>
Fund Portfolio Manager Managing Fund Since Experience
---- ----------------- ------------------- ----------
<S> <C> <C> <C>
Victory Value Fund Judith A. Jones Commencement of Portfolio Manager with Society Asset
Operations Management Inc. since 1993; Portfolio Manager
with Ameritrust from 1965 to 1992.
Victory Diversified Stock Lawrence G. Babin Commencement of Portfolio Manager with Society Asset
Fund Operations Management, Inc. since 1993; Portfolio
Manager with Society National Bank since 1981.
Victory Growth Fund William F. Ruple June, 1995 Vice President and Portfolio Manager with
Society Asset Management since December,1992;
Portfolio Manager with Society National Bank
from 1989 to December 1992.
Victory Special Value Fund Anthony Aveni Commencement of Portfolio Manager with Society Asset
Operations Management, Inc. since 1993; Portfolio
Manager with Ameritrust from 1981 to 1992.
Victory Special Value Fund Barbara Myers June, 1995 Portfolio Manager with Society Asset
Management, Inc. since June, 1994; Portfolio
Manager with Duff & Phelps, Inc. from 1989 to
June, 1994.
Victory Special Growth Fund Annette June, 1996 Managing Director and Portfolio Manager of Spears.
Geddes Associated with Spears since 1996. Portfolio
Manager with Steinhardt Management Company since
1995. Managing Director of Trust Company of the
West since 1987.
Victory International Conrad R. Metz October, 1995 Vice President and Portfolio Manager with
Growth Fund Society Asset Management, Inc. since 1995;
Senior Vice President, International Equities,
with Bailard, Biehl & Kaiser from 1993-1995;
Principal, International Portfolio Manager,
Vice President and Analyst with Harris
Investment Management from 1983-1993; Assistant
Vice President and Investment Officer, Equity
Research with National Bank of Detroit from
1978-1983.
Victory Government Mortgage Robert H. Fernald November, 1994 Vice President and Portfolio Manager for
Fund Society Asset Management, Inc., beginning in
1993, and for Society National Bank since
1992; Portfolio Manager for
</TABLE>
36
<PAGE> 70
<TABLE>
<CAPTION>
Fund Portfolio Manager Managing Fund Since Experience
---- ----------------- ------------------- ----------
<S> <C> <C> <C>
Ameritrust Company National Association from
1991 to 1992; formerly Vice President of Fairfield
Research Corporation.
Victory Investment Quality Richard T. Heine Commencement of Vice President and Portfolio Manager for
Bond Fund Operations Society Asset Management, Inc. beginning in
1993; Vice President and Portfolio Manager
for Society National Bank since 1992; with
Ameritrust Company National Association from
1973 to 1992.
Victory Fund for Income Robert H. Fernald May, 1996 Vice President and Portfolio Manager for
Society Asset Management, Inc., beginning in
1993; and for Society National Bank since
1992; Portfolio Manager for Ameritrust
Company National Association from 1991 to
1992; formerly Vice President, Fairfield
Research Corporation.
Victory Intermediate Income David M. Baccile March, 1996 Portfolio Manager, Society Asset Management,
Fund Inc., beginning in 1994; Credit Analyst and
Fixed Income Trader for KeyCorp since 1990.
Victory Limited Term Income Robert H. Fernald January, 1995 Vice President and Portfolio Manager for
Fund Society Asset Management, Inc., beginning in
1993, and for Society National Bank since
1992; Portfolio Manager for Ameritrust
Company National Association from 1991-1992;
formerly Vice President, Fairfield Research
Corporation.
</TABLE>
The following schedule lists the advisory fees for each VP mutual fund
that is advised by Key Advisers.
<TABLE>
<S> <C>
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Limited Term Income Fund
Victory Financial Reserves Fund
Victory Fund for Income
Victory Government Mortgage Fund
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Investment Quality Bond Fund
Victory Intermediate Income Fund
1% OF AVERAGE DAILY NET ASSETS
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
</TABLE>
Society Asset Management, Inc. serves as sub-adviser to each of these
Funds. For its services under the Investment Sub-Advisory Agreement, Key
Advisers pays the sub-adviser fees at
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<PAGE> 71
rates (based on an annual percentage of average daily net assets) which vary
according to the following table.
The investment sub-advisory fees payable by Key Advisers to the
sub-adviser are as follows:
<TABLE>
<CAPTION>
For the Victory Diversified Stock Fund, For the Victory International
Growth Fund and Value Fund: Growth Fund and Special Value Fund:
RATE OF RATE OF
SUB-ADVISORY SUB-ADVISORY
NET ASSETS FEE(1) NET ASSETS FEE(1)
---------- ------ ---------- ------
<S> <C> <C> <C>
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
<CAPTION>
For the Victory Investment Quality Bond For the Victory Financial Reserves
Fund, Limited Term Income Fund, Fund:
Government Mortgage Fund and
Intermediate Income Fund:
RATE OF RATE OF
SUB-ADVISORY SUB-ADVISORY
NET ASSETS FEE(1) NET ASSETS FEE(1)
---------- ------ ---------- ------
<S> <C> <C> <C>
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
<FN>
(1) As a percentage of average daily net assets. Note, however, that the
sub-adviser has the right, but not the obligation, to voluntarily waive
any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable for the period in which it is
made and determined in advance of rendering sub-investment advisory
services by the sub-adviser, and will be in writing.
</TABLE>
ADMINISTRATOR OF THE FUNDS
BISYS Fund Services Limited Partnership (d/b/a BISYS Fund Services)
("BISYS") serves as the Administrator (the "Administrator") of the Funds
pursuant to an administration agreement, dated July 1, 1996, as amended
December 16, 1996 (the "Administration Agreement"). The
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<PAGE> 72
Administrator assists in supervising all operations of each Fund (other than
those performed by KMFA under the Investment Advisory Agreement), subject to the
supervision of the Board of Directors.
For the services rendered to the Funds and related expenses borne by
BISYS as Administrator, each Fund pays BISYS an annual fee, computed daily and
paid monthly, equal to 0.01% of the average daily net assets of each Fund,
subject to a minimum charge of $12,000 per Fund per year. 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 of the Company available
for distribution to shareholders.
Unless sooner terminated, the Administration Agreement is renewed
automatically for one year periods unless terminated by either the Company or
the Administrator on not less than 90 days' prior written notice.
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 Funds 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 the
Fund's administration and operation, including providing statistical and
research data, clerical services, internal compliance and various other
administrative services, including among other responsibilities, forwarding
certain purchase and redemption requests to the Transfer Agent, 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 office facilities necessary to carry out its duties thereunder. Under
the Administration Agreement, the Administrator may delegate all or any part of
its responsibilities thereunder.
Fund Accountant. BISYS Fund Services, Inc. ("BISYS, Inc.") serves as a
fund accountant for each Fund pursuant to a fund accounting agreement with the
Company dated July 1, 1996, as amended December 16, 1996 (the "Fund
Accounting Agreement"). As fund accountant, BISYS, Inc. calculates each Fund's
net asset value, dividends and capital gain distributions, if any, and yield
and total return. BISYS, Inc. 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 each
Fund. Under the Fund Accounting Agreement, BISYS, Inc. is entitled to receive a
fee from each Fund equal to an annual rate of 0.02% of the first $100 million
of average daily net assets and 0.01% of average daily net assets in excess of
$100 million, subject to a minimum monthly fee of $1,666.66 per Fund.
[/R]
39
<PAGE> 73
EXPENSES, DISTRIBUTOR AND DISTRIBUTION PLAN
Except as set forth above, and as set forth below, the Funds are
responsible for the payment of their expenses. Such expenses include the fees
payable to Key Advisers; any brokerage fees and commissions; taxes; interest;
the cost of any liability insurance or fidelity bonds; costs, expenses, or
losses arising out of any liability of or claim for damages or other relief
asserted against the Funds for violation of any law; legal and auditing fees and
expenses; the fees and certain expenses of the Custodian, Transfer Agent
BISYS Inc. and BISYS; the fees of any trade association of which the Funds are a
member; the expenses of printing and mailing reports and notices to the Funds'
shareholders; filing fees for the registration or qualification of Funds shares
under federal or state securities laws; the fees and expenses involved in
registering and maintaining registration of the Funds and of its shares with the
Commission; fees of directors who are not "interested persons" of an investment
adviser to or the principal underwriter for the Funds; the costs of registering
the Funds as a broker or dealer; the costs of qualifying its shares under state
securities laws; the expenses of servicing shareholders and shareholder accounts
not otherwise incurred by the Adviser or the Administrator; and any
extraordinary expenses incurred by the Funds.
As a result of certain regulatory restrictions imposed on banking
organizations and their subsidiaries, the Company is not permitted to sell
shares of the Funds directly without an independent underwriter. Accordingly,
pursuant to a distribution agreement dated as of July 1, 1996, as amended
December 16, 1996, (the "Distribution Agreement"), BISYS (the "Distributor")
was appointed to serve as independent underwriter/distributor for the continuous
offering of the shares of the Company. Under the Distribution Agreement, the
Distributor is obligated to devote its best efforts to effect sales of shares of
the Funds, but is not required to sell any certain number of shares. In
addition, under the Distribution Agreement, the Distributor may enter into
agreements with selected dealers for the distribution of shares of the Funds.
If not earlier terminated, the Distribution Agreement will continue in
effect 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 of Directors of the Company who are not parties to the Agreement or
"interested persons" of any such party (the "Disinterested Directors"), pursuant
to a vote cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Company or by vote of a
"majority of the outstanding voting securities" of each Fund. The Distribution
Agreement may be terminated by the Company at any time with respect to any Fund,
without the payment of any penalty, by vote of a majority of the Disinterested
Directors 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 Fund. The Distribution Agreement will automatically terminate in the event
of its "assignment".
The Company has adopted a Distribution Plan (the "Distribution Plan")
for the Funds pursuant to Rule 12b-1 under the 1940 Act. No separate payments
are authorized to be made by the Funds under the Plan. Rather, the Plan provides
that to the extent that any portion of the fees payable under the Shareholder
Servicing Plan or any Shareholder Servicing Agreement (described below) is
deemed to be for services primarily intended to result in the sale of Fund
shares, such fees are deemed approved and may be paid pursuant to the Plan and
in accordance with Rule 12b-1.
40
<PAGE> 74
Rule 12b-1 generally requires that the Distribution Plan initially be
approved by a vote of a majority of the Board of Directors, including those
directors who are not "interested persons" of the Funds (as defined in the 1940
Act) and who have no direct or indirect financial interest in the Distribution
Plan. The Distribution Plan must be approved at least annually in the manner
described in the foregoing sentence and may be terminated at any time by a
vote of a majority of the outstanding voting securities of the Fund or a
majority of those directors who are not "interested persons" and who have no
direct or indirect financial interest in the Distribution Plan.
While the Distribution Plan is in effect, the selection and nomination
of directors who are not "interested persons" of the Company (as defined in the
1940 Act) is committed to the discretion of the directors who are not interested
persons of the Company.
In the event that the total expenses of a Fund exceed the limits on
investment company expenses imposed by any statute or any regulatory authority
of any jurisdiction in which shares of such Fund are qualified for offer and
sale, Key Advisers will bear the amount of such excess, except: (i) Key Advisers
shall not be required to bear such excess to an extent greater than the
compensation due to Key Advisers for the period for which such expense
limitation is required to be calculated unless such statute or regulatory
authority shall so require, and (ii) Key Advisers shall not be required to bear
the expenses of the Fund to an extent which would result in the Fund's or
Company's inability to qualify as a regulated investment company under the
provisions of Subchapter M of the Code. Fees imposed on customer accounts by
Key Advisers, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of such limitation.
SHAREHOLDER SERVICING PLAN
The Company, on behalf of the Growth Fund, Moderate Growth Fund and
Income and Growth Fund, has adopted a Shareholder Servicing Plan to provide
payments to shareholder servicing agents (including affiliates of the Adviser)
(each a "Shareholder Servicing Agent") that provide administrative support
services to customers who may from time to time beneficially own shares of a
Fund, which services may include: (i) aggregating and processing purchase and
redemption requests for shares from customers and promptly transmitting net
purchase and redemption orders to the distributor or transfer agent; (ii)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments on behalf of customers; (iv) providing
information periodically to customers showing their positions in shares; (v)
arranging for bank wires; (vi) responding to customer inquiries; (vii) providing
subaccounting with respect to shares beneficially owned by customers or
providing the information to the Fund necessary for subaccounting; (viii) if
41
<PAGE> 75
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; and (ix) providing such other
similar services as reasonably requested to the extent the Shareholder Servicing
Agent is permitted to do so under applicable statutes, rules or regulations. For
expenses incurred and services provided pursuant to the Shareholder Servicing
Agreement, the Fund pays each Shareholder Servicing Agent a fee computed daily
and payable monthly, in amounts aggregating not more than 0.25% on an annual
basis, of the average daily net assets of the Fund. A Shareholder Servicing
Agent may periodically waive all or a portion of its respective shareholder
servicing fees with respect to the Fund to increase the net income of the Fund
available for distribution as dividends.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio
44114 has been retained as Custodian for the Funds' investments. Key Trust
Company of Ohio, N.A. also maintains certain accounting and financial records of
the Funds. Key Trust Company of Ohio, N.A. is a subsidiary of KeyCorp and an
affiliate of the Adviser and receives compensation from the Funds for services
it performs as Custodian.
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110, the Fund's Transfer Agent, subcontracts the performance of all services
to Boston Financial Data Services, Inc. ("BFDS"). BFDS, at Two Heritage Drive,
Quincy, MA 02171, acts as dividend disbursing agent and servicing agent for the
shares of the Funds and receives a fee for these services.
PERFORMANCE INFORMATION
From time to time the "standardized yield," "dividend yield,"
"distribution return," "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.
Yield and total return information may be useful to investors in
reviewing a Fund's performance. A Fund's advertisement of its performance must,
under applicable Commission rules, include the average annual total returns for
the Fund for the 1, 5 and 10-year period (or the life of the Fund, if less) as
of the most recently ended calendar quarter. This enables an investor to compare
a 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. An investment in a Fund is not
insured; yield and total return are not guaranteed and normally fluctuate on a
daily basis. When redeemed, an investor's shares 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 Company of future yields or rates of return
on its shares. The yield and total return of a Fund are affected by the types of
investments the Fund holds, its operating expenses and other factors.
42
<PAGE> 76
Standardized Yields. A Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for the shares of the Fund is calculated using
the following formula set forth in rules adopted by the Commission that apply to
all funds that quote yields:
2[(a-b+1) to the 6th power-1]
Standardized Yield = -----------------------------
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 the Fund 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.
The standardized yield for a 30-day period may differ from its yield
for any other period. The Commission 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 the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments calculated for that period. The standardized
yield may differ from the "dividend yield," described below.
Dividend Yield and Distribution Return. From time to time a Fund may
quote a "dividend yield" or a "distribution return." Dividend yield is based on
the share dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions declared during a stated period
of one year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share on the last day of the period.
When the result is annualized for a period of less than one year, the "dividend
yield" is calculated as follows:
Dividends + Number of days (accrual period) x 365
Dividend Yield = -------------------------------------------------
Max. Offering Price (last day of period)
Total Return. The "average annual total return" is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return based on the change in value of a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n")
to achieve an Ending Redeemable Value ("ERV"), according to the following
formula:
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<PAGE> 77
ERV(1n)-1
Average Annual Total Return = ---------
P
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 assume that all dividends and 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.
Other Performance Comparisons. From time to time, a Fund may publish
the ranking of the performance of its shares by Lipper Analytical Services, Inc.
("Lipper"), 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. The Lipper performance rankings
are based on a 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 the performance of
its shares by Morningstar, Inc., an independent mutual fund monitoring service
that ranks mutual funds, including the Funds, in broad investment categories
(equity, taxable bond, tax-exempt and other) monthly, based upon each funds'
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 5
stars, 22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars, and
the bottom 10% receive one star.
From time to time, the yields and the total returns of the Funds may be
quoted in and compared to other mutual funds with similar investment objectives
in advertisements, shareholder reports or other communications to shareholders.
The Funds also may include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be 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 in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. A Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or
44
<PAGE> 78
retirement planning), investment management techniques, policies or investment
suitability of 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 communications to shareholders may
summarize the substance of information contained in shareholder 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). A Fund also may
include in advertisements, charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to stock, bonds, Treasury bills and shares of the 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, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund. Such advertisements or communications 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 shareholders. Performance information concerning the Funds generally
is available by calling 800-KEY-FUND.
Advertisements and sales literature may include discussions of
specifics of the 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 an investment
in a Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. 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.
Money market mutual funds seek to offer a fixed price per share.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Pursuant to the Asset Management Agreement, Key Advisers determines,
subject to the general supervision of the Directors of the Company, and in
accordance with each Fund's investment objective and restrictions, which
Underlying Portfolio shares or securities are to be purchased or sold by a Fund,
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
45
<PAGE> 79
from dealers serving as market makers may include the spread between bid and
asked price. 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 a Fund. While Key Advisers generally seeks competitive spreads or
commissions, a Fund may not necessarily pay the lowest prices available on each
transaction, for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers in
its 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. In assessing the best overall terms available for
any transaction, Key Advisers considers 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 Key Advisers and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis.
In selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who provide brokerage and
research services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to Key Advisers, the Funds or other accounts over which
Key Advisers exercises investment discretion. Research so received is in
addition to and not in lieu of services required to be performed by Key Advisers
and does not reduce the advisory fees payable to Key Advisers by the Funds. Such
information may be useful to Key Advisers in serving both the Funds and other
clients and, conversely, such supplemental research information obtained by the
placement of orders on behalf of other clients may be useful to Key Advisers in
carrying out its obligations to the Funds. The Asset Management Agreement
authorizes Key Advisers to pay a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for a
Fund which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if Key Advisers 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
Key Advisers with respect accounts over which it exercises investment
discretion.
The Funds will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, Key Trust Company
of Ohio, N.A. or its affiliates, BISYS, or their affiliates, and will not give
preference to Key Trust Company of Ohio, N.A.'s correspondent banks or
affiliates, or BISYS with respect to such transactions, securities, savings
deposits, repurchase agreements and reverse repurchase agreements.
Investment decisions for the Funds are made independently from those
made for other funds or any other investment company or account managed by Key
Advisers. Any such other investment company or account may also invest in the
same securities as a particular Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and another
Fund or investment company or account, the transaction will be averaged as to
price,
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<PAGE> 80
and available investments allocated as to amount, in a manner which Key Advisers
believes to be equitable to the Fund and such other Fund or investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained by
the Fund. To the extent permitted by law, Key Advisers may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for the other Funds or for other investment companies or accounts in order to
obtain best execution. In making investment recommendations for the Funds, Key
Advisers will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by a Fund is a customer of Key
Advisers, its parents or subsidiaries or affiliates and, in dealing with their
commercial customers, Key Advisers, its parents, subsidiaries, and affiliates
will not inquire or take into consideration whether securities of such customers
are held by the Funds.
PURCHASE, REDEMPTION AND PRICING
As indicated in the Prospectus, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the close of regular
trading of the NYSE ("the Valuation Time") on each Business Day of the Fund. A
"Business Day" is a day on which the NYSE is open for trading. The NYSE is
closed in observance of the following holidays: New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The methods of purchase and redemption of shares, and special
retirement, withdrawal and exchange plans offered are fully set forth in the
Prospectus. Certain additional information is provided below.
Pursuant to Rule 11a-3 under the 1940 Act, a Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying its
exchange privilege. Under that Rule, the 60-day notification requirement may be
waived if (1) the only effect of a modification would be to reduce or eliminate
an administrative fee, redemption fee, or deferred sales charge ordinarily
payable at the time of exchange, or (2) a Fund temporarily suspends the offering
of shares as permitted under the 1940 Act or by the Commission, or because it is
unable to invest amounts effectively in accordance with its investment objective
and policies.
The Company and Key Advisers reserve the right at any time without
prior notice to shareholders to refuse exchange purchases by any person or group
if, in the judgment of Key Advisers, a Fund would be unable to invest
effectively in accordance with its investment objective and policies, or would
potentially be adversely affected.
The Company 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 a Fund during any 90-day period for any one shareholder.
Any portion of a redemption not paid in cash may be paid in securities or other
property of the relevant Fund. Shareholders receiving securities or other
property upon redemption may realize a gain or loss for tax purposes and may
incur additional costs (e.g. brokerage costs) as well as the inconveniences
associated with disposing of such securities or other property.
The net asset value of the shares of each Fund is normally determined
at 4:00 p.m., Eastern Time, each Business Day, and each is determined by
dividing the total value of all underlying mutual fund shares and securities
held (both valued at current market value or by other method approved by the
respective Board of the Proprietary Portfolios), and other assets, less
liabilities, divided by the total number of shares then outstanding. Securities
for which quotations are not readily available and any other assets are valued
at fair value as determined in good faith by the
47
<PAGE> 81
Board of Directors. Money market instruments are valued at market value except
money market instruments having a maturity of less than 60 days which are valued
at amortized cost. The amortized cost method values a security initially at its
cost and thereafter assumes a constant amortization of any discount or premium
regardless of the impact of fluctuating interest rates on the market value of
the security. This method does not take into account unrealized gains or losses.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of distributions
by each Fund. This section of the Statement of Additional Information includes
additional information concerning federal income taxes.
Qualification as a "regulated investment company" under the Code
requires, among other items, that (a) at least 90% of each Fund's annual gross
income be derived from interest; payments with respect to securities loans;
dividends and gains from the sale or other disposition of securities, or foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to each Fund's business of
investing in such securities or currencies; (b) each Fund generally derives less
than 30% of its gross income from gains from the sale or other disposition of
securities, options, futures or forward contracts held for less than three
months; and (c) each Fund diversifies its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of each Fund's
assets is represented by cash, government securities and other securities
limited in respect of any one issuer to an amount not greater than 5% of each
Fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government Securities and the securities of
other regulated investment companies), or of two or more issuers which the
taxpayer controls and which are determined to be engaged in the same or similar
trades or businesses or related trades or businesses. Each Fund intends to
satisfy these qualification requirements by primarily investing in the
underlying mutual funds. As a regulated investment company, each Fund will not
be subject to federal income tax on its investment company taxable income and
net capital gains distributed to its shareholders, provided that it distributes
to its shareholders at least 90% of its investment company taxable income
(including its net tax-exempt income) earned in each year.
Dividends received from an underlying mutual fund are treated as
ordinary income to a Fund which invests in the underlying mutual fund.
Distributions from an underlying mutual fund designated as capital gain
distributions are treated as long-term capital gains, regardless of how long the
Fund invests in the underlying mutual fund.
Income and dividends received by regulated investment company from
sources within foreign countries may be subject to withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Because not more than 50% of
the value of the total assets of any Fund is expected to consist of securities
of foreign issuers, no Fund will be eligible to elect to "pass through" foreign
tax credits to shareholders.
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Gains or losses on sales of portfolio securities by a regulated
investment company generally will be long-term capital gains or losses if the
securities have been held by it for more than one year, except in certain cases
including where the regulated investment company acquires a put or grants a call
thereon. Gain recognized on the disposition of a debt obligation (including
tax-exempt obligations purchased after April 30, 1993) purchased by the
regulated investment company at a market discount (generally, at a price less
than its principal amount) will generally be treated as ordinary income to the
extent of the portion of the market discount which accrued during the period of
time the regulated investment company held the debt obligation. Other gains or
losses on the sale of securities will be short-term capital gains or losses. To
the extent that a Fund recognizes long-term capital gains, such gains will be
distributed at least annually and will be taxable to shareholders as long-term
capital gains, regardless of how long a shareholder has held Fund shares. If a
shareholder receives a designated capital gain distribution on a Fund share and
such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution thereon. In addition, any loss realized by a shareholder upon the
sale or redemption of Fund shares held less than six months will be disallowed
to the extent of any tax-exempt interest dividends. These rules shall not apply,
however, to losses incurred under a periodic redemption plan.
If a shareholder disposes of Fund shares with reinvestment rights
within 90 days of acquiring such shares, and subsequently reacquires Fund shares
or shares of another regulated investment company with a reduced or eliminated
sales charge pursuant to the reinvestment rights, the sales charge incurred, if
any, to acquire the disposed shares (to the extent such previous sales charges
do not exceed the reduction or elimination of sales charges incurred on the
subsequent acquisition) shall not be taken into account for the purpose of
determining the amount of gain or loss on initial disposition. To the extent any
sales charge is not taken into account, it will be treated as having been
incurred in the subsequent acquisition. In addition, any loss realized on a
redemption or exchange of shares of a Fund will be disallowed to the extent that
substantially identical shares are reacquired within the 61-day period beginning
30 days before and ending 30 days after the shares are disposed of.
As of the printing of this Statement of Additional Information, the
maximum individual tax rate applicable to ordinary income is 39% (marginal rates
may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
realized capital gains is 28%; and the maximum corporate tax rate applicable to
ordinary income and net realized capital gains is 35% (however, to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income greater than $100,000 for a taxable year will be required to pay
an additional amount of income tax of up to $11,750 and corporations which have
taxable income greater than $15,000,000 for a taxable year will be required to
pay an additional amount of income tax of up to $100,000).
Individuals who are not active participants (and who do not have a
spouse who is an active participant) in certain types of retirement plans
("qualified retirement plans") may deduct contributions to an individual
retirement account ("IRA"), up to specified limits. Investment earnings in an
IRA will be tax-deferred until withdrawn.
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The maximum annual deductible contribution to an IRA for individuals
under age seventy and a half is 100% of includible compensation up to a maximum
of (i) $2,000 for single individuals; (ii) $4,000 for a married couple when both
spouses earn income; and (iii) $2,250 (increased to $4,000 for tax years
beginning after December 31, 1996) when one spouse earns, or elects for IRA
purposes to be treated as earning, no income (together the "IRA contribution
limits").
The IRA deduction is also available for single individual taxpayers and
married couples who are active participants in qualified retirement plans but
who have adjusted gross incomes which do not exceed certain specified limits. If
their adjusted gross income exceeds these limits, the amount of the deductible
contribution is phased down and eventually eliminated.
Any individual who works may make nondeductible contributions to an IRA
in addition to any deductible contributions. Aggregate deductible and
nondeductible contributions are limited to the IRA contribution limits discussed
above. Aggregate contributions in excess of the applicable IRA contribution
limit are "excess contributions." In addition, contributions made to an IRA for
the year in which an individual attains the age of seventy and a half, or any
year thereafter, are also excess contributions. Excess contributions are subject
to a 6% excise tax penalty which is charged each year that the excess
contribution remains in the IRA.
An employer may also contribute to an individual's IRA as part of a
Simplified Employee Pension Plan, known as a "SEP-IRA," established prior to
January 1, 1996, or a Savings Incentive Match Plan for Employees, or "SIMPLE
plan," established after December 31, 1996. Participating employers may make an
annual contribution to each employee through a SEP-IRA in an amount up to the
lesser of 15% of such employee's earned income or $30,000, subject to certain
provisions of the Code. Under a SIMPLE plan, an employee may contribute up to
$6,000 annually to his or her own IRA, and the employer must generally match
such contributions up to 3% of the employee's annual salary. Alternatively, the
employer may elect under the SIMPLE formula to contribute to the employee's IRA
2% of the lesser of his or her earned income or $150,000. In any case, all
contributions and investment earnings will be tax-deferred until withdrawn.
The foregoing discussion regarding IRAs is based upon the Code and
federal regulations in effect as of the date of this Statement of Additional
Information and summarizes only some of the important federal income tax
considerations generally effecting IRA contributions made by individuals or
their employers. It is not intended as a substitute for careful tax planning.
If an option granted by a regulated investment company lapses or is
terminated through a closing transaction, such as a repurchase by the regulated
investment company of the option from its holder, the regulated investment
company will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the regulated
investment company in the closing transaction. Recognition of capital losses may
be deferred if they result from a position that is part of a tax "straddle,"
discussed below. If securities are sold by a regulated investment company
pursuant to the exercise of a call option granted by it, such regulated
investment company will add the premium received to the sale price of the
securities
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delivered in determining the amount of gain or loss on the sale. If securities
are purchased by the regulated investment company pursuant to the exercise of a
put option granted by it, such regulated investment company will subtract the
premium received from its cost basis in the securities purchased.
Under Section 1256 of the Code, gain or loss recognized by a regulated
investment company from certain financial forward, futures and options
transactions is treated as 60% long-term capital gain (or loss) and 40%
short-term capital gain (or loss) (the "60%/40% Rule"). Gain or loss may arise
upon the exercise or lapse of such forward contracts, futures and options as
well as from closing transactions. In addition, any such forward contracts,
futures or options remaining unexercised at the end of the regulated investment
company's taxable year are treated as sold for their then fair market value,
resulting in additional gain or loss to the regulated investment company
characterized in the manner described above (the "Mark-to-Market Rule").
Transactions that qualify as designated hedges are excepted from the
Mark-to-Market Rule and the 60%/40% Rule. Moreover, all or a portion of the gain
realized from engaging in "conversion transactions" may be treated as ordinary
income under Section 1258 of the Code. Conversion transactions are defined to
include certain forward, futures, option and straddle transactions, transactions
marketed or sold to produce capital gains, or transactions described in Treasury
regulations to be issued in the future. Finally, "currency transactions" may be
subject to Section 988 of the Code, under which foreign currency gains or losses
would generally be computed separately and treated as ordinary income or losses.
Offsetting positions held by a regulated investment company involving
certain financial forward, futures or option contracts may be considered, for
tax purposes, to constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256, discussed
above. If a regulated investment company were treated as entering into straddles
by reason of its engaging in certain financial forward, futures or option
contracts, such straddles may be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. A regulated investment company may make one or more
elections with respect to mixed straddles, and, depending upon which elections
are made, if any, the tax consequences of the transaction may differ. Generally,
to the extent the straddle rules apply to positions established by a regulated
investment company, losses realized by the regulated investment company may be
deferred to the extent of unrealized gain in any offsetting positions. Moreover,
as a result of the straddle and the conversion transaction rules, short-term
capital loss on straddle positions may be recharacterized as long-term capital
loss and long-term capital gain may be characterized as short-term capital gain
or ordinary income.
Foreign Shareholders. Under the Code, distributions of net investment
income by a regulated investment company to a non-resident alien individual,
non-resident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership will be subject to a U.S. withholding tax (at a rate of 30%
or a lower treaty rate). Withholding will not apply if a dividend paid by a
regulated investment company to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens,
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U.S. residents or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding, but, in the case of
a foreign shareholder who is a non-resident alien individual, such distributions
ordinarily will be subject to U.S. withholding tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.
Other Matters. Investors should be aware that the investments to be
made by a regulated investment company may involve sophisticated tax rules such
as the original issue discount, subpart F income, and passive foreign investment
company rules that would result in income or gain recognition by the regulated
investment company without corresponding, current cash receipts. Where a
regulated investment company recognizes noncash income, the regulated investment
company may distribute cash derived from other sources in order to meet the
minimum distribution requirements described above.
ADDITIONAL INFORMATION
The Company is an open-end management investment company organized as a
corporation under the laws of the State of Maryland on May 26, 1983. The Company
offers shares of common stock which represent interests in one of nine separate
portfolios. This SAI relates to the following Funds of the Company: Growth Fund,
Moderate Growth Fund and Income and Growth Fund. Each Fund offers only one class
of shares. Shares of each Fund of the Company are redeemable at the net asset
value thereof at the option of the holders thereof or in certain circumstances
at the option of the Company. For information concerning the methods of
redemption and the rights of shares ownership, see the Prospectus under the
caption "Redeeming Shares."
Generally, on each matter submitted to a vote of shareholders, each
shareholder is entitled to one vote per share. In addition, all shares of each
Fund vote as a single class; provided, however, that (i) as to any matter with
respect to which a separate vote of any Fund is required by the 1940 Act or
under the Maryland General Corporation law, the requirements as to a separate
vote by that Fund apply in lieu of single class voting; (ii) in the event that
the separate vote requirements referred to in (i) apply with respect to one or
more Funds, then, subject to (iii) below, the shares of all other Funds vote as
a single class; and (iv) as to any matter which does not affect the interest of
a particular Fund, only the holders of shares of the one or more affected Funds
are entitled to vote. And, notwithstanding any provision of the Maryland General
Corporation Law requiring a greater portion than a majority of the votes
entitled to be cast in order to take or authorize any action, any such action
may be taken or authorized upon the concurrence of a majority of the aggregate
number of votes entitled to be cast thereon.
Shares of the Funds have no subscription or preemptive rights and only
such conversion or exchange privileges as the Directors may grant in their
discretion. Generally, a special meeting of shareholders of the Company will be
called by the Secretary upon receipt of a request in writing signed by
shareholders holding not less than 25% of the common stock at the time issued
and entitled to vote at such meeting.
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INDEPENDENT ACCOUNTANTS AND REPORTS
At least semi-annually, the Company will furnish the shareholders of
the Funds with financial statements for the Funds. The annual financial
statements of the Funds will be audited by the Company's independent
accountants. The Board of Directors has selected Price Waterhouse LLP, 1177
Avenue of the Americas, New York, New York 10036 as independent accountants to
audit the Funds' financial statements and review the Funds' tax returns for
fiscal years ending on or after November 30, 1996.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue NW, Washington, D.C.
20006, serves as legal counsel to the Company.
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APPENDIX A
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
MOODY'S BOND RATINGS
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 edge." 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
positions 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 risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are 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.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa through B in its
corporate and municipal bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and a modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MOODY'S SHORT-TERM DEBT RATINGS
Moody's Short-Term Debt Ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2 and Prime-3.
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Issuers rated Prime-1 have a superior ability for repayment of senior
short-term debt obligations. Issuers rated Prime-2 have a strong ability for
repayment of senior short-term debt obligations; and issuers rated Prime-3 have
an acceptable ability for repayment of senior short-term debt obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poors does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
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 highest rated issues only in small
degree.
A Debt rated "A' has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in the higher-rated categories.
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 for debt in
higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does
not rate a particular type of obligation as a matter of policy.
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STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard and Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt considered short-term in the
relevant market. The commercial paper rating is not a recommendation to
purchase, sell, or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor. The ratings are based upon
current information furnished to S&P by the issuer or obtained by S&P from other
sources it considers reliable. The ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
based on other circumstances. Ratings are graded into two group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation 1, 2 or 3 to indicate the relative degree of safety.
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong.
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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PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Previously Filed:
Audited Financial Statements (for SBSF Fund, SBSF Convertible Securities
Fund, SBSF Capital Growth Fund and Key Money Market Mutual Fund), including:
Statements of Investments, November 30, 1995
Statements of Assets and Liabilities, November 30, 1995
Statements of Operations, November 30, 1995
Statements of Changes in Net Assets for the years ended November 30, 1995 and
1994
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants dated January 17, 1996
Unaudited Financial Statements (for SBSF Fund, SBSF Convertible Securities
Fund, SBSF Capital Growth Fund and Key Money Market Mutual Fund), including:
Statements of Investments, May 31, 1996
Statements of Assets and Liabilities, May 31, 1996
Statements of Operations, May 31, 1996
Statements of Changes in Net Assets, for the six month period ended May 31,
1996 and the year ended November 30, 1995
Financial Highlights
Notes to Financial Statements
To be filed when available:
Financial Statements with respect to KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund and KeyChoice Income and Growth Fund
(b) Exhibits:
1(a) Articles of Incorporation, as amended and supplemented (filed on
January 31, 1996 as Exhibit 1 to Post-Effective Amendment No. 16
and incorporated herein by reference)
(b) Articles Supplementary to Articles of Incorporation (filed on
June 11, 1996 as Exhibit 1(a) to Post-Effective Amendment No. 23
and incorporated herein by reference).
(c) Articles of Amendment (filed on July 12, 1996 as Exhibit 1(a) to
Post-Effective Amendment No. 24 and incorporated herein by
reference).
(d) Articles of Amendment to Articles of Incorporation.
2 By-Laws, as Amended and Restated August 14, 1996.
3 Not Applicable.
4 Not Applicable.
5(a) Investment Advisory Agreement (for SBSF Fund, SBSF Money Market
Fund, SBSF Convertible Securities Fund and SBSF Capital Growth
Fund).
(b) Investment Advisory Agreement (for Key Stock Index Fund and Key
International Index Fund).
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(c) Asset Management Agreement (for KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund and KeyChoice Income and Growth Fund).
6(a) Distribution Agreement.
(a)(1)Amendment No. 1 to Distribution Agreement (for KeyChoice Growth
Fund, KeyChoice Moderate Growth Fund and KeyChoice Income and
Growth Fund).
7 Not Applicable.
8(a) Mutual Fund Custody Agreement (filed on January 31, 1996 as
Exhibit 8(a)(ii) to Post-Effective Amendment No. 16 and
incorporated herein by reference).
(b) Amendment No. 1 to Mutual Fund Custody Agreement.
(c) Amendment No. 2 to Mutual Fund Custody Agreement.
(d) Transfer Agency Agreement.
9(a) Administration Agreement (for SBSF Fund, Key Money Market Mutual
Fund, SBSF Convertible Securities Fund and SBSF Capital Growth
Fund).
(b) Administration Agreement (for Key Stock Index Fund and Key
International Index Fund).
(b)(1) Amendment No. 1 to Administration Agreement (for KeyChoice
Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice Income
and Growth Fund).
(c) Sub-Administration Agreement (for SBSF Fund, SBSF Money Market
Fund, SBSF Convertible Securities Fund and SBSF Capital Growth
Fund).
(d) Fund Accounting Agreement (for Key Stock Index Fund and Key
International Index Fund).
(d)(1) Amendment No. 1 to Fund Accounting Agreement (for KeyChoice
Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice Income
and Growth Fund).
10 Opinion and consent of counsel.
11 Consent of Independent Accountants.
12 Not Applicable.
13 Not Applicable.
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14 Not Applicable.
15(a) Plan of Distribution pursuant to Rule 12b-1 (for SBSF Fund, SBSF
Convertible Securities Fund, SBSF Capital Growth Fund, Key Money
Market Mutual Fund and Key International Index Fund filed on June
11, 1996 as Exhibit 15(c) to Post-Effective Amendment No. 23 and
incorporated herein by reference).
(b) Plan of Distribution pursuant to Rule 12b-1 (for KeyChoice Growth
Fund, KeyChoice Moderate Growth Fund and KeyChoice Income and
Growth Fund).
(c) Shareholder Servicing Plan and related form of Shareholder
Servicing Agreement (for SBSF Fund, SBSF Convertible Securities
Fund, SBSF Capital Growth Fund, Key Money Market Mutual Fund and
Key International Index Fund filed on June 11, 1996 as Exhibit
15(d) to Post-Effective Amendment No. 23 and incorporated herein
by reference).
(d) Shareholder Servicing Plan and related form of Shareholder
Servicing Agreement (for KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund, and KeyChoice Income and Growth Fund).
16 Not Applicable.
17 Not Applicable.
18 Not Applicable.
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ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders as of October 31, 1996: SBSF Fund, 1,083
record holders; SBSF Convertible Securities Fund, 477 record holders; SBSF
Capital Growth Fund, 323 record holders; Key Money Market Mutual Fund, 310
record holders; and Key Stock Index Fund, 16 record holders.
ITEM 27. INDEMNIFICATION.
The Corporation shall indemnify directors, officers, employees and
agents of the Corporation against judgments, fines, settlements and expenses
(including attorney's fees) to the fullest extent authorized, and in the manner
permitted, by applicable federal and state law, except that such indemnification
will not be permitted if, in the opinion of the Board of Directors, such
indemnification would be inconsistent with the position of the staff of the
Securities and Exchange Commission (the "Commission") in its interpretive
releases relating to matters of indemnification, including Investment Company
Act Release No. 11330 (September 4, 1980) for so long as such releases remain
the position of the staff of the Commission. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or persons controlling the Registrant pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See information set forth under the caption "Investment Adviser" in the
Prospectus and the Statement of Additional Information.
KeyCorp Mutual Fund Advisers, Inc. ("Key Advisers") is the investment
adviser to each fund of the Victory Portfolios. Key Advisers is a wholly owned
indirect subsidiary of KeyCorp, a bank holding company which had total assets of
approximately $65 billion as of September 30, 1996 and is also a wholly owned
indirect subsidiary of KeyBank National Association. KeyCorp is a leading
financial institution doing business in 26 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. As of
September 30, 1996, Key Advisers and its affiliates have over $49 billion in
assets under management, and provide a full range of investment management
services to personal and corporate clients.
To the knowledge of Registrant, none of the directors or officers of
Key Advisers, except those set forth below, is or has been at any time during
the past two calendar years engaged in any
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other business, profession, vocation or employment of a substantial nature,
except that certain directors and officers of Key Advisers also hold positions
with KeyCorp or its subsidiaries.
The principal executive officers and directors of Key Advisers are as
follows:
W. Christopher Maxwell, Director, Chairman and Chief Executive
Officer. Also Executive Vice President of KeyCorp Management
Company ("KMC").
Kathleen A. Dennis, Director and President. Also Senior Vice
President of KMC.
William G. Spears, Director. Also Chairman, Director and
Managing Director of Spears, Benzak, Salomon and
Farrell, Inc. ("SBSF"); Director and Chairman of Society; and
Group Executive for Asset Management of KeyCorp.
John M. Keane, Vice President and Treasurer. Also Vice President,
KMC.
William J. Blake, Secretary. Also Senior Vice President and
Senior Managing Counsel, KMC.
Steven N. Bulloch, Assistant Secretary. Also Senior Vice
President and Senior Counsel, KMC.
Charles G. Crane, Senior Vice President and Senior Management
Director. Also Senior Vice President and Managing Director SBSF.
Dennis M. Grapo, Senior Vice President and Senior Managing
Director. Also Senior Managing Director of Society.
Frank J. Riccardi, Senior Vice President and Senior Managing
Director. Also Senior Managing Director of Society.
Anthony Aveni, Senior Vice President and Senior Managing
Director. Also Senior Managing Director of Society.
5
<PAGE> 95
Eric P. Rasmussen, Senior Vice President and Senior Managing
Director. Also Director, CEO and Chairman, Applied Technology
Investments, Inc.
The business address of each of the foregoing individuals is 127 Public
Square, Cleveland, Ohio 44114.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) BISYS Fund Services Limited Partnership ("BISYS") serves as
distributor and administrator for the Registrant. BISYS also
distributes the securities of the American Performance Funds, the
AmSouth Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds
Group, The Coventry Group, First Choice Funds Trust, Fountain
Square Funds, HSBC Family of Funds, The Highmark Group, The
Infinity Mutual Funds, Inc., The Kent Funds, the MarketWatch
Funds, the MMA Praxis Mutual Funds, M.S.D.&T. Funds, the Pacific
Capital Funds, the Parkstone Group of Funds, The Parkstone
Advantage Funds, Pegasus Funds, the Qualivest Funds, The Republic
Funds, The Republic Advisors Funds Trust, The Riverfront Funds,
Inc., The Sessions Group, Summit Investment Trust, The Time
Horizon Funds and The Victory Portfolios, each of which is an
open-end management investment company.
(b) Partners of BISYS, as of November 30, 1996, were as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
OFFICES WITH POSITIONS AND OFFICES WITH POSITIONS AND
BUSINESS ADDRESS BISYS FUND SERVICES REGISTRANT
- ---------------- ------------------- ----------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, N.J. 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, N.J. 07424
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder will be maintained at the
offices of:
6
<PAGE> 96
(1) Key Mutual Funds, 127 Public Square, Cleveland, Ohio 44114;
(2) BFDS, Two Heritage Drive, Quincy, MA 02071 (records relating to
its functions as dividend disbursing agent and servicing agent);
(3) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as Administrator, Distributor
and Fund Accountant);
(4) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland,
Ohio, 44114 (records relating to its functions as Custodian); and
(5) KeyCorp Mutual Fund Advisers, Inc., 127 Public Square, Cleveland,
Ohio 44114-1306 (records relating to its functions as Investment
Adviser).
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the captions "Investment Adviser" and
"Administrator" in Parts A and B of the Registration Statement, Registrant is
not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment with
respect to the KeyChoice Growth Fund, KeyChoice Moderate Growth Fund, and
KeyChoice Income and Growth Fund, using financial statements which need not be
certified, within four to six months of the date of commencement of operations
of the Registration Statement under the Securities Act of 1933 for such Funds.
(c) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, when such annual report is issued, containing information called
for by Item 5A of Form N-1A, upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the 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 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.
7
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Columbus,
and State of Ohio, on the 16th day of December, 1996.
SBSF FUNDS, INC.
By *
-------------------------------
Leigh A. Wilson
President
By /s/ Scott A. Englehart
-------------------------------
Scott A. Englehart
* Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following individuals in the capacities indicated on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
*
- -----------------------
Leigh A. Wilson President and Director
(Principal Executive Officer) December 16, 1996
*
- -----------------------
Eugene J. McDonald Director December 16, 1996
*
- -----------------------
Frank A. Weil Non-Executive Chairman and
Director December 16, 1996
*
- -----------------------
Edward P. Campbell Director December 16, 1996
*
- -----------------------
Kevin L. Martin Treasurer (Principal Financial
Officer and Principal
Accounting Officer) December 16, 1996
</TABLE>
<PAGE> 98
/s/ Scott A. Englehart
- -----------------------
Scott A. Englehart
*Attorney-in-Fact
<PAGE> 99
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
EX-99.B1(d) Articles of Amendment to Articles of Incorporation
EX-99.B2 By-Laws, as Amended and Restated August 14, 1996
EX-99.B5(a) Investment Advisory Agreement (for SBSF Fund, SBSF
Money Market Fund, SBSF Convertible Securities Fund
and SBSF Capital Growth Fund)
EX-99.B5(b) Investment Advisory Agreement (for Key Stock Index Fund
and Key International Index Fund)
EX-99.B5(c) Asset Management Agreement (for KeyChoice Growth
Fund, KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund)
EX-99.B6(a) Distribution Agreement
EX-99.B6(a)(1) Amendment No. 1 to Distribution Agreement (for
KeyChoice Growth Fund, KeyChoice Moderate Growth
Fund and KeyChoice Income and Growth Fund)
EX-99.B8(b) Amendment No. 1 to Mutual Fund Custody Agreement
EX-99.B8(c) Amendment No. 2 to Mutual Fund Custody Agreement
EX-99.B8(d) Transfer Agency Agreement
EX-99.B9(a) Administration Agreement (for SBSF Fund, Key Money
Market Mutual Fund, SBSF Convertible Securities Fund and
SBSF Capital Growth Fund)
EX-99.B9(b) Administration Agreement (for Key Stock Index Fund and
Key International Index Fund)
EX-99.B9(b)(1) Amendment No. 1 to Administration Agreement (for
KeyChoice Growth Fund, KeyChoice Moderate Growth
Fund and KeyChoice Income and Growth Fund)
EX-99.B9(c) Sub-Administration Agreement (for SBSF Fund, SBSF
Money Market Fund, SBSF Convertible Securities Fund
and SBSF Capital Growth Fund)
EX-99.B9(d) Fund Accounting Agreement (for Key Stock Index Fund
and Key International Index Fund)
EX-99.B9(d)(1) Amendment No. 1 to Fund Accounting Agreement (for
KeyChoice Growth Fund, KeyChoice Moderate Growth
Fund and KeyChoice Income and Growth Fund)
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Independent Accountants
EX-99.B15(b) Plan of Distribution pursuant to Rule 12b-1
(for KeyChoice Growth Fund, KeyChoice Moderate
Growth Fund and KeyChoice Income and Growth Fund)
</TABLE>
<PAGE> 100
<TABLE>
<S> <C>
EX-99.B15(d) Shareholder Servicing Plan and related form of Shareholder
Servicing Agreement (for KeyChoice Growth Fund,
KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund)
</TABLE>
<PAGE> 1
EX99.B1(d)
SBSF FUNDS, INC.
ARTICLES OF AMENDMENT
RECLASSIFYING AN EXISTING SERIES OF CAPITAL STOCK
OF THE CORPORATION
SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation having
its principal office in Maryland at The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940.
SECOND: Pursuant to Article V of the Articles of Incorporation of the
Corporation, as amended and supplemented, (the "Charter") and in accordance with
Sections 2-605 and 2-607 of Subtitle 6 of the Corporations and Associations
Article of the Annotated Code of Maryland (the "Code"), and pursuant to
resolutions duly adopted by unanimous vote on December 4, 1996, the Board of
Directors of the Corporation has taken the following actions, which are
expressly limited to changes permitted by Section 2-605(a)(4) of the Code to be
made without action by the stockholders:
(1) reclassified one billion (1,000,000,000) shares of the
Corporation's authorized, classified and designated shares, par
value of $.01 per share, currently classified as shares of the
"Key Growth Fund", as shares of the "KeyChoice Growth Fund";
(2) reclassified one billion (1,000,000,000) shares of the
Corporation's authorized, classified and designated shares, par
value of $.01 per share, currently classified as shares of the
"Key Moderate Growth Fund", as shares of the "KeyChoice Moderate
Growth Fund";
(3) reclassified one billion (1,000,000,000) shares of the
Corporation's authorized, classified and designated shares, par
value of $.01 per share, currently classified as shares of the
"Key Conservative Growth Fund", as shares of the "KeyChoice Income
and Growth Fund";
<PAGE> 2
THIRD: The shares classified and designated in Article SECOND hereto shall
have the same preferences, conversions and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as each previously authorized and classified Series of
the Corporation.
FOURTH: In connection with Article SECOND hereto, the Corporation provides
the following information:
Prior to the reclassification, the number of shares of each Series of the
Corporation was as follows:
<TABLE>
<CAPTION>
Series Number of Shares
------ ----------------
<S> <C>
Key Growth Fund 1,000,000,000
Key Moderate Growth Fund 1,000,000,000
Key Conservative Growth Fund 1,000,000,000
Key Stock Index Fund 1,000,000,000
Key International Index Fund 1,000,000,000
SBSF Fund 25,000,000
SBSF Convertible Securities Fund 25,000,000
SBSF Capital Growth Fund 25,000,000
Key Money Market Mutual Fund 2,925,000,000
Unclassified 17,000,000,000
--------------
TOTAL 25,000,000,000
</TABLE>
FIFTH: After the reclassification, the number of shares of each Series of
the Corporation was as follows:
<TABLE>
<CAPTION>
Series Number of Shares
-------------------------------------------------------------------
<S> <C>
KeyChoice Growth Fund 1,000,000,000
KeyChoice Moderate Growth Fund 1,000,000,000
KeyChoice Income and Growth Fund 1,000,000,000
Key Stock Index Fund 1,000,000,000
Key International Index Fund 1,000,000,000
SBSF Fund 25,000,000
SBSF Convertible Securities Fund 25,000,000
SBSF Capital Growth Fund 25,000,000
Key Money Market Mutual Fund 2,925,000,000
Unclassified 17,000,000,000
--------------
TOTAL 25,000,000,000
</TABLE>
<PAGE> 3
SIXTH: The total number of shares the Corporation is authorized to issue
remains at twenty-five billion (25,000,000,000) shares and the aggregate par
value of all shares having a par value remains at twenty-five million dollars
($25,000,000).
SEVENTH: The Board of Directors has duly authorized the filing of these
Articles of Amendment.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its Vice President and witnessed by its
Assistant Secretary as of the 12th day of December, 1996.
WITNESS: SBSF FUNDS, INC.
/s/ Robert L. Tuch By: /s/ Scott A. Englehart
Robert L. Tuch Scott A. Englehart
Assistant Secretary Vice President
THE UNDERSIGNED, Vice President of SBSF Funds, Inc. (d/b/a Key
Mutual Funds), who executed on behalf of the Corporation the Articles of
Amendment of which this Certificate is made a part, hereby acknowledges in the
name and on behalf of said Corporation the foregoing Articles of Amendment to be
the corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury, and that the
Board of Directors of the Corporation has duly authorized the filing of these
Articles of Amendment.
/s/ Scott A. Englehart
---------------------------------
Scott A. Englehart
Vice President
<PAGE> 1
EX-99.B2
SBSF FUNDS, INC.
BYLAWS
AS AMENDED AND RESTATED AUGUST 14, 1996
ARTICLE I
STOCKHOLDERS
------------
Section 1. PLACE OF MEETING. All meetings of the stockholders shall be
held at the principal office of the Corporation in the State of Maryland or at
such other place within the United States as may from time to time be designated
by the Board of Directors and stated in the notice of such meeting.
Section 2. ANNUAL MEETINGS. The Corporation is not required to hold an
annual meeting of stockholders in any year in which the election of directors is
not required to be acted upon by stockholders under the Investment Company Act
of 1940, as amended (the "1940 Act"). If such action is required to be acted
upon under the 1940 Act, then such meeting (or the first such meeting in any
year) shall be designated as the annual meeting of stockholders for that year.
Except as the Articles of Incorporation or statute provides otherwise, any
business may be considered at an annual meeting without the purpose of the
meeting having been specified in the notice. Failure to hold an annual meeting
does not invalidate the Corporation's existence or affect any otherwise valid
corporate acts.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the Chairman of the Board, the
President or a majority of the Board of Directors, and shall be called by the
Secretary upon receipt of the request in writing signed by stockholders holding
not less than 25% of the common stock at the time issued and entitled to vote
thereat. Such request shall state the purpose or purposes of the proposed
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and
1
<PAGE> 2
mailing such notice of meeting and upon payment to the Corporation of such
costs, the Secretary shall give notice stating the purpose or purposes of the
meeting as required in this Article I to all stockholders entitled to notice of
such meeting. No special meeting need be called upon the request of the holders
of shares entitled to cast less than a majority of all votes entitled to be cast
at such meeting to consider any matter which is substantially the same as a
matter voted upon at any special meeting of stockholders held during the
preceding twelve months.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS; WAIVER OF NOTICE. Not
less than ten days' and not more than ninety days' written or printed notice of
every meeting of stockholders, stating the time and place thereof (and the
general nature of the business proposed to be transacted at any special
meeting), shall be given to each stockholder entitled to vote thereat by leaving
the same with such stockholder or at said stockholder's residence or usual place
of business or by mailing it, postage prepaid, and addressed to such stockholder
at such stockholder's address as it appears upon the books of the Corporation.
If mailed, notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder as aforesaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice. When a meeting
is adjourned to another time and place, unless after the adjournment the Board
of Directors shall fix a new record date for any adjourned meeting, or the
adjournment is for more than 120 days after the original record date, notice of
such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned is announced at the meeting at which the adjournment
is taken.
Section 5. RECORD DATES. The Board of Directors may fix, in advance, a
date not exceeding NINETY days preceding the date of any meeting of
stockholders, any dividend payment date, any capital gain distribution date or
any date for the allotment of rights, as a record date for the determination of
the stockholders entitled to notice of and to vote at such meeting or entitled
2
<PAGE> 3
to receive such dividends, capital gain distribution or rights, as the case may
be; and only stockholders of record on such date shall be entitled to notice of
and to vote at such meeting or to receive such dividend, capital gain
distribution or rights, as the case may be. In the case of a meeting of
stockholders, such date shall not be less than ten days prior to the date fixed
for such meeting.
Section 6. QUORUM; ADJOURNMENT OF MEETINGS. The presence in person or
by proxy of the holders of record of one-third of the shares of the Corporation,
or the class or the series thereof, as the case may be, at the time issued and
outstanding and entitled to vote thereat shall constitute a quorum at all
meetings of the stockholders except as otherwise provided in the Articles of
Incorporation. If, however, such quorum shall not be present or represented by
proxy at any meeting of the stockholders, the holders of a majority of the stock
present in person or by proxy and entitled to vote thereat shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of stock entitled to vote at such
meeting shall be present. At such adjourned meeting at which the requisite
amount of stock entitled to vote thereat shall be present in person or
represented by proxy any business may be transacted which might have been
transacted at the meeting as originally notified. The absence from any meeting
of holders of record of the number of shares of the common stock the
Corporation, which may be required by the laws of the State of Maryland, the
1940 Act or any other applicable law, the Articles of Incorporation, or these
Bylaws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
record of the number of shares of common stock of the Corporation required for
action in respect of such other matter or matters.
Section 7. VOTING AND INSPECTORS. Except as otherwise provided by
statute or the Articles of Incorporation, at all meetings of stockholders, each
stockholder of record entitled to vote thereat shall have one vote for each
share of common stock standing in his name on the books of the Corporation (and
each such stockholder of record holding fractional shares, if any, shall have
proportionate voting rights) on the date for the determination of stockholders
entitled
3
<PAGE> 4
to vote at such meeting, either in person or by proxy appointed by instrument in
writing subscribed by such stockholder or his duly authorized attorney.
All elections shall be had and all questions decided by a majority of
the votes cast at a meeting of stockholders duly called and at which a quorum is
present, except as otherwise provided by statute or by the Articles of
Incorporation or by these Bylaws.
At any election of Directors, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the stock entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
of such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
Section 8. CONDUCT OF STOCKHOLDERS' MEETINGS. Meetings of stockholders
shall be presided over by the Chairman of the Board, or if he is not present, by
the President, or if he is not present, by a Vice-President, or if none of them
is present, by a Chairman to be elected at the meeting. The Secretary of the
Corporation, if present, shall act as a Secretary of such meetings, or if he is
not present, an Assistant Secretary shall so act; if neither the Secretary nor
the Assistant Secretary is present, then the Chairman of the meeting shall
appoint a Secretary.
Section 9. CONCERNING VALIDITY OF PROXIES, BALLOTS, ETC. At every
meeting of the stockholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the Secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed by the Chairman of the meeting,
in which event such inspectors of election shall decide all such questions.
Section 10. ACTION BY STOCKHOLDERS OTHER THAN AT A MEETING. Any action
required or permitted to be taken at any meeting of stockholders may be taken
without a meeting, if a
4
<PAGE> 5
consent in writing, setting forth such action, is signed by all the stockholders
entitled to vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote thereat) have
waived in writing any rights which they may have to dissent from such action,
and such consent and waiver are filed with the records of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 1. GENERAL POWERS; NUMBER; QUALIFICATIONS. The business and
affairs of the Corporation shall be conducted and managed by a Board of
Directors of not less than three nor more than twelve Directors, as may be
determined from time to time by vote of a majority of the Directors then in
office. Directors need not be stockholders.
Section 2. VACANCIES. In case of any vacancy in the Board of Directors
through death, resignation or other cause, other than an increase in the number
of Directors, a majority of the remaining Directors, although a majority is less
than a quorum, by an affirmative vote, may elect a successor to hold office
until the next annual meeting of stockholders or until his successor is chosen
and qualifies.
Section 3. INCREASE OR DECREASE IN NUMBER OF DIRECTORS. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors and may elect Directors to fill the vacancies created by any
such increase in the number of Directors until the next annual meeting or until
their successors are duly chosen and qualified. The Board of Directors, by the
vote of a majority of the entire Board may likewise decrease the number of
Directors to a number not less than three. No such action of the Board of
Directors may affect the tenure of office of any Director.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and on such notice as the Directors may
from time to time determine.
5
<PAGE> 6
Section 6. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, the President, the Secretary of
the Corporation, or by a majority of the Board by vote at a meeting, or in
writing with or without a meeting. Such special meetings shall be held at such
place or places within or without the State of Maryland as may be designated
from time to time by the Board. In the absence of such designation such meetings
shall be held at such places as may be designated in the Notice of Meeting.
Section 7. NOTICE OF MEETINGS. Except as provided in Section 5, notice
of the place, day, and hour of all meetings shall be given to each Director two
days (or more) before the meeting, by delivering the same personally, or by
sending the same by telegraph or telefacsimile, or by leaving the same at the
Director's residence or usual place of business, or, in the alternative, by
mailing such notice three days (or more) before the meeting, postage prepaid,
and addressed to the Director at the Director's last known business or residence
post office address, according to the records of the Corporation. Unless
required by the 1940 Act or by resolution of the Board, no notice of any meeting
of the Board need state the business to be transacted thereat. No notice of any
meeting of the Board need be given to any Director who attends or, to any
Director who in writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice. Any meeting of
the Board, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement at the adjourned meeting.
Section 8. QUORUM; ADJOURNMENT. One-third of the Directors then in
office shall constitute a quorum for the transaction of business, provided that
a quorum shall in no case be less than two Directors. The act of the majority of
the Directors present at any meeting at which there is a quorum shall be the act
of the Directors, except as may be otherwise specifically provided by statute or
by the Articles of Incorporation or by these Bylaws. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present
without notice other than by announcement at the meeting may adjourn the meeting
from time to time until a quorum shall have been obtained. At any such adjourned
meeting at which a quorum is present,
6
<PAGE> 7
any business may be transacted which might have been transacted at the meeting
as originally noticed.
Section 9. EXECUTIVE COMMITTEE. The Board of Directors may, by the
affirmative vote of a majority of the whole Board, appoint from the Directors an
Executive Committee to consist of such number of Directors (no less than two) as
the Board may from time to time determine. The Chairman of the Committee shall
be elected by the Board of Directors. The Board of Directors by such affirmative
vote shall have power at any time to change the members of such Committee and
may fill vacancies in the Committee by election from the Directors. When the
Board of Directors is not in session, to the full extent permitted by law, the
Executive Committee shall have and may exercise any or all of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation. The Executive Committee may fix its own rules of procedure, and may
meet when and as provided by such rules or by resolution of the Board of
Directors, but in every case the presence of a majority shall be necessary to
constitute a quorum. During the absence of a member of the Executive Committee,
the remaining members may appoint a member of the Board of Directors to act in
his place.
Section 10. NOMINATING COMMITTEE OF DIRECTORS. The Board of Directors
may by the affirmative vote of a majority of the entire Board appoint from its
members a Director Nominating Committee composed of two or more Directors. The
Director Nominating Committee shall recommend to the Board a slate of persons to
be nominated for election as Directors by the stockholders at each annual
meeting of stockholders and a person to be elected to fill any vacancy occurring
for any reason in the Board. Notwithstanding anything in this Section 10 to the
contrary, so long as the Corporation has in effect one or more plans pursuant to
Rule 12b-1 under the 1940 Act, the selection and nomination of those Directors
who are not "interested persons" (as defined in the 1940 Act) shall be committed
to the discretion of such disinterested Directors.
Section 11. OTHER COMMITTEES. The Board of Directors, by the
affirmative vote of a majority of the whole Board, may appoint from the
Directors other committees which shall in
7
<PAGE> 8
each case consist of such number of Directors (not less than two) and, to the
full extent permitted by law, shall have and may exercise such powers as the
Board may determine in the resolution appointing them. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board of Directors shall have power at any time to change the members and
powers of any such committee, to fill vacancies and to discharge any such
committee.
Section 12. TELEPHONE MEETINGS. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at the meeting,
unless the 1940 Act specifically requires the Directors to act "in person," in
which case such term shall be construed consistent with Securities and Exchange
Commission or staff releases or interpretations.
Section 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting, if a written consent to such action is signed by
all members of the Board or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board or
such committee.
Section 14. COMPENSATION AND EXPENSES. No Director shall receive any
stated salary or fees from the Corporation for his services as such if such
Director is, other than by reason of being such Director or serving the
Corporation in the additional capacity of officer, an interested person (as such
term is defined by the Investment Company Act of 1940) of the Corporation or any
of its investment adviser(s), administrator(s) or principal underwriter. Except
as provided in the preceding sentence, Directors shall be entitled to receive
such compensation from the Corporation for their services as such and as members
of any Committee of the Board as may from time to time to be provided for by
resolution of the Board of Directors. In addition, notwithstanding anything else
contained in this Section 14, Directors may be reimbursed for
8
<PAGE> 9
expenses incurred in connection with their attendance at meetings or otherwise
in performing their duties as Directors, and nothing contained in this Section
14 shall preclude a Director from serving the Corporation in any other capacity
and receiving compensation therefor.
ARTICLE III
OFFICERS
--------
Section 1. EXECUTIVE OFFICERS. The executive officers of the
Corporation shall be chosen by the Board of Directors as soon as may be
practicable after the annual meeting of the stockholders. These may include a
Chairman of the Board of Directors (who shall be a Director) and shall include a
President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Secretary and a Treasurer. The Board of Directors or
the Executive Committee may also in its discretion appoint Assistant
Secretaries, Assistant Treasurers and other officers, agents and employees, who
shall have such authority and perform such duties as the Board or the Executive
Committee may determine. The Board of Directors may fill any vacancy which may
occur in any office. Any two offices, except those of President and
Vice-President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these Bylaws to be executed, acknowledged or
verified by two or more officers.
Section 2. TERM OF OFFICE; REMOVAL. The term of office of any officers
shall continue and until their respective successors are chosen and qualified.
Any officer may be removed from office at any time with or without cause by the
vote of a majority of the Board of Directors.
Section 3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties as generally pertain to their respective offices, as
well as such powers and duties as may from time to time be conferred by the
Board of Directors or the Executive Committee.
9
<PAGE> 10
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. CERTIFICATES FOR SHARES. Only as and to the extent provided
by resolution of the Board of Directors, each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of stock
of the Corporation owned by him in such form as the Board may from time to time
prescribe.
Section 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require; in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a Transfer Agent, at the offices of
the Transfer Agent of the Corporation.
Such stock ledger may be in written form or any other form capable of
being converted into written form within a reasonable time for visual
inspection.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of Shares of a particular class
entitled to receive dividends on that class and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
Shares on the part of any other person, whether or not it shall have received
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
10
<PAGE> 11
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES; SURETY BOND. The
Board of Directors or the Executive Committee may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed, and may, in its discretion, require the owner of such certificate or
such owner's legal representative to give bond, with sufficient surety, to the
Corporation and each Transfer Agent, if any, to indemnify it and each such
Transfer Agent against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
Anything herein to the contrary notwithstanding, the Board of
Directors, in its absolute discretion, may refuse to issue any such new
certificate except pursuant to legal proceedings under the laws of the State of
Maryland.
Section 5. GENERAL AUTHORITY OF THE BOARD. The Board of Directors may
make such additional rules and regulations, not inconsistent with these Bylaws,
as it may deem expedient concerning the issue, transfer and registration of
certificates for Shares of any or all classes. It may appoint one or more
Transfer Agents or one or more transfer clerks and one or more Registrars and
may require all certificates for Shares or any or all classes to bear the
signature or signatures of any of them.
ARTICLE V
CORPORATE SEAL
--------------
The Board of Directors may provide for a suitable corporate seal, in
such form and bearing such form inscriptions as it may determine.
11
<PAGE> 12
ARTICLE VI
FISCAL YEAR
-----------
The fiscal year of the Corporation shall begin on the first day of
DECEMBER and shall end on the last day of NOVEMBER in each year.
ARTICLE VII
INDEMNIFICATION
---------------
The Corporation shall indemnify directors, officers, employees and
agents of the Corporation against judgments, fines, settlements and expenses
(including attorney's fees) to the fullest extent authorized, and in the manner
permitted, by applicable federal and state law, except that such indemnification
will not be permitted if, in the opinion of the Board of Directors, such
indemnification would be inconsistent with the position of the staff of the
Securities and Exchange Commission (the "Commission") in its interpretative
releases relating to matters of indemnification, including Investment Company
Act Release No. 11330 (September 4, 1980) for so long as such releases remain
the position of the staff of the Commission.
ARTICLE VIII
AMENDMENT OF BYLAWS
-------------------
The Bylaws of the Corporation may be altered, amended, added to or
repealed by the stockholders at any annual meeting or any special meeting if
notice thereof be included in the notice of such special meeting, or by majority
vote of the entire Board of Directors; but any such alteration, amendment,
addition or repeal of the Bylaws by action of the Board of Directors may be
altered or repealed by stockholders.
Amended and Restated: August 14, 1996
12
<PAGE> 1
EX-99.B5(a)
SBSF FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
Agreement, made this 5th day of April, 1995 between SBSF Funds, Inc., a
Maryland corporation (the "Fund"), and SPEARS, BENZAK, SALOMON & FARRELL, INC.,
a New York corporation (the "Adviser").
WHEREAS, the Fund is an open-end diversified investment company
registered under the Investment Company Act of 1940, as amended (the "1940 Act")
and is authorized to issue its shares in series; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund, and the Adviser is willing to render such
services;
WITNESSETH:
-----------
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. The Fund hereby appoints the Adviser to act as investment adviser to
the Fund for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to render the services herein set
forth, for the compensation herein provided.
2. Subject to the general supervision of the Board of Directors of the
Fund, the Adviser shall manage the investment operations of the Fund and the
composition of each of the Fund's portfolios of securities and investments,
including cash, the purchase, retention and disposition thereof and agreements
relating thereto, in accordance with the Fund's investment objectives and
policies as stated in the Prospectus (as defined in paragraph 3 of this
Agreement) and subject to the following understandings:
(a) the Adviser shall furnish a continuous investment program
for the Fund's portfolios and determine from time to time what
investments or securities will be purchased, retained, sold or lent by
the Fund, and what portions of the assets will be invested in
securities, cash and cash equivalents;
(b) the Adviser shall use the same skill and care in the
management of the Fund's portfolios as its uses in the administration
of other accounts for which it has investment responsibility as agent;
(c) the Adviser, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Articles of Incorporation, By-Laws and Prospectus of the Fund and with
the instructions and directions of the
<PAGE> 2
Board of Directors of the Fund and will confirm to and comply with the
requirements of the 1940 Act and all other applicable federal and
state laws and regulations; and
(d) the Adviser shall determine the securities to be
purchased, sold or lent by the Fund and as agent for the Fund will
effect portfolio transactions pursuant to its determinations either
directly with the issuer or with any broker and/or dealer in such
securities; in placing orders with brokers and/or dealers the Adviser
intends to seek best price and execution for the purchases and sales
and in accordance with the policies of each of the Fund's portfolios
with respect to allocation of brokerage set forth from time to time in
the Fund's Prospectus and as may be otherwise determined by the Board
of Directors; the Adviser shall also make recommendations regarding
whether or not the Fund shall enter into repurchase agreements with
respect to the Fund's portfolios.
On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other customers, 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 in order to
obtain the best execution and lower brokerage commissions, if any. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other customers.
(e) the Adviser shall maintain books and records with respect
to the Fund's securities transactions and shall render to the Board of
Directors of the Fund such periodic and special reports as the Board of
Directors may reasonably request; and
(f) the investment management services of the Adviser to the
Fund's portfolios under this Agreement are not to be deemed exclusive,
and the Adviser shall be free to render similar services to others.
3. The Fund has delivered copies of each of the following documents to
the Adviser and will promptly notify and deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation of the Fund, filed with the
Secretary of State of the State of Maryland on May 26, 1983 (such
Articles of Incorporation, as presently in effect and as amended from
time to time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Fund (such By-Laws, as presently in effect
and as amended from time to time, are herein called the "By-Laws");
2
<PAGE> 3
(c) Certified resolutions of the Board of Directors of the
Fund authorizing the appointment of the Adviser and approving the form
of this Agreement;
(d) Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1 (No. 2-84920) (the
"Registration Statement") as filed with the Securities and Exchange
Commission (the "Commission") on July 5, 1983 relating to the Fund and
the shares of the Fund's common stock, par value $.01, and all
amendments and post-effective amendments thereto; and
(e) Notification of Registration of the Fund under the 1940
Act on Form N-8A as filed with the Commission on July 5, 1983.
4. Pursuant to applicable law, the Adviser shall keep the Fund's books
and records required to be maintained by, or on behalf of, the Fund with respect
to the advisory services hereunder. The Adviser agrees that all records which it
maintains for the Fund are the property of the Fund and it will promptly
surrender any of such records to the Fund upon the Fund's request. The Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of the
Commission under the 1940 Act any such records of the Fund required to be
preserved by Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement, the Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement other than
the cost of securities and investments purchased for the Fund (including taxes
and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant to this
Agreement, each of the Fund's portfolios will pay to the Adviser as full
compensation therefor a fee at an annual rate as follows: 75% of the average
daily net assets of the SBSF Fund, the Convertible Securities Fund and the
Capital Growth Fund and .25% of the average daily net assets of the Money Market
Fund. This fee will be computed daily and will be paid to the Adviser monthly.
In the event the expenses of any of the Fund's portfolios for any fiscal year
(including the fees payable to the Adviser for administration, if any, and
amortization expense, but excluding interest, taxes, brokerage commissions and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) exceed the lowest
applicable annual expense limitation established pursuant to the statutes or
regulations of any jurisdictions in which shares of the Fund's portfolios are
then qualified for offer and sale, the compensation due to the Adviser
thereunder will be reduced by the amount of such excess, or if such excess
expenses exceed the amount of the fees payable to the Adviser, the Adviser shall
reimburse the affected portfolio or portfolios of the Fund the amount by which
such expenses exceed such fees. Any reduction in the fee payable and any payment
by the Adviser to the Fund shall be made monthly and subject to readjustment
during the year.
3
<PAGE> 4
7. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which case any
award damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act) or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it or its obligations and duties under this Agreement.
8. This Agreement shall continue in effect for a period of more than
one year from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act
as in effect at such time; provided, however, that this Agreement may be
terminated by the Fund at any time, without the payment of any penalty, by vote
of a majority of the directors of the Fund who are not parties to such contract
or interested persons of the Fund (as defined in the 1940 Act) or by vote of a
majority of the outstanding voting securities of the Fund on 60 days' written
notice to the Adviser, or by the Adviser at any time, without the payment of any
penalty, on 90 days' written notice to the Fund. This Agreement will
automatically and immediately terminate in the event of its assignment (as
defined in the 1940 Act).
9. 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 of Directors of the Fund from time to time, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
10. This Agreement may be amended with respect to a portfolio or
portfolios by mutual consent, but the consent of the Fund must be approved (a)
by vote of a majority of those directors of the Fund who are not parties to this
Agreement or interested persons of any such party or have any direct or indirect
financial interest in this Agreement, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) by vote of a majority of the
outstanding voting securities of the affected portfolio or portfolios of the
Fund.
11. Notice of any kind to be given to the Adviser by the Fund shall be
in writing and shall be duly given if mailed or delivered to the Adviser at 45
Rockefeller Plaza, New York 10111, Attention: President, or at such other
address or to such other individual as shall be specified by the Adviser to the
Fund. Notices of any kind to be given to the Fund by the Adviser shall be in
writing and shall be duly given if mailed or delivered to the Fund at 125 West
55th Street, New York, New York 10019, Attention: Secretary or at such other
address or to such other individual as shall be specified by the Fund to the
Adviser.
12. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below on the day and year first above
written.
SBSF FUNDS, INC.
By: /s/ William B. Blundin
-------------------------
ATTEST:
By:
-------------------------
Assistant Secretary
SPEARS, BENZAK, SALOMON &
FARRELL, INC.
By: /s/ Christopher J. Brown
------------------------
ATTEST:
By: /s/ Michael R. Parker
-------------------------
Secretary
5
<PAGE> 1
EX-99.B5(b)
INVESTMENT ADVISORY AGREEMENT
BETWEEN
SBSF FUNDS, INC.
D/B/A KEY MUTUAL FUNDS
AND
KEYCORP MUTUAL FUND ADVISERS, INC.
AGREEMENT made as of the 1st day of July, 1996, by and between SBSF Funds,
Inc. (d/b/a Key Mutual Funds), a Maryland corporation which may issue one or
more series of shares of common stock (the "Company"), and KeyCorp Mutual Fund
Advisers, Inc., an Ohio corporation (the "Adviser").
WHEREAS, the Company is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish investment
advisory services to the funds listed on Schedule A (each, a "Fund" and
collectively, 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 Company 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 Company 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.
(c) Sub-Advisers. It is understood and agreed that the Adviser may from
time to time employ or associate with such other entities or persons
as the Adviser believes appropriate to assist in the performance of
this Agreement with respect to a particular Fund or Funds (each a
"Sub-Adviser"), and that any such Sub-Adviser shall have all of the
rights and powers of the Adviser set forth in this Agreement; provided
that a Fund shall not pay any additional compensation for any
Sub-Adviser and the Adviser shall be as fully responsible to the
Company for the acts and omissions of the Sub-Adviser as it is for its
own acts and omissions; and
<PAGE> 2
provided further that the retention of any Sub-Adviser shall be
approved in advance by (i) the Board of Directors of the Company and
(ii) the shareholders of the relevant Fund if required under any
applicable provisions of the 1940 Act. The Adviser will review,
monitor and report to the Company's Board of Directors regarding the
performance and investment procedures of any Sub-Adviser. In the event
that the services of any Sub-Adviser are terminated, the Adviser may
provide investment advisory services pursuant to this Agreement to the
Fund without a Sub-Adviser and without further shareholder approval,
to the extent consistent with the 1940 Act. A Sub-Adviser may be an
affiliate of the Adviser.
2. DELIVERY OF DOCUMENTS. The Company 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 Company's Articles of Incorporation;
(b) the By-Laws of the Company;
(c) resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement;
(d) Post-Effective Amendment No. 23 to the Company's Registration
Statement under the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act, on Form N-1A as filed with the Securities and
Exchange Commission (the "Commission");
(e) Notification of Registration of the Company under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) the currently effective Prospectuses and Statements of Additional
Information of the Funds.
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
comprising the assets of the Funds and, in furtherance thereof, shall:
(i) supervise all aspects of the operations of the Company and each
Fund;
(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
2
<PAGE> 3
securities included in the Funds' 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
a Fund's portfolio, and regularly report thereon to the Company's
Board of Directors;
(iii) determine which issuers and securities shall be represented in
the portfolio of each Fund;
(iv) furnish a continuous investment program for each Fund;
(v) in its discretion and without prior consultation with the
Company, buy, sell, lend and otherwise trade any stocks, bonds
and other securities and investment instruments on behalf of each
Fund; and
(vi) take, on behalf of each Fund, 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 Company's Board of
Directors.
(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)
each Fund's Prospectus and Statement of Additional Information as
revised and in effect from time to time; (ii) the Company's Articles
of Incorporation, By-Laws or other governing instruments, as amended
from time to time; (iii) the 1940 Act and rules in force thereunder;
(iv) other applicable laws; and (v) such other investment policies,
procedures and/or limitations as may be adopted by the Company with
respect to a Fund and provided to the Adviser in writing. The Adviser
agrees to use reasonable efforts to manage each Fund so that it will
qualify, and continue to qualify, as a regulated investment company
under Subchapter 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
Company's Board of Directors.
(c) Books and Records. Pursuant to applicable law, the Adviser shall keep
each Fund's 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
a Fund are the property of the Fund and it will promptly surrender any
of such records to the Fund upon the Fund's request. The Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of
the Commission under the 1940 Act any such records of the Fund
required to be preserved by Rule 31a-1 of the Commission under the
1940 Act.
3
<PAGE> 4
(d) Reports, Evaluations and Other Services. The Adviser shall furnish
reports, evaluations, information or analyses to the Company with
respect to the Funds and in connection with the Adviser's services
hereunder as the Company's Board of Directors may request from time to
time or as the Adviser may otherwise deem to be desirable. The Adviser
shall make recommendations to the Company's Board of Directors with
respect to Company policies, and shall carry out such policies as are
adopted by the Board of Directors. The Adviser shall, subject to
review by the Board of Directors, 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, at its own expense,
shall place all orders for the purchase and sale of portfolio
securities for each Fund 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 Company's
policies and procedures applicable to the Funds. The Adviser shall use
its best efforts to seek to execute portfolio 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 any Fund on any particular
transaction, nor is the Adviser under any duty to execute any order in
a fashion either preferential to any Fund relative to other accounts
managed by the Adviser or otherwise materially adverse to such other
accounts.
(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 portfolio transaction for a Fund
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 Board of Directors of the Company shall be entitled to
request and receive such information as it deems relevant to permit it
to monitor or evaluate the reasonableness of any such excess
commissions paid by the Funds.
4
<PAGE> 5
(g) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, 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
Fund, 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 Company's registration statement and the Fund's 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, it considers to
be the most equitable and consistent with its fiduciary obligations to
the Fund and such other clients.
4. REPRESENTATIONS AND WARRANTIES.
(a) The Adviser hereby represents and warrants to the Company as follows:
(i) The Adviser is duly organized and is in good standing under the
laws of the State of Ohio 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 jurisdictions in which
its activities require it to be so registered or licensed. The
Adviser shall maintain such registration or license 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 Company in carrying out its obligations hereunder.
(b) The Company hereby represents and warrants to the Adviser as follows:
(i) The Company has been duly organized as a corporation under the
laws of the State of Maryland and is authorized to enter into
this Agreement and carry out its terms.
(ii) The Company is registered as an investment company with the
Commission under the 1940 Act and shares of the each Fund are
registered for offer and sale to the public under the 1933 Act
and all applicable state securities laws where currently sold.
Such registrations will be kept in effect during the term of this
Agreement.
5
<PAGE> 6
5. COMPENSATION. As compensation for the services which the Adviser is to
provide or cause to be provided pursuant to Paragraph 3, each Fund shall pay to
the Adviser out of Fund 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 each Fund's name on Schedule A, which shall be a percentage of the
average daily net asset value of the Fund (computed in the manner set forth in
the Fund's most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. At the request of the Adviser, some or all of such fee shall be paid
directly to a Sub-Adviser. The fee for any partial month under this Agreement
shall be calculated on a proportionate basis. In the event that the total
expenses of a Fund exceed the limits on investment company expenses imposed by
any statute or any regulatory authority of any jurisdiction in which shares of
such Fund 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 Fund to an extent which would result in the
Fund's or Company'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 Directors, officers and shareholders of the Company 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 Company.
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 a Fund utilizes a broker which provides brokerage and research
services to the Adviser as contemplated under Paragraph 3 above; (iii) fees and
expenses of the Company's Directors 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 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 Company's Board of
Directors; (xii) association membership dues authorized by the Company's Board
of Directors; and (xiii) such non-recurring or extraordinary expenses as may
arise, including those relating to actions, suits or proceedings to which the
Company is a party (or to which the Funds' assets are subject) and any legal
obligation which the Company may have to indemnify the Company's Directors and
officers with respect thereto.
6
<PAGE> 7
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
Company for providing additional services to the Funds and the Company 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 Company, 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 a Fund in connection with the performance
of this Agreement.
9. EFFECTIVE DATE; MODIFICATIONS; TERMINATION. This Agreement shall become
effective on the date first set forth above, provided that it shall have been
approved by a majority of the outstanding voting securities of each Fund, 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) This Agreement shall continue in force until the second anniversary of
its effective date. Thereafter, this Agreement shall continue in
effect as to each Fund for successive annual periods, provided such
continuance is specifically approved at least annually (i) by a vote
of the majority of the Directors 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 of Directors of the Company or a majority of the
outstanding voting securities of the Fund.
(b) The modification of any of the non-material terms of this Agreement
may be approved by a vote of a majority of those Directors of the
Company 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 Company may be effected severally
as to any particular Fund, and shall be effected as to any Fund by
vote of the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund. This Agreement shall
terminate automatically in the event of its assignment.
10. 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, as now in
effect or as hereafter amended, and subject to such applicable rules,
interpretations and orders as may be issued by the Commission.
7
<PAGE> 8
11. 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 of Directors of the Company from time
to time, have no authority to act for or represent a Fund in any way or
otherwise be deemed an agent of a Fund.
12. STRUCTURE OF AGREEMENT. The Company is entering into this Agreement on
behalf of the underlying Funds listed on Schedule A attached hereto severally
and not jointly. The responsibilities and benefits set forth in this Agreement
shall refer to each Fund 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 Company with
respect to any one Fund shall not create a right or obligation with
respect to any other Fund;
(b) under no circumstances shall the Adviser have the right to set off
claims relating to a Fund 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 Company
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 Company and the Funds, on the other hand, and
(except as specifically provided above in this paragraph 12) is not intended to
and shall not govern (i) the relationship between the Company and any Fund or
(ii) the relationships among the respective Funds.
13. 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, the Advisers Act, or rules or orders of the
Commission thereunder.
14. 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.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, and their
respective seals to be hereunto affixed, all as of the date written above.
SBSF FUNDS, INC. KEYCORP MUTUAL FUND ADVISERS, INC.
d/b/a KEY MUTUAL FUNDS
By: /s/ Scott A. Engelhart By: /s/ Kathleen A. Dennis
Name: Scott A. Englehart Name: Kathleen A. Dennis
Title: Vice President Title: President
9
<PAGE> 10
Schedule A
<TABLE>
<CAPTION>
Name Of Fund Fee*
------------ ----
<S> <C>
1. Key Stock Index Fund 0.10%
2. Key International Index Fund 0.50%
<FN>
- --------------------
* 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.
</TABLE>
10
<PAGE> 1
EX-99.B5(c)
ASSET MANAGEMENT AGREEMENT
BETWEEN
SBSF FUNDS, INC.
D/B/A KEY MUTUAL FUNDS
AND
KEYCORP MUTUAL FUND ADVISERS, INC.
THIS AGREEMENT is made as of the 16th day of December, 1996, by and between
SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation which may
issue one or more series of shares of common stock (the "Company"), and KeyCorp
Mutual Fund Advisers, Inc., an Ohio corporation (the "Adviser").
WHEREAS, the Company is registered as an open-end, series management
investment company with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Company desires to retain the Adviser to furnish asset
management services to the funds listed on Schedule A (each, a "Fund" and,
collectively, 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, and other good and valuable consideration, the receipt of
which is acknowledged, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) General. The Company 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 Company 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.
(c) Sub-Advisers. It is understood and agreed that the Adviser may from
time to time employ or associate with such other entities or persons
as the Adviser believes appropriate to assist in the performance of
this Agreement with respect to a particular Fund or Funds (each a
"Sub-Adviser"), and that any such Sub-Adviser shall have all of the
rights and powers of the Adviser set forth in this Agreement; provided
that a Fund shall not pay any additional compensation for any
Sub-Adviser
<PAGE> 2
and the Adviser shall be as fully responsible to the Company for the
acts and omissions of the Sub-Adviser as it is for its own acts and
omissions; and provided further that the retention of any Sub-Adviser
shall be approved in advance by (i) the Board of Directors of the
Company and (ii) the shareholders of the relevant Fund if required
under any applicable provisions of the 1940 Act. If and to the extent
a Sub-Adviser is retained without approval by the shareholders in
accordance with an exemptive order issued by the Commission, the
Adviser and Sub-Adviser will comply with any conditions imposed on
them by such order. The Adviser will review, monitor and report to the
Company's Board of Directors regarding the performance and investment
procedures of any Sub-Adviser. In the event that the services of any
Sub-Adviser are terminated, the Adviser may provide asset management
services pursuant to this Agreement to the Fund without a Sub-Adviser
and without further shareholder approval, to the extent consistent
with the 1940 Act. A Sub-Adviser may be an affiliate of the Adviser.
2. DELIVERY OF DOCUMENTS. The Company 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 Company's Articles of Incorporation;
(b) the Bylaws of the Company;
(c) resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement;
(d) the most recent Post-Effective Amendment to the Company's Registration
Statement under the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act, on Form N-1A as filed with the Commission;
(e) Notification of Registration of the Company under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) the currently effective Prospectus and Statement of Additional
Information of the Funds.
3. ASSET MANAGEMENT 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
comprising the assets of the Funds and, in furtherance thereof, shall:
(i) supervise all aspects of the operations of the Company and each
Fund;
2
<PAGE> 3
(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 open-end investment companies ("mutual funds") the securities
of which are included in the Funds' portfolios and the industries
in which such mutual funds invest, or which may relate to
securities or other investments which the Adviser may deem
desirable for inclusion in a Fund's portfolio, and regularly
report thereon to the Company's Board of Directors;
(iii) furnish a continuous investment program for each Fund;
(iv) determine, subject to the conditions imposed on the Funds by the
Commission exemptive order relating to the Funds' authority to
invest all of their assets in shares of other mutual funds, and
in accordance with the Prospectus, which mutual funds that are
part of the same group of investment companies as the Funds
("Proprietary Funds") and which mutual funds that are not part of
the same group of investment companies as the Funds ("Other
Portfolios") ("Proprietary Funds" and "Other Portfolios,"
collectively referred to as "Underlying Portfolios") the shares
of which, as well as other securities, shall be purchased or sold
by each Fund;
(v) invest the assets of each Fund in shares of Underlying Portfolios
according to the percentage ranges for each investment category
applicable to each Fund as set forth in the Prospectus (and as
may be modified from time to time by the Company's Board of
Directors);
(vi) in its discretion and without prior consultation with the
Company, purchase and redeem shares of Underlying Portfolios, and
buy, sell, lend and otherwise trade in other securities and
investment instruments on behalf of each Fund in accordance with
its Prospectus;
(vii) continually monitor the allocation, among the percentage ranges
for each investment category as set forth in the Prospectus, of
each Fund's investments in Underlying Portfolios as well as
rebalance and reallocate such allocations across the Underlying
Portfolios as market conditions warrant;
(viii) to the extent deemed necessary or appropriate by the Adviser,
in its sole discretion, recommend to the Company's Board of
Directors, that the percentage ranges for investment categories
governing a Fund's investments in either Proprietary Portfolios
or Underlying Portfolios be modified; and
(ix) take, on behalf of each Fund, all actions the Adviser may deem
necessary in order to carry into effect the investment program
and the Adviser's functions
3
<PAGE> 4
as provided above, including the making of appropriate periodic
reports to the Company's Board of Directors.
(b) Covenants. The Adviser shall carry out its asset management and
supervisory responsibilities in a manner consistent with the
investment objectives, policies, and restrictions provided in: (i)
each Fund's Prospectus and Statement of Additional Information as
revised and in effect from time to time; (ii) the Company's Articles
of Incorporation, Bylaws or other governing instruments, as amended
from time to time; (iii) the 1940 Act and rules in force thereunder;
(iv) other applicable laws and exemptive orders of the Commission; and
(v) such other investment policies, procedures and/or limitations as
may be adopted by the Company with respect to a Fund and provided to
the Adviser in writing. The Adviser agrees to use reasonable efforts
to manage each Fund so that it will qualify, and continue to qualify,
as a regulated investment company under Subchapter 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 Company's Board of Directors.
(c) Books and Records. Pursuant to applicable law, the Adviser shall keep
each Fund's 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
a Fund are the property of the Fund and it will promptly surrender any
of such records to the Fund upon the Fund's request. The Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 of
the Commission under the 1940 Act any such records of the Fund
required to be preserved by Rule 31a-1 of the Commission under the
1940 Act.
(d) Reports, Evaluations and Other Services. The Adviser shall furnish
reports, evaluations, information or analyses to the Company with
respect to the Funds and in connection with the Adviser's services
hereunder as the Company's Board of Directors may request from time to
time or as the Adviser may otherwise deem to be desirable. The Adviser
shall make recommendations to the Company's Board of Directors with
respect to Company policies, and shall carry out such policies as are
adopted by the Board of Directors. The Adviser shall, subject to
review by the Board of Directors, 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, at its own expense,
shall place all orders for the purchase and sale of portfolio
securities for each Fund 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 Company's
policies and procedures applicable to the Funds. The Adviser shall use
its best efforts to seek to execute portfolio transactions at prices
which, under the circumstances, result in
4
<PAGE> 5
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, mark-up or mark-down, 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 any Fund on any particular transaction, nor is the Adviser
under any duty to execute any order in a fashion either preferential
to any Fund relative to other accounts managed by the Adviser or
otherwise materially adverse to such other accounts.
(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 portfolio transaction for a Fund
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 Board of Directors of the Company shall be entitled to
request and receive such information as it deems relevant to permit it
to monitor or evaluate the reasonableness of any such excess
commissions paid by the Funds.
(g) Aggregation of Securities Transactions. In executing portfolio
transactions for a Fund, 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
Fund, 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 Company's registration statement and the Fund's 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 a manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund
and such other clients.
4. REPRESENTATIONS AND WARRANTIES.
(a) The Adviser hereby represents and warrants to the Company as follows:
5
<PAGE> 6
(i) The Adviser is duly organized and is in good standing under the
laws of the State of Ohio 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 jurisdictions in which
its activities require it to be so registered or licensed. The
Adviser shall maintain such registration or license 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 Company in carrying out its obligations hereunder.
(b) The Company hereby represents and warrants to the Adviser as follows:
(i) The Company has been duly organized as a corporation under the
laws of the State of Maryland and is authorized to enter into
this Agreement and carry out its terms.
(ii) The Company is registered as an investment company with the
Commission under the 1940 Act and shares of each Fund are
registered for offer and sale to the public under the 1933 Act
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, each Fund shall pay to
the Adviser out of Fund 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 each Fund's name on Schedule A, which shall be a percentage of the
average daily net asset value of the Fund (computed in the manner set forth in
the Fund's most recent Prospectus and Statement of Additional Information)
determined as of the close of business on each business day throughout the
month. At the request of the Adviser, some or all of such fee shall be paid
directly to a Sub-Adviser. The fee for any partial month under this Agreement
shall be calculated on a proportionate basis. In the event that the total
expenses of a Fund exceed the limits on investment company expenses imposed by
any statute or any regulatory authority of any jurisdiction in which shares of
such Fund 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 Fund to an extent which would result in the
Fund's or Company's inability to qualify as a regulated investment company under
the provisions of Subchapter M of the Code.
6
<PAGE> 7
6. INTERESTED PERSONS. It is understood that, to the extent consistent with
applicable laws, the Directors, officers and shareholders of the Company 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 Company.
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 a Fund utilizes a broker which provides brokerage and research
services to the Adviser as contemplated under Paragraph 3 above; (iii) fees and
expenses of the Company's Directors that are not employees of the Adviser; (iv)
legal and audit expenses; (v) administrator, shareholder servicing agent,
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 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 Company's Board
of Directors; (xii) association membership dues authorized by the Company's
Board of Directors; and (xiii) such non-recurring or extraordinary expenses as
may arise, including those relating to actions, suits or proceedings to which
the Company is a party (or to which the Funds' assets are subject) and any legal
obligation which the Company may have to indemnify the Company's Directors and
officers with respect thereto.
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
Company for providing additional services to the Funds and the Company 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 Company, 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 a Fund in connection with the performance
of this Agreement.
9. EFFECTIVE DATE; MODIFICATIONS; TERMINATION. This Agreement shall become
effective on the date first set forth above, provided that it shall have been
approved by a majority of the outstanding voting securities of each Fund, in
accordance with the requirements of the 1940 Act, or such later date as may be
agreed by the parties following such shareholder approval.
7
<PAGE> 8
(a) This Agreement shall continue in force until the second anniversary of
its effective date. Thereafter, this Agreement shall continue in
effect as to each Fund for successive annual periods, provided such
continuance is specifically approved at least annually (i) by a vote
of the majority of the Directors 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 of Directors of the Company or a majority of the
outstanding voting securities of the Fund.
(b) To the extent permitted by law, the modification of any of the
non-material terms of this Agreement may be approved by a vote of a
majority of those Directors of the Company 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 Company may be effected severally
as to any particular Fund, and shall be effected as to any Fund by
vote of the Company's Board of Directors or by vote of a majority of
the outstanding voting securities of the Fund. This Agreement shall
terminate automatically in the event of its assignment.
10. 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, as now in
effect or as hereafter amended, and subject to such applicable rules,
interpretations and orders as may be issued by the Commission.
11. 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 of Directors of the Company from time
to time, have no authority to act for or represent a Fund in any way or
otherwise be deemed an agent of a Fund.
12. STRUCTURE OF AGREEMENT. The Company is entering into this Agreement on
behalf of the underlying Funds listed on Schedule A attached hereto severally
and not jointly. The responsibilities and benefits set forth in this Agreement
shall refer to each Fund 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 Company with
respect to any one Fund shall not create a right or obligation with
respect to any other Fund;
(b) under no circumstances shall the Adviser have the right to set off
claims relating to a Fund by applying property of any other Fund; and
8
<PAGE> 9
(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 Company
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 Company and the Funds, on the other hand, and
(except as specifically provided above in this paragraph 12) is not intended to
and shall not govern (i) the relationship between the Company and any Fund or
(ii) the relationships among the respective Funds.
13. 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, the Advisers Act, or rules or orders of the
Commission thereunder.
14. 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, and their respective
seals to be hereunto affixed, all as of the date written above.
KEYCORP MUTUAL FUND
ADVISERS, INC.
By: /S/ W. Christopher Maxwell
---------------------------------
Name: W. Christopher Maxwell
Title: Chairman
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: /S/ Scott A. Englehart
---------------------------------
Name: Scott A. Englehart
Title: Vice President and Assistant
Secretary
9
<PAGE> 10
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF FUND FEE*
------------ ----
<C> <C>
1. KeyChoice Growth Fund 0.20%
2. KeyChoice Moderate Growth Fund 0.20%
3. KeyChoice Income and Growth Fund 0.20%
<FN>
* 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.
</TABLE>
<PAGE> 1
EX-99.B6(a)
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of the 1st day of July, 1996 between
SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland Corporation (herein called
the "Fund"), and BISYS Fund Services Limited Partnership (d/b/a BISYS Fund
Services), an Ohio limited partnership (herein called the "Distributor").
WHEREAS, the Fund is an open-end management investment company and is so
registered under the Investment Company Act of 1940; and
WHEREAS, the Fund desires to retain the Distributor as Distributor for each
of the Fund's separate portfolios set forth on Schedule I hereto, as such
Schedule may be revised from time to time (individually known as a "Portfolio"
and collectively as the "Portfolios") to provide for the sale and distribution
of shares of common stock par value $.01 per share of the Fund (herein
collectively called "Shares"), and the Distributor 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 Fund 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 Fund's Articles of Incorporation and all amendments thereto (such
Articles of Incorporation, as presently in effect and as it shall from time to
time be amended, herein called the "Fund's Articles");
(b) The By-Laws of the Fund (such By-Laws, as presently in effect and as
they shall from time to time be amended, herein called the "By-Laws");
(c) Resolutions of the Board of Directors of the Fund authorizing the
execution and delivery of this Agreement;
(d) The Fund's most recent Post-Effective Amendment to its 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") and
all subsequent amendments thereto (said Registration Statement, as presently in
effect and as amended or supplemented from time to time, is herein called the
"Registration Statement");
(e) Notification of Registration of the Fund 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 Fund (such
prospectuses and statements of additional information, as presently filed with
the Securities and Exchange Commission and as they shall from time to time be
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. DISTRIBUTION
------------
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints the Distributor as
Principal Distributor of the Portfolios' 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 Fund agrees to sell through the Distributor, as agent,
from time to time during the term of this Agreement, Shares of the Portfolios
(whether authorized but unissued or treasury shares, in the Portfolios sole
discretion) upon the terms and at the current offering price as described in the
applicable Prospectus. The Distributor will act only in its own behalf as
principal in making agreements with selected dealers or others for the sale and
redemption of Shares, and shall sell Shares only at the offering price thereof
as set forth in the applicable Prospectus. The Distributor shall devote its best
efforts to effect sales of Shares of each of the Portfolios, but shall not be
obligated to sell any certain number of Shares. Each Portfolio reserves the
right to issue Shares in connection with any merger or consolidation of the
Portfolio or any Portfolio 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 Fund's Articles,
By-Laws, and Prospectuses and with the instructions and directions of the Board
of Directors of the Fund and will conform to and comply with the requirements of
the 1933 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 Fund's Registration Statement and
Prospectuses and any sales literature specifically approved by the Fund. The
Fund 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 Prospectuses or other financial statements of the Fund or in any sales
literature or advertisements specifically approved by the Fund.
(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
2
<PAGE> 3
Fund, 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 Fund 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 1933 Act; and
PROVIDED FURTHER, that each Portfolio will bear the expenses incurred and other
payments made in accordance with the provisions of this Agreement and any plan
now in existence or hereafter adopted with respect to such Portfolio, 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 to the public at a price per Share (the "Offering
price") equal to (i) their net asset value (determined in the manner set forth
in the Fund's Articles and then current Prospectuses) plus (ii) a sales charge
(if any) which shall be the percentage of the offering price of such Shares as
set forth in the Fund's then current Prospectuses. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. If a sales
charge is in effect, the Distributor shall have the right to pay a portion of
the sales charge to broker-dealers and other persons who have sold Shares of the
Portfolios. Concessions by the Distributor to broker-dealers and other persons
shall be set forth in either the selling agreements between the Distributor and
such broker-dealers and persons or, if such concessions are described in the
then current Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling agreement with the Distributor shall be
authorized to act as agent for the Fund in connection with the offering or sale
of its Shares to the public or otherwise.
(f) If any Shares sold by the Distributor under the terms of
this Agreement are redeemed or repurchased by the Fund 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, provided that the portion, if any, of such amount (if any)
re-allowed by the Distributor to broker-dealers or other persons shall be
repayable to the Fund only to the extent recovered by the Distributor from the
broker-dealer or other person concerned. The Distributor shall include in the
forms of agreement with such broker-dealers and other persons a corresponding
provision for the forfeiture by them of their concession with respect to Shares
sold by them or their principals and redeemed or repurchased by the Fund or by
the Distributor as agent (or tendered for redemption) within seven business days
after the date of confirmation of such initial purchases.
3
<PAGE> 4
3. SALES AND REDEMPTIONS.
(a) The Fund shall pay all costs and expenses in connection with
the registration of the Shares under the 1933 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 Fund
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 Fund shall execute all documents, furnish all
information and otherwise take all actions which may be reasonably necessary in
the discretion of the Fund's officers in connection with the qualification of
the Shares for sale in such states as the Distributor may designate to the Fund
and the Fund may approve, and the Fund 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 Portfolios as
provided in this Agreement and in the Plans relating thereto.
(c) The Fund shall have the right to suspend the sale of Shares
of any Portfolio at any time in response to conditions in the securities markets
or otherwise, and to suspend the redemption of Shares of any Portfolio at any
time permitted by the 1940 Act or the rules of the Commission ("Rules").
(d) The Fund reserves the right to reject any order for
Shares.
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 Fund or any Portfolio 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 Fund all records and other information relative to the Fund,
to the Fund's prior or present shareholders and to those persons or entities who
respond to the Distributor's inquiries concerning investment in the Fund, 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
4
<PAGE> 5
sales of the shares of any Portfolio which may be added to the Fund 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 investment adviser to the Fund. Such approval 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 Board of Directors of the Fund.
V. INDEMNIFICATION
---------------
1. FUND REPRESENTATIONS. The Fund represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 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 Fund by or on behalf of and
with respect to the Distributor expressly for use in the Registration Statement
or Prospectuses.
2. DISTRIBUTOR REPRESENTATIONS. The Distributor represents and warrants to
the Fund that it is duly organized as a Delaware corporation and is and at all
times will remain duly authorized and licensed to carry out its services as
contemplated herein.
3. FUND INDEMNIFICATION. The Fund will indemnify, defend 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 1933 Act, from and
against any losses, claims, damages or liabilities, joint or several, to which
any of them may become subject under the 1933 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
Prospectuses or in any application or other document executed by or on behalf of
the Fund, or arise out of, or are based upon, information furnished by or on
behalf of the Fund filed in any state in order to qualify the Shares under the
securities or blue sky laws thereof ("Blue Sky Applications"), 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 1933 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 Fund 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
Prospectuses, any Blue Sky Application
5
<PAGE> 6
or any application or other document executed by or on behalf of the Fund in
reliance upon and in conformity with written information furnished to the Fund
by or on behalf of and with respect to the Distributor specifically for
inclusion therein.
The Fund 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 Directors of the Fund who are neither "interested
persons" of the Fund (as defined in the 1940 Act) nor parties to the proceeding,
or by an independent legal counsel in a written opinion.
Each Portfolio 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 Portfolio shall
be insured against losses arising by reason of any lawful advances, or a
majority of a quorum of the disinterested, non-party Directors of the Fund (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 hereunder.
4. DISTRIBUTOR INDEMNIFICATION. The Distributor will indemnify, defend
and hold harmless the Fund, the Fund's several officers and Directors and any
person who controls the Fund within the meaning of Section 15 of the 1933 Act,
from and against any losses, claims, damages or liabilities, joint or several,
to which any of them may become subject under the 1933 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 Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Fund, 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 Fund
or any of its several officers and Directors by or on behalf of and with respect
to the Distributor specifically for inclusion therein, and will reimburse the
Fund, the Fund's several officers and Directors, and any person who controls the
Fund within the meaning of Section 15 of the 1933 Act, for any legal or other
expenses
6
<PAGE> 7
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 shall continue until terminated by either the Distributor or the
Fund as provided below. 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 of Directors of the Fund who are not parties to this Agreement or
"interested persons" of any such party (the "Disinterested Directors"), pursuant
to a vote cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Fund or by vote of a
"majority of the outstanding voting securities" of the Fund. Notwithstanding
anything to the contrary contained in this Section VI, this Agreement may be
terminated by the Fund at any time with respect to any Portfolio, without the
payment of any penalty, by vote of a majority of the Disinterested Directors 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 Fund. 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.
7
<PAGE> 8
VIII. NOTICES
-------
Notices of any kind to be given to the Fund hereunder by the
Distributor shall be in writing and shall be duly given if mailed or delivered
to the Fund to the attention of Leigh A. Wilson, President, c/o KeyCorp Mutual
Fund Products, 127 Public Square, Cleveland, Ohio 44114, or at such other
address or to such individual as shall be so specified by the Fund to the
Distributor. Notices of any kind to be given to the Distributor hereunder by the
Fund shall be in writing and shall be duly given if mailed or delivered to the
Distributor at 3435 Stelzer Road, Columbus, Ohio 43219, Attention: George O.
Martinez, Senior Vice President, Director of Legal & Compliance, or at such
other address or to such individual as shall be so specified by the Distributor
to the Fund.
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. The Fund is entering into this Agreement
on behalf of the Portfolios listed on Schedule I severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Portfolio severally and not jointly. No individual Portfolio shall have any
responsibility for any obligation, if any, with respect to any other Portfolio
arising out of this Agreement.
X. MISCELLANEOUS
-------------
1. CONSTRUCTION. The captions in this Agreement are included for
conveniences 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 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 Investment Company Act of 1940 or any rule or regulation of the Commission
thereunder.
8
<PAGE> 9
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.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President
Attest: /s/ Robert L. Tuch
Assistant Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: /s/ J. David Huber
Name: J. David Huber
Title: Vice President
Attest: /s/
Vice President
9
<PAGE> 10
SCHEDULE I
----------
SBSF FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF CAPITAL GROWTH FUND
KEY MONEY MARKET FUND
KEY STOCK INDEX FUND
KEY INTERNATIONAL INDEX FUND
10
<PAGE> 1
EX-99.B6(a)(1)
AMENDMENT NO. 1
TO THE DISTRIBUTION AGREEMENT
This Amendment is made as of this 16th day of December, 1996 to the
Distribution Agreement between SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the
"Company"), on behalf of the various investment portfolios of the Company, and
BISYS Fund Services Limited Partnership (d/b/a BISYS Fund Services) (the
"Distributor") dated as of July 1, 1996, (the "Agreement").
WHEREAS, the Agreement provides for the Distributor to act as distributor
for six funds of the Company; and
WHEREAS, Section VII of the Agreement provides that the Agreement may be
amended only by an instrument in writing;
WHEREAS, the Company desires that the Distributor serve in such capacities
with respect to three additional funds of the Company, namely KeyChoice Growth
Fund, KeyChoice Moderate Growth Fund and KeyChoice Income and Growth Fund, and
the Distributor is willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
1. The Company hereby appoints and constitutes the Distributor as
distributor for the KeyChoice Growth Fund, KeyChoice Moderate Growth
Fund and KeyChoice Income and Growth Fund, and the Distributor accepts
such appointments and agrees to perform the duties set forth in the
Agreement with respect to such.
2. Schedule I to the Agreement is hereby amended and restated to include
KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund.
3. In all other respects the Agreement is confirmed.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be executed by their duly authorized Officers as of the day and
year first above written.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /S/ Scott A. Englehart
---------------------------------
Name: Scott A. Englehart
Title: Vice President and Assistant
Secretary
BISYS FUND SERVICES
LIMITED PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: /S/ J. David Huber
----------------------------
Name: J. David Huber
Title: Vice President
2
<PAGE> 1
EX-99.B8(b)
AMENDMENT NO. 1 TO THE
MUTUAL FUND CUSTODY AGREEMENT
This Amendment is made this 1st day of July, 1996 to the Mutual Fund
Custody Agreement between SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the
"Company"), on behalf of the various investment portfolios of the Company (each
a "Fund" and, collectively, the "Funds"), and Key Trust Company of Ohio, N.A.
(the "Custodian") dated as of November 3, 1995, (the "Agreement").
WHEREAS, the Agreement provides for the Custodian to act as custodian for
four funds of the Company; and
WHEREAS, Paragraph 37 of the Agreement provides that the Agreement may be
amended only by an instrument in writing signed by the party against which
enforcement is sought;
WHEREAS, the Company desires that the Custodian serve in such capacities
with respect to two additional funds of the Company and the Custodian is willing
to furnish such services;
NOW, THEREFORE, the parties agree as follows:
1. The Company hereby appoints and constitutes the Custodian as custodian
for the additional funds referred to below, and the Custodian accepts
such appointments and agrees to perform the duties set forth in the
Agreement with respect to the additional portfolios which are as
follows: Key Stock Index Fund and Key International Index Fund.
2. In all other respects the Agreement is confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be executed by their duly authorized Officers as of the day and
year first above written.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President
<PAGE> 2
Key Trust Company of Ohio, N.A.
By: /s/ Kathryn L. Kaesberg
Name: Kathryn L. Kaesberg
Title: Vice Presidnet
By: /s/ Sharon A. Kiker
Name: Sharon A. Kiker
Title: Assistant Vice President
<PAGE> 1
EX-99.B8(c)
AMENDMENT NO. 2
TO THE MUTUAL FUND CUSTODY AGREEMENT
This Amendment is made as of this 16th day of December, 1996 to the Mutual
Fund Custody Agreement between SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the
"Company"), on behalf of the various investment portfolios of the Company (each
a "Fund" and, collectively, the "Funds"), and Key Trust Company of Ohio, N.A.
(the "Custodian") dated as of November 3, 1995, (the "Agreement").
WHEREAS, the Agreement provides for the Custodian to act as custodian for
four funds of the Company; and
WHEREAS, Paragraph 37 of the Agreement provides that the Agreement may be
amended only by an instrument in writing;
WHEREAS, the Company desires that the Custodian serve in such capacities
with respect to three additional funds of the Company and the Custodian is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
1. The Company hereby appoints and constitutes the Custodian as custodian
for the additional funds referred to below, and the Custodian accepts
such appointments and agrees to perform the duties set forth in the
Agreement with respect to the additional portfolios which are as
follows: KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and
KeyChoice Income and Growth Fund.
2. Attachment A to the Agreement is hereby amended and restated to
include KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and
KeyChoice Income and Growth Fund.
3. In all other respects the Agreement is confirmed.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Agreement to be executed by their duly authorized Officers as of the day and
year first above written.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President and Assistant
Secretary
Key Trust Company of Ohio, N.A.
By: /s/ Kathryn Loomis Kaesberg
Name: Kathryn Loomis Kaesberg
Title: Vice President
By: /s/ Kelley Clark
Name: Kelley Clark
Title: Vice President
2
<PAGE> 1
EX-99.B8(d)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SBSF Funds, Inc.
d/b/a Key Mutual Funds
on Behalf of Various Funds
Listed on Schedule A
Individually and Not Jointly
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
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----
<S> <C> <C>
Article 1 Terms of Appointment; Duties of the Bank............................................... 1
Article 2 Fees and Expenses...................................................................... 4
Article 3 Representations and Warranties of the Bank............................................. 5
Article 4 Representations and Warranties of the Company.......................................... 5
Article 5 Data Access and Proprietary Information................................................ 6
Article 6 Indemnification........................................................................ 8
Article 7 Standard of Care....................................................................... 9
Article 8 Covenants of the Company and the Bank.................................................. 10
Article 9 Termination of Agreement............................................................... 11
Article 10 Assignment............................................................................. 12
Article 11 Amendment.............................................................................. 12
Article 12 Massachusetts Law to Apply............................................................. 12
Article 13 Force Majeure.......................................................................... 12
Article 14 Consequential Damages.................................................................. 13
Article 15 Merger of Agreement.................................................................... 13
Article 16 Counterparts........................................................................... 13
Article 17 Multiple Funds......................................................................... 13
Article 18 Arbitration............................................................................ 14
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the _____ day of July 1996 by and between SBSF FUNDS,
INC. (d/b/a Key Mutual Funds), a Maryland corporation, 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 common stock, (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 effective prospectus and statement of additional information
("prospectus") of each Fund, including without limitation any periodic
investment plan or periodic withdrawal program.
1
<PAGE> 4
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 Articles of
Incorporation 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;
(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
2
<PAGE> 5
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, 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)
3
<PAGE> 6
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.
(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.
4
<PAGE> 7
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.
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 Bylaws 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:
5
<PAGE> 8
4.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement.
4.03 All corporate proceedings required by the Articles of Incorporation
and Bylaws 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:
6
<PAGE> 9
(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 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
7
<PAGE> 10
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.
(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.
8
<PAGE> 11
(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 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
9
<PAGE> 12
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:
(a) A certified copy of the resolution of the Board of Directors of the
Company authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Articles of Incorporation and Bylaws 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
10
<PAGE> 13
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, 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).
11
<PAGE> 14
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 be
considered an assignment of this Agreement.
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 Directors of the Company.
Article 12 Massachusetts Law to Apply
--------------------------
12
<PAGE> 15
12.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
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.
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
--------------
13
<PAGE> 16
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 Arbitration
-----------
18.01 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 limitation any dispute concerning the scope of this Article 18, 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.
18.02 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.
18.03 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;
14
<PAGE> 17
(c) exchange of documents and filing of detailed statement of claim and
prehearing memoranda;
(d) schedule and place of hearings; and
(e) any other matters that may promote the efficient, expeditious, and
cost-effective conduct of the proceeding.
18.04 The arbitration will take place in the State of Ohio.
18.05 The final award will include pre-award interest at a rate of interest
determined by the arbitrators to approximate the cost to the prevailing party of
borrowing money during the relevant period.
18.06 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.
15
<PAGE> 18
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.
<TABLE>
<S> <C>
SBSF FUNDS, INC. (d/b/a Key Mutual Funds), on behalf of each
of the Funds listed on Schedule A, individually and not
jointly
By: /s/ Scott A. Englehart
-----------------------------------
Vice President
ATTEST:
/s/ Robert L. Tuch
- ------------------------
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
-----------------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- ------------------------
Assistant Counsel
</TABLE>
16
<PAGE> 19
SCHEDULE A
Effective as of 7/1/96 as to the following Funds:
1. Key Stock Index Fund
2. Key International Index Fund
Effective as of 7/12/96 as to the following Funds:
1. SBSF Fund
2. SBSF Convertible Securities Fund
3. SBSF Capital Growth Fund
4. Key Money Market Mutual Fund
17
<PAGE> 20
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 X X+
of Shares.
2. Issue shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X X+
4. Effect transactions 1-3 above X X+
directly with broker-dealers.
5. Pay over monies to redeeming X X+
Shareholders.
6. Effect transfers of Shares. X X+
7. Prepare and transmit dividends X X+
distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities
12. Mail proxies. X
13. Mail shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
</TABLE>
18
<PAGE> 21
<TABLE>
<S> <C> <C>
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X X+
confirmation statements for
Shareholders.
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
<FN>
* 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
</TABLE>
<TABLE>
<S> <C>
SBSF FUNDS, INC. (d/b/a Key Mutual Funds), on behalf of each
of the Funds listed on Schedule A, individually and not
jointly
By: /s/ Scott A. Englehart
---------------------------
Vice President
ATTEST:
/s/ Robert L. Tuch
- -----------------------------
Assistant Secretary
</TABLE>
19
<PAGE> 22
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
---------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- -----------------------------
Assistant Counsel
20
<PAGE> 23
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
SBSF FUNDS, INC. (d/b/a Key Mutual Funds)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Account Service Fees
- ---------------------------
<S> <C>
Account Fee $13.25
Complex Base Fee* $600,000
Closed Account Fee $1.50
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
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
- ----------------------
</TABLE>
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.
21
<PAGE> 24
*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.
SBSF FUNDS, INC. (d/b/a Key Mutual Funds),
on behalf of each of the Funds listed on
Schedule A, individually and not jointly STATE STREET BANK AND TRUST CO.
By /s/ Scott A. Englehart By /s/ Ronald E. Logue
----------------------------------- ---------------------------------
Title Vice President Title Executive Vice President
------------------------------- ------------------------------
Date 8-27-96 Date
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<PAGE> 1
EX-99.B9(a)
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 12th day of July, 1996
between SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation
(herein called the "Company"), and BISYS Fund Services Limited Partnership
(d/b/a BISYS Fund Services), an Ohio limited partnership (herein called
"BISYS").
WHEREAS, the Company is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of various investment portfolios, certain of which are
listed on Schedule I hereto, as such Schedule may be revised from time to time
(individually, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company offers for sale shares of common stock par value
$.01 per share of the Funds (herein collectively called "Shares"); and
WHEREAS, pursuant to a Distribution Agreement dated as of July 1, 1996
(the "Distribution Agreement") between the Company and BISYS, the Company has
retained BISYS Financial as its Distributor to provide for the sale and
distribution of the Shares; and
WHEREAS, the Company 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 Company 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 Company's Articles of Incorporation and all amendments
thereto (such Articles of Incorporation, as presently in effect and as
it shall from time to time be amended, herein called the "Articles");
<PAGE> 2
(b) The By-Laws of the Company (such By-Laws as presently in
effect and as they shall from time to time be amended, herein called
the "By-Laws");
(c) Resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this Agreement;
(d) The Company's most recent Post-Effective Amendment to its
Registration Statement(s) under the Securities Act of 1933, as amended
(the "1933 Act"), and under 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 Company under the 1940
Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of the
Company 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 Company 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 Company understands that BISYS now
acts and will continue to act as administrator of various investment companies
and fiduciary of other managed accounts, and the Company 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
2
<PAGE> 3
whatever kind or nature.
2. REPRESENTATIONS OF BISYS. BISYS represents and warrants that: (1)
the various procedures and systems which BISYS has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
of the records and other data of the Company and BISYS's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by BISYS and, when
executed and delivered by BISYS, will constitute a legal, valid and binding
obligation of BISYS, enforceable against BISYS in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
3. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and
control of the Board of Directors of the Company, 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 Funds, other than those
investment advisory functions which are to be performed by the Funds'
investment adviser(s), the services of BISYS Financial as Distributor
pursuant to the Distribution Agreement, those services to be performed
by the Funds' custodian, transfer agent, and those services normally
performed by the Funds' counsel and auditors. BISYS's responsibilities
include without limitation the following services:
(1) Overseeing the performance of the Funds' 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
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Prospectuses and supplements thereto; and handling shareholder
problems and calls relating to administrative matters;
(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;
(4) Keeping and maintaining the following books and records
of each Fund pursuant to Rule 3la-l under the 1940 Act (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 balance of all ledger accounts (except
shareholder accounts) as required by subsection (b) (8)
of the Rule; and
(5) Performing the following accounting services daily for
each Fund:
a. Calculating the net asset value per Share;
b. Calculating the dividend and capital gain distribution,
if any;
c. Calculating the yield;
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d.Providing the following reports:
(i) a current security position report;
(ii) summary report of transactions and pending maturities
(including the principal cost, and accrued interest on
each portfolio security in maturity date order); and
(iii) 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);
(iv) Such other similar services with respect to a Fund as
the parties may agree upon from time to time.
(b) BISYS shall assure that persons are available to transmit
wire, telephone or electronic redemption requests to the Funds'
transfer agent as promptly as practicable.
(c) BISYS shall assure that persons are available to transmit
wire, telephone or electronic orders accepted for the purchase or
exchange of Shares to the Funds' transfer agent as promptly as
practicable.
(d) 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 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 Funds' Registration Statement on Form N-1A relating
to the updating of financial information and other routine matters.
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<PAGE> 6
(e) BISYS shall pay all costs and expenses of maintaining the
offices of the Funds, wherever located, and shall arrange for payment
by the Funds of all expenses payable by the Funds.
(f) BISYS, after consultation with the Funds' investment
adviser(s), shall determine the jurisdictions in which the Shares
shall be registered or qualified for sale and, in connection
therewith, shall be responsible for obtaining and maintaining the
registration or qualification of the Shares for sale under the
securities laws of such jurisdictions. Payment of Share registration
fees and any fees for qualifying or continuing the qualification of
the Funds shall be made by the Funds.
(g) BISYS shall provide the services of certain persons who may
be appointed as officers of the Company by the Company's Board of
Directors.
(h) BISYS shall oversee the maintenance by the Funds' custodian
and transfer agent of the books and records required under the 1940
Act in connection with the performance of the Company'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 Funds' investment adviser(s)) as may be required by
law or may be required for the proper operation of the business and
affairs of the Funds. 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 Company and further agrees to surrender
promptly to the Company any of such books and records upon the
Company'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.
(i) BISYS shall coordinate the preparation of the Funds' federal,
state and local income tax returns.
(j) BISYS shall prepare such other reports relating to the
business and affairs of the Company and each Fund (not otherwise
appropriately prepared by the Funds'
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<PAGE> 7
investment adviser(s), BISYS Financial or the counsel or auditors) as
the officers and Directors of the Company may from time to time
reasonably request in connection with the performance of their duties.
(k) In performing its duties as Administrator of the Company,
BISYS will act in conformity with the Articles, By-Laws and
Prospectuses and with the instructions and directions of the Board of
Directors of the Company and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal or state
laws and regulations.
4. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons 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 Company for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
5. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
this subsection 5, 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 Company (other than those borne by the
Company's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's investment advisers or BISYS or any of their
affiliates, Commission fees and state blue sky registration or qualification
fees, advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, fidelity bond and directors' 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 Company meetings and any
extraordinary expenses will be borne by the Company.
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<PAGE> 8
6. TRANSFER OF RESPONSIBILITIES. The Company will arrange for the
prompt and full cooperation of the administrator that is the predecessor to
BISYS in the transfer of duties and responsibilities to BISYS, including
provision for assistance by such predecessor's personnel in the delivery to
BISYS of books, records and other data by such predecessor.
7. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to this Section II, the Company will pay BISYS a fee,
computed daily and payable monthly, at the annual rate of .25% of each Fund's
average daily net assets up to $50 million, plus .15% of each Fund's average
daily net assets in excess of $50 million. 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
Company all records and information relative to the Company and the Funds and
their prior or present shareholders or those persons or entities who respond to
BISYS Financial inquiries concerning investment in the Company, and except as
provided below, will not use such records and information for any purpose other
than performance of its responsibilities and duties with regard to any other
investment portfolio which may be added to the Company 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 Company. 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 requested to divulge such information by
duly constituted authorities; or (iii) BISYS is so requested by the Company.
IV. STANDARD OF CARE; INDEMNIFICATION; LIMITATION OF LIABILITY
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Company for any
action taken or omitted by BISYS
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<PAGE> 9
in the absence of bad faith, willful misfeasance, negligence or reckless
disregard by it of its obligations and duties. The Company 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's
actions taken or nonactions with respect to the performance of services under
this Agreement or based, if applicable, upon reasonable reliance on information,
records, instructions or requests with respect to the Funds given or made to
BISYS by a duly authorized representative of the Company; provided that this
indemnification shall not apply to actions or omissions of BISYS in cases of its
own bad faith, willful misfeasance, negligence or 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, BISYS shall
give the Company written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of BISYS.
BISYS agrees to indemnify and hold harmless the Company, 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's bad faith, willful misfeasance, negligence or
reckless disregard by it of its obligations and duties, with respect to the
performance of services under this Agreement.
Any person, even though also an officer, director, employee or agent of
BISYS, who may be or become an officer, director, employee or agent of the
Company, shall be deemed, when rendering services to the Company, or acting on
any business of the Company (other than services or business in connection with
BISYS's duties hereunder) to be rendering such services to or acting solely for
the Company and not as an officer, director, employee or agent or one under the
control or direction of BISYS even though paid by BISYS.
V. DURATION AND TERMINATION
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The term of this Agreement shall commence on the date first set forth
above and shall remain in effect through July 11, 1997 ("Initial Term"). This
Agreement shall be renewed automatically for successive periods of one year
after the Initial Term, unless terminated by either party on not less than 90
days prior written notice to the other party. In the event of a material breach
of this Agreement by either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of such notice, the
breaching party shall have 45 days to remedy the breach or the non-breaching
party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of the Company, 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 Company upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
BISYS shall be entitled to collect from the Company, in addition to the
compensation described in Section II, paragraph 7, the amount of all of BISYS's
cash disbursements for services in connection with BISYS's activities in
effecting such termination, including without limitation, the delivery to the
Company and/or its designees of the Company's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, BISYS will provide the Company with reasonable access to any
Company documents or records remaining in its possession.
VI. 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 whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Company hereunder by BISYS shall
be in writing
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and shall be duly given if mailed or delivered to the Company c/o
Scott A. Englehart, Assistant Secretary, SBSF Funds, Inc., c/o BISYS Investment
Services Group, 3435 Stelzer Road, Columbus, Ohio 43219, with copies to Kathleen
A. Dennis, Senior Vice President, KeyCorp Mutual Funds Group, 127 Public Square,
13th Floor, Cleveland, Ohio 44114-1306 and Michael R. Parker, Vice President and
General Counsel, Spears, Benzak, Salomon & Farrell, Inc., 45 Rockefeller Plaza,
New York, NY 10011, or at such other address or to such individual as shall be
so specified by the Company to BISYS. Notices of any kind to be given to BISYS
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, Attention:
Stephen P. Mintos, Executive Vice President, or at such other address or to such
other individual as BISYS shall specify to the Company.
VIII. MISCELLANEOUS
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 Section 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 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 Commission thereunder.
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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.
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President
Attest: /s/ Robert L. Tuch
Assistant Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: /s/ J. David Huber
Name: J. David Huber
Title: Executive Vice President
Attest: /s/
Vice President
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SCHEDULE I
Funds
- -----
1. SBSF Fund
2. SBSF Convertible Securities Fund
3. Key Money Market Fund
4. SBSF Capital Growth Fund
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EX-99.B9(b)
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 1st day of July, 1996
between SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation
(herein called the "Company"), and BISYS Fund Services Limited Partnership
(d/b/a BISYS Fund Services), an Ohio limited partnership (herein called
"BISYS").
WHEREAS, the Company is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of various investment portfolios, certain of which are
listed on Schedule I hereto, as such Schedule may be revised from time to time
(individually, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company offers for sale shares of common stock par value $.01
per share of the Funds (herein collectively called "Shares"); and
WHEREAS, pursuant to a Distribution Agreement dated as of July 1, 1996 (the
"Distribution Agreement") between the Company and BISYS, the Company has
retained BISYS as its Distributor to provide for the sale and distribution of
the Shares; and
WHEREAS, the Company 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 Company 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 Company's Articles of Incorporation and all amendments thereto
(such Articles of Incorporation, as presently in effect and as it
shall from time to time be amended, herein called the "Articles");
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(b) The By-Laws of the Company (such By-Laws as presently in effect and as
they shall from time to time be amended, herein called the "By-Laws");
(c) Resolutions of the Board of Directors of the Company authorizing the
execution and delivery of this Agreement;
(d) The Company's most recent Post-Effective Amendment to its Registration
Statement(s) under the Securities Act of 1933, as amended (the "1933
Act"), and under 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 Company under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of the Company
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 Company 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 Company understands that BISYS now acts and
will continue to act as administrator of various investment companies and
fiduciary of other managed accounts, and the Company 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
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whatever kind or nature.
2. REPRESENTATIONS OF BISYS. BISYS represents and warrants that: (1) the
various procedures and systems which BISYS has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
of the records and other data of the Company and BISYS's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by BISYS and, when
executed and delivered by BISYS, will constitute a legal, valid and binding
obligation of BISYS, enforceable against BISYS in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
3. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and control of
the Board of Directors of the Company, 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 Funds, other than those investment advisory functions which
are to be performed by the Funds' investment adviser(s), the services of
BISYS as Distributor pursuant to the Distribution Agreement, those services
to be performed by the Funds' custodian, transfer agent and any fund
accounting agent, and those services normally performed by the Funds'
counsel and auditors. BISYS's responsibilities include without limitation
the following services:
(1) Overseeing the performance of the Funds' 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
3
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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 assure that persons are available to transmit wire,
telephone or electronic redemption requests to the Funds' transfer agent as
promptly as practicable.
(c) BISYS shall assure that persons are available to transmit wire,
telephone or electronic orders accepted for the purchase or exchange of
Shares to the Funds' transfer agent as promptly as practicable.
(d) 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 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 Funds' Registration
Statement on Form N-1A relating to the updating of financial information
and other routine matters.
(e) BISYS shall pay all costs and expenses of maintaining the offices
of the Funds, wherever located, and shall arrange for payment by the Funds
of all expenses payable by the Funds.
(f) BISYS, after consultation with the Funds' investment adviser(s),
shall determine the jurisdictions in which the Shares shall be registered
or qualified for sale and, in connection therewith, shall be responsible
for obtaining and maintaining the registration or qualification of the
Shares for sale under the securities laws of such jurisdictions. Payment of
Share registration fees and any fees for qualifying or continuing the
qualification of the Funds shall be made by the Funds.
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<PAGE> 5
(g) BISYS shall provide the services of certain persons who may be
appointed as officers of the Company by the Company's Board of Directors.
(h) BISYS shall oversee the maintenance by the Funds' custodian and
transfer agent of the books and records required under the 1940 Act in
connection with the performance of the Company'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 Funds'
investment adviser(s) and any fund accounting agent) as may be required by
law or may be required for the proper operation of the business and affairs
of the Funds. 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
Company and further agrees to surrender promptly to the Company any of such
books and records upon the Company'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.
(i) BISYS shall coordinate the preparation of the Funds' federal,
state and local income tax returns.
(j) BISYS shall prepare such other reports relating to the business
and affairs of the Company and each Fund (not otherwise appropriately
prepared by the Funds' investment adviser(s), any fund accounting agent,
BISYS or the counsel or auditors) as the officers and Directors of the
Company may from time to time reasonably request in connection with the
performance of their duties.
(k) In performing its duties as Administrator of the Company, BISYS
will act in conformity with the Articles, By-Laws and Prospectuses and with
the instructions and directions of the Board of Directors of the Company
and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal or state laws and regulations.
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4. SUBCONTRACTORS. It is understood that BISYS may from time to time employ
or associate with itself such person or persons 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 Company for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
5. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in this
subsection 5, 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 Company (other than those borne by the
Company's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's investment advisers or BISYS or any of their
affiliates, 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 directors' 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 Company meetings and any extraordinary expenses will be borne by the
Company.
6. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to this Section II, the Company will pay BISYS a fee,
computed daily and payable monthly, at the annual rate of .15% of each Fund's
average daily net assets. 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.
6
<PAGE> 7
III. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information of the
Company all records and information relative to the Company and the Funds and
their prior or present shareholders or those persons or entities who respond to
BISYS inquiries concerning investment in the Company, and except as provided
below, will not use such records and information for any purpose other than
performance of its responsibilities and duties with regard to any other
investment portfolio which may be added to the Company 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 Company. 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 requested to divulge such information by
duly constituted authorities; or (iii) BISYS is so requested by the Company.
IV. STANDARD OF CARE; INDEMNIFICATION; LIMITATION OF LIABILITY
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Company for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or reckless disregard by it of its obligations and
duties. The Company 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's actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests with
respect to the Funds given or made to BISYS by a duly authorized representative
of the Company; provided that this indemnification shall not apply to actions or
omissions of BISYS in cases of its own bad faith, willful misfeasance,
negligence or 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
7
<PAGE> 8
indemnification, BISYS shall give the Company written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
BISYS.
BISYS agrees to indemnify and hold harmless the Company, 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's bad faith, willful misfeasance, negligence or
reckless disregard by it of its obligations and duties, with respect to the
performance of services under this Agreement.
Any person, even though also an officer, director, employee or agent of
BISYS, who may be or become an officer, director, employee or agent of the
Company, shall be deemed, when rendering services to the Company, or acting on
any business of the Company (other than services or business in connection with
BISYS's duties hereunder) to be rendering such services to or acting solely for
the Company and not as an officer, director, employee or agent or one under the
control or direction of BISYS even though paid by BISYS.
V. DURATION AND TERMINATION
The term of this Agreement shall commence on the date first set forth above
and shall remain in effect through June 30, 1997 ("Initial Term"). This
Agreement shall be renewed automatically for successive periods of one year
after the Initial Term, unless terminated by either party on not less than 90
days prior written notice to the other party. In the event of a material breach
of this Agreement by either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of such notice, the
breaching party shall have 45 days to remedy the breach or the non-breaching
party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as BISYS,
with the written consent of the Company, 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
8
<PAGE> 9
Agreement, including without limitation the provisions dealing with
indemnification, shall continue in full force and effect. Compensation due BISYS
and unpaid by the Company upon such termination shall be immediately due and
payable upon and notwithstanding such termination. BISYS shall be entitled to
collect from the Company, in addition to the compensation described in Section
II, paragraph 6, the amount of all of BISYS's cash disbursements for services in
connection with BISYS's activities in effecting such termination, including
without limitation, the delivery to the Company and/or its designees of the
Company's property, records, instruments and documents, or any copies thereof.
Subsequent to such termination, for a reasonable fee, BISYS will provide the
Company with reasonable access to any Company documents or records remaining in
its possession.
VI. 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 whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Company hereunder by BISYS shall be
in writing and shall be duly given if mailed or delivered to the Company c/o
Scott A. Englehart, Assistant Secretary, SBSF Funds, Inc., c/o BISYS Investment
Services Group, 3435 Stelzer Road, Columbus, Ohio 43219, with copies to Kathleen
A. Dennis, Senior Vice President, KeyCorp Mutual Funds Group, 127 Public Square,
13th Floor, Cleveland, Ohio 44114-1306 and Michael R. Parker, Vice President and
General Counsel, Spears, Benzak, Salomon & Farrell, Inc., 45 Rockefeller Plaza,
New York, NY 10011, or at such other address or to such individual as shall be
so specified by the Company to BISYS. Notices of any kind to be given to BISYS
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, Attention:
Stephen P. Mintos, Executive Vice President, or at such other address or to such
other individual as BISYS shall specify to the Company.
9
<PAGE> 10
VIII. MISCELLANEOUS
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 Section 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 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 Commission thereunder.
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.
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President
Attest: Robert L. Tuch
Assistant Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: /s/ J. David Huber
Name: J. David Huber
Title: Executive Vice President
Attest: /s/
Vice President
10
<PAGE> 11
SCHEDULE I
Funds
- -----
1. Key Stock Index Fund
2. Key International Index Fund
11
<PAGE> 1
EX-99.B9(b)(1)
AMENDMENT NO. 1
TO THE ADMINISTRATION AGREEMENT
This Amendment is made as of this 16th day of December, 1996 to the
Administration Agreement between SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the
"Company"), on behalf of Key Stock Index Fund and Key International Index Fund
of the Company (each a "Fund" and, collectively, the "Funds"), and BISYS Fund
Services Limited Partnership (d/b/a BISYS Fund Services) (the "Administrator"),
an Ohio limited partnership (herein called "BISYS"), dated as of July 1, 1996,
(the "Agreement").
WHEREAS, the Agreement provides for the Administrator to act as
administrator for the Funds of the Company; and
WHEREAS, Section VI of the Agreement provides that the Administration
Agreement may be amended only by an instrument in writing;
WHEREAS, the Company desires that the Administrator serve as such with
respect to three additional funds of the Company and the Administrator is
willing to furnish such services;
NOW, THEREFORE, the parties agree as follows:
1. The Company hereby appoints and constitutes the Administrator as
administrator for the additional funds referred to below, and the
Administrator accepts such appointments and agrees to perform the
duties set forth in the Agreement with respect to the additional
portfolios which are as follows: KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund and KeyChoice Income and Growth Fund.
2. Schedule I to the Agreement is hereby amended and restated to include
KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund.
3. Paragraph 6 of the Agreement is hereby amended and restated to read as
follows:
6. COMPENSATION. For the services provided and the
expenses assumed as Administrator pursuant to this Section II,
the Company will pay BISYS a fee, computed daily and payable
monthly, at the annual rate of .15% of the average daily net
assets of the Key Stock Index Fund and the Key International
Index Fund, and .01% of the average daily net assets of the
KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and
KeyChoice Income and
1
<PAGE> 2
Growth Fund, or $12,000 per Fund per year, whichever is
greater. 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.
4. In all other respects the Agreement is confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Agreement to be executed by their duly authorized Officers as of the day and
year first above written.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /s/Scott A. Englehart
---------------------------------
Name: Scott A. Englehart
Title: Vice President and Assistant
Secretary
BISYS FUND SERVICES
LIMITED PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: /s/J. David Huber
--------------------------
Name: J. David Huber
Title:
-----------------------
2
<PAGE> 1
EX-99.B9(c)
SUB-ADMINISTRATION AGREEMENT
AGREEMENT made as of this 12th day of July, 1996, between BISYS Fund
Services Limited Partnership (d/b/a BISYS Fund Services) ("BISYS"), an Ohio
limited partnership and having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219 and Spears, Benzak, Salomon & Farrell, Inc. (the
"Sub-Administrator"), a corporation organized under the laws of the State of New
York and having its principal place of business at 45 Rockefeller Plaza, New
York, New York 10111.
WHEREAS, BISYS has entered into an Administration Agreement, dated as of
July 12, 1996, (the "Administration Agreement"), with SBSF Funds, Inc. (d/b/a
Key Mutual Funds) (the "Company"), a Maryland corporation having its principal
place of business at 45 Rockefeller Plaza, New York, New York 10111, concerning
the provision of administrative services for the investment portfolios of the
Company identified on Schedule A hereto, as such Schedule shall be amended from
time to time (individually referred to herein as the "Fund" and collectively as
the "Funds"); and
WHEREAS, BISYS 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. The Sub-Administrator will assist BISYS
in providing administrative services with respect to each Fund as may be
reasonably requested by BISYS from time to time. Such services may include, but
are in no way limited to, such clerical, recordkeeping, accounting, and
administrative services as will enable BISYS to more efficiently perform its
obligations under the Administration Agreement. Specific assignments may
include:
(a) At the direction of BISYS:
(1) assisting in the preparation of Directors' compliance
reports;
(2) serving as on-site liaison;
(b) Gathering information deemed necessary by BISYS to support (i)
required state regulatory filings (including filings required to be made
with tax and blue sky agencies) and (ii) required federal regulatory
filings;
(c) Preparing certain statistical and research data;
<PAGE> 2
(d) Assisting in the preparation of the Company's Annual and
Semi-Annual Reports to Shareholders;
(e) Assisting in the gathering of data from the investment adviser to
the Company for inclusion in BISYS's periodic reports to the Directors;
(f) Keeping and maintaining the following books and records of each
Fund pursuant to Rule 3la-l (the "Rule") under the Investment Company Act
of 1940, as amended (the "1940 Act"):
(1) 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;
(2) 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;
(3) Separate ledger accounts required by subsection (b) (2) (ii)
and (iii) of the Rule; and
(4) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b) (8) of
the Rule.
(g) Performing the following accounting services daily for each Fund:
(1) Calculating the net asset value per Share;
(2) Calculating the dividend and capital gain distribution, if
any;
(3) Calculating the yield, if appropriate;
(4) Providing the following reports:
a. a current security position report;
b. a summary report of transactions and pending maturities
(including the principal cost, and accrued interest on
each portfolio security in maturity date order); and
c. 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);
2
<PAGE> 3
(5) Such other similar services with respect to a Fund as
the parties may agree to from time to time.
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; REIMBURSEMENT OF EXPENSES. BISYS shall pay the
Sub-Administrator for the services to be provided by the Sub-Administrator under
this Agreement in accordance with, and in the manner set forth in, Schedule B
hereto. In addition, BISYS agrees to reimburse the Sub-Administrator for the
Sub-Administrator's reasonable out-of-pocket expenses in providing services
hereunder.
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) (the "Effective Date").
4. TERM. The term of this Agreement shall commence on the date first set
forth above and shall remain in effect through July 11, 1997. This Agreement
shall continue in effect for a period of more than one year only if approved at
least annually by a majority of the Board of Directors of the Company. In the
event of a material breach of this Agreement by either party, the non-breaching
party shall notify the breaching party in writing of such breach and upon
receipt of such notice, the breaching party shall have 45 days to remedy the
breach or the non-breaching party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as the
Sub-Administrator, with the written consent of BISYS, 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 the Sub-Administrator and unpaid by BISYS
upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Sub-Administrator shall be entitled to
collect from BISYS, in addition to the compensation described in Section 2, the
amount of all of 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 BISYS and/or its
designees of the Company's property, records, instruments and documents, or any
copies thereof. Subsequent to such termination, for a reasonable fee, the
Sub-Administrator will provide BISYS and the Company with reasonable access to
any Company documents or records remaining in its possession.
5. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS; INDEMNIFICATION.
The Sub-Administrator shall use its best efforts to insure the accuracy of all
services performed under this Agreement, but shall not be liable to BISYS or the
Company for any action taken or omitted by the Sub-Administrator in the absence
of bad faith, willful
3
<PAGE> 4
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. BISYS agrees to indemnify and hold harmless the Sub-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 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 a duly authorized representative of BISYS, 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 BISYS written notice
of and reasonable opportunity to defend against said claim in its own name or in
the name of the Sub-Administrator.
6. RECORDS RETENTION AND CONFIDENTIALITY. The Sub-Administrator shall keep
and maintain on behalf of the Company all books and records which the Company
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 1940 Act. The Sub-Administrator further agrees that all such
books and records shall be the property of the Company and to make such books
and records available for inspection by the Company, BISYS, or the Securities
and Exchange Commission at reasonable times and otherwise to keep confidential
all books and records and other information relative to the Company and its
shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
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 books and records which
the Company 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 1940 Act, and other data, except such computer
programs and procedures are the exclusive property of the Company and all such
other records and data will be furnished to BISYS and/or the Company in
appropriate form as soon as practicable after termination of this Agreement for
any reason, except to the extent that the Sub-Administrator is required to
maintain a copy of such records under applicable law.
4
<PAGE> 5
9. RETURN OF RECORDS. The Sub-Administrator may at its option at any time,
and shall promptly upon the demand of BISYS and/or the Company, turn over to
BISYS and/or the Company 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 BISYS and/or the Company, such documents and 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 BISYS and/or
the Company unless the Company authorizes in writing the destruction of such
records and documents.
10. REPRESENTATIONS OF BISYS. BISYS certifies to the Sub-Administrator that
this Agreement has been duly authorized by BISYS and, when executed and
delivered by BISYS, will constitute a legal, valid and binding obligation of
BISYS, enforceable against BISYS in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
11. REPRESENTATIONS OF THE SUB-ADMINISTRATOR. The Sub-Administrator
represents and warrants that: (1) the various procedures and systems which the
Sub-Administrator has implemented with regard to safeguarding from loss or
damage attributable to fire, theft, or any other cause of the records and other
data of the Company and the Sub-Administrator's records, data, equipment
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder,
and (2) this Agreement has been duly authorized by the Sub-Administrator and,
when executed and delivered by the Sub-Administrator, will constitute a legal,
valid and binding obligation of the Sub-Administrator, enforceable against the
Sub-Administrator in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
12. NOTICES. Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to BISYS at the following address: 3435
Stelzer Road, Columbus, Ohio 43219, and to the Sub-Administrator at the
following address: 45 Rockefeller Plaza, New York, New York 10111 or at such
other address as either party may from time to time specify in writing to the
other party pursuant to this Section.
13. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
14. 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 Company.
5
<PAGE> 6
15. GOVERNING LAW. This Agreement shall be governed by and provisions shall
be construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
[SEAL] BISYS FUND SERVICES LIMITED
PARTNERSHIP,
d/b/a BISYS FUND SERVICES
By: /s/ J. David Huber
Name: J. David Huber
Title: Executive Vice President
SPEARS, BENZAK, SALOMON
& FARRELL, INC.
By: /s/ Michael R. Parker
Name: Michael R. Parker
Title: Vice President and General Counsel
6
<PAGE> 7
Dated: July 12, 1996
SCHEDULE A
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
SPEARS, BENZAK, SALOMON & FARRELL, INC.
NAME OF FUND
- ------------
SBSF Fund
SBSF Convertible Securities Fund
Key Money Market Fund
SBSF Capital Growth Fund
A-1
<PAGE> 8
Dated: July 12, 1996
SCHEDULE B
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
SPEARS, BENZAK, SALOMON & FARRELL, INC.
NAME OF FUND COMPENSATION
- ------------ ------------
SBSF Fund An annual fee of $500,000,
SBSF Convertible Securities Fund payable in equal installments on
Key Money Market Fund the ____ day of each calendar
SBSF Capital Growth Fund month, for acting as Sub-
Administrator for the Funds
B-1
<PAGE> 1
EX-99.B9(d)
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 1st day of July, 1996 between SBSF Funds, Inc.
(d/b/a Key Mutual Funds) (the "Company"), a Maryland corporation, having its
principal place of business at 45 Rockefeller Plaza, New York, New York 10111,
and BISYS Fund Services, Inc., a corporation organized under the laws of the
State of Delaware and having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219.
WHEREAS, the Company desires that BISYS perform certain fund accounting
services for each investment portfolio of the Company 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 3la-l under the Investment
Company Act of 1940 (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
<PAGE> 2
d. A monthly trial balance 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 Company, and BISYS
agrees to make such books and records available for inspection by the Company or
by the Securities and Exchange Commission at reasonable times and otherwise to
keep confidential all records and other information relative to the Company;
except when requested to divulge such information by duly constituted
authorities or court process, or when requested by the Company.
In addition to the maintenance of the books and records specified above,
BISYS shall perform the following accounting 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 or total return and other performance figures, as
appropriate;
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 reasonably
requested by the Company.
2. COMPENSATION. See Schedule B attached hereto.
2
<PAGE> 3
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 for one year from its Effective Date and, thereafter, if not terminated,
this Agreement shall continue automatically as to a particular Fund for
successive terms of one year. This Agreement is terminable with respect to a
Fund (a) upon notice of nonrenewal, (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 Company, 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 upon such termination shall be
immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from the Company, 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 Company and/or its designees
of the property, records, instruments and documents, or any copies thereof.
Subsequent to receipt of such disbursements, BISYS will provide the Company with
reasonable access to any Company documents or records remaining in its
possession.
For purposes of this Agreement, "cause" shall mean (i) willful misfeasance,
bad faith, negligence, abandonment, or reckless disregard on the part of either
party with respect to its obligations and duties set forth herein; (ii)
regulatory, administrative, or judicial action initiated against either party
with regard to the violation of any rule, regulation, order, or law; (iii) the
dissolution or liquidation of either party or other cessation of business other
than a reorganization or recapitalization of such party as an ongoing business;
(iv) financial difficulties on the part of either party 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
3
<PAGE> 4
Title 11 of the United States Code, as from time to time in effect, or any
applicable law, other than said Title 11, of any jurisdiction relating to the
modification or alternation of the rights of creditors; (v) an assignment (as
that term is defined in the Investment Company Act of 1940) of this Agreement;
or (vi) any circumstance which substantially impairs the performance of either
party's obligations and duties as contemplated herein.
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 Company 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 Company 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
subject of this indemnification, BISYS shall give the Company written notice of
and reasonable opportunity to defend against said claim in its own name or in
the name of BISYS.
BISYS agrees to indemnify and hold harmless each Fund, 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' own bad faith, willful misconduct or negligence
with
4
<PAGE> 5
respect to the performance of services under this Agreement with respect to such
Fund; provided that prior to confessing any claim against it which may be the
subject of this indemnification, a Fund shall give BISYS written notice of and
reasonable opportunity to defend against said claim in its own name or in the
name of the Fund.
6. HEADINGS. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construct 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. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
8. GOVERNING LAW. This Agreement shall be governed by and provisions shall
be construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: /s/ Scott A. Englehart
Name: Scott A.Englehart
Title: Vice President
BISYS FUND SERVICES, INC.
By: /s/ J. David Huber
Name: J. David Huber
Title: Executive Vice President
5
<PAGE> 6
1
Schedule A
to the Fund Accounting Agreement
between SBSF Funds, Inc. (d/b/a Key Mutual Funds)
and BISYS Fund Services, Inc.
Dated as of July 1, 1996
NAME OF PORTFOLIO
- -----------------
Key Stock Index Fund
Key International Index Fund
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: /s/ Scott A. Englehart
Name: Scott A. Englehart
Title: Vice President
BISYS FUND SERVICES, INC.
By: /s/ J. David Huber
Name: J. David Huber
Title: Executive Vice President
1
<PAGE> 7
1
Schedule B
to the Fund Accounting Agreement
between SBSF Funds, Inc. (d/b/a Key Mutual Funds)
and BISYS Fund Services, Inc.
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 based upon average
total net assets of a Fund.
ASSET CHARGES PER FUND - ANNUALLY
- ---------------------------------
<TABLE>
<CAPTION>
NET ASSETS AMOUNTS
---------- -------
<S> <C>
First $100 Million .03%
Next $100 Million .02%
Over $200 Million .01% for all Funds other than money market Funds; money
market Funds will have no incremental asset charge when net
assets exceed $500 million ($80,000 asset charge cap for each
money market Fund)
</TABLE>
MINIMUM MONTHLY ASSET CHARGE
- ----------------------------
The above charge will be subject to a minimum monthly amount of $2,500
per taxable Fund and $3,333 per international 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:
o Payment to pricing or corporate actions vendors
o Costs in obtaining prices for non-exchange traded securities
o Postage and communication (wires, modem fees)
o Microfilming, archiving, etc.
1
<PAGE> 1
EX-99.B9(d)(1)
AMENDMENT NO. 1
TO FUND ACCOUNTING AGREEMENT
This Amendment is made as of the 16th day of December, 1996, to the Fund
Accounting Agreement between SBSF Funds, Inc. (d/b/a Key Mutual Funds), a
Maryland corporation (herein called the "Company"), on behalf of the Key Stock
Index Fund and the Key International Index Fund of the Company and BISYS Fund
Services, Inc. ("BISYS Fund Services"), dated as of June 1, 1996 (the
"Agreement").
WHEREAS, the Agreement provides that BISYS Fund Services shall act as Fund
Accountant for the Key Stock Index Fund and the Key International Index Fund;
WHEREAS, the Company has established three new Funds, named the KeyChoice
Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice Income and Growth
Fund; and
WHEREAS, the Company and BISYS Fund Services desire to amend the Agreement
to include KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund as funds for which BISYS Fund Services shall be obligated
to act as Fund Accountant;
NOW, THEREFORE, the parties agree as follows:
1. The Company hereby appoints BISYS Fund Services as the Fund Accountant
for the KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and
KeyChoice Income and Growth Fund, and BISYS Fund Services accepts such
appointments and agrees to perform the duties set forth in the
Agreement with respect to such Funds for such fees as shall be agreed
upon from time to time.
2. Schedule A to the Agreement is hereby amended and restated to include
KeyChoice Growth Fund, KeyChoice Moderate Growth Fund and KeyChoice
Income and Growth Fund.
3. Schedule B-1 is hereby added to Schedule B of the Agreement.
Except to the extent modified hereby, the Agreement shall remain unchanged
and in full force and effect, and is hereby ratified and confirmed in all
respects as so amended.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Agreement to be executed as of the date above-written by their respective
representatives thereunto duly authorized.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By: /S/SCOTT A. ENGLEHART
----------------------------------
Name: Scott A. Englehart
Title: Vice President and Assistant Secretary
BISYS Fund Services, Inc.
By: /S/J. DAVID HUBER
----------------------------------
Name: J. David Huber
Title: Executive Vice President
1
<PAGE> 3
Schedule B-1
to the Fund Accounting Agreement
between SBSF Funds, Inc. (d/b/a Key Mutual Funds)
and BISYS Fund Services, Inc.
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 based upon average
total net assets of a Fund.
Asset Charges Per Fund - Annually
- ---------------------------------
<TABLE>
<CAPTION>
Net Assets Amounts
---------- -------
<S> <C>
First $100 Million .02%
Over $100 Million .01% ($60,000 asset charge cap for each
KeyChoice Fund)
</TABLE>
Minimum Monthly Asset Charge
- ----------------------------
The above charge will be subject to a minimum monthly amount of
$1,666.66 per taxable 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:
o Payment to pricing or corporate actions vendors
o Costs in obtaining prices for non-exchange traded securities
o Postage and communication (wires, modem fees)
o Microfilming, archiving, etc.
2
<PAGE> 1
EXHIBIT 99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
December 12, 1996
SBSF Funds, Inc.
45 Rockefeller Plaza
New York, NY 10111
Re: Post-Effective Amendment No. 28 to
SBSF Funds, Inc. Registration Statement on Form N-1A
Gentlemen:
We refer to Post-Effective Amendment No. 28 and Amendment No. 29 to the
Registration Statement on Form N-1A (SEC File No. 2-84920) (the "Registration
Statement") of SBSF Funds, Inc., a Maryland corporation (d/b/a Key Mutual Funds)
(the "Company"), relating to the registration of an indefinite number of shares
of common stock of three portfolios proposed to be offered by the Company,
namely KeyChoice Growth Fund, KeyChoice Moderate Growth Fund, and KeyChoice
Income and Growth Fund (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and the authorization and issuance of shares of the Funds. We have also made
such inquiries of the Company and examined such questions of law as we have
deemed necessary for the purpose of rendering the opinion set forth herein. We
have assumed the genuineness of all signatures and the authenticity of all items
submitted to us as originals and the conformity with originals of all items
submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares have been duly and validly
authorized by all appropriate corporate action, and assuming delivery of the
Shares by sale or in accord with the Company's dividend reinvestment plan in
accordance with the Company's then-current Registration Statement under the
Securities Act of 1933, the Shares will be validly issued, fully paid and
nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
<PAGE> 2
In addition, we consent to the use of our name and to the reference to
our firm under the heading "Counsel" in the Prospectus, which is included as
part of the Registration Statement.
Very truly yours,
/s/ Morrison & Foerster LLP
MORRISON & FOERSTER LLP
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants and Reports" in the Statement of Additional Information constituting
part of this Post-Effective Amendment No. 28 to the registration statement on
Form N-1A (the "Registration Statement") relating to the KeyChoice Growth Fund,
KeyChoice Moderate Growth Fund, and KeyChoice Income and Growth Fund, three of
the portfolios constituting the Key Mutual Funds (SBSF Funds, Inc.).
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
December 12, 1996
<PAGE> 1
EX-99.B15(b)
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
SBSF FUNDS, INC.
WHEREAS, SBSF Funds, Inc. (d/b/a Key Mutual Funds) (the "Company") is
an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Company desires to adopt a Plan of Distribution pursuant
to Rule 12b-1 under the Act on behalf of KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund and KeyChoice Income and Growth Fund, and the Board of
Directors has determined that there is a reasonable likelihood that adoption of
this Plan of Distribution will benefit the Company and its shareholders;
NOW, THEREFORE, the Company hereby adopts this Plan of Distribution
(the "Plan") in accordance with Rule 12b-1 under the Act on the following terms
and conditions:
1. To the extent that any portion of the fees payable under a
Shareholder Servicing Plan or any Shareholder Servicing Agreement is deemed to
be for services primarily intended to result in the sale of Fund shares, such
fees are deemed approved and may be paid pursuant to this Plan and in accordance
with Rule 12b-1 under the Act, provided that the Shareholder Servicing Plan and
Shareholder Servicing Agreements, to the extent they are deemed to relate to
services primarily intended to result in the sale of Fund shares, are approved
and otherwise treated in all respects as agreements related to the Plan.
2. This Plan shall not take effect until it has been approved by a vote
of at least a majority (as defined in the Act) of the outstanding voting
securities of the Company.
3. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Board of
Directors of the Company and (b) those Directors of the Company who are not
"interested persons" of the Company (as defined in the Act) and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
4. This Plan shall continue in effect until the next annual meeting of
stockholders. If approved at such meeting by a vote of a majority of the
outstanding voting securities, the Plan shall continue in full force and effect
thereafter for so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 3.
1
<PAGE> 2
5. The Distributor shall provide to the Board of Directors of the
Company and the Board of Directors shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made.
6. This Plan may be terminated with respect to a Fund at any time by
vote of a majority of the Rule 12b-1 Directors, or by a vote of a majority of
the outstanding voting securities of the Fund.
7. This Plan may not be amended to increase materially the amount to be
spent for distribution unless such amendment is approved in the manner provided
for initial approval in paragraph 2 hereof, and no material amendment to the
Plan shall be made unless approved in the manner provided for approval and
annual renewal in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not interested
persons.
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof for a period of
not less than six years from the date of this Plan, or the agreements or such
report as the case may be, the first two years in an easily accessible place.
Dated: Adopted August 14, 1996; Effective December 1, 1996
2
<PAGE> 1
EX-99.B15(d)
KEY MUTUAL FUNDS
SHAREHOLDER SERVICING PLAN
This Shareholder Servicing Plan (the "Plan") is adopted by SBSF Funds, Inc.
(d/b/a Key Mutual Funds), a corporation organized under the laws of the State of
Maryland (the "Company"), on behalf of each Fund identified on Schedule 1
(individually, a "Fund," and collectively, the "Funds"), as amended from time to
time, subject to the following terms and conditions:
SECTION 1. ANNUAL FEES.
Shareholder Services Fee. Each Fund may pay to the distributor of its
shares (the "Distributor") or financial institutions that provide certain
services to the Funds, a shareholder services fee under the Plan at an annual
rate not to exceed 0.25% of the average daily net assets of the Fund
attributable to the Distributor or financial institution (the "Services Fee").
Adjustment to Fees. Any Fund may pay a Services Fee to the Distributor or
financial institution at a lesser rate than the fee specified in Section 1
hereof as agreed upon by the Board of Directors and the Distributor or financial
institution and approved in the manner specified in Section 3 of this Plan.
Payment of Fees. The Services Fee will be calculated daily and paid monthly
by each Fund at the annual rates indicated above.
SECTION 2. EXPENSES COVERED BY THE PLAN.
Services Fees may be used by the Distributor or financial institution for
payments to financial institutions and persons who provide administrative and
support services to their customers who may from time to time beneficially own
shares, which may include (i) establishing and maintaining accounts and records
relating to shareholders; (ii) processing dividend and distribution payments
from the Fund on behalf of shareholders; (iii) providing information
periodically to shareholders showing their positions in shares and integrating
such statements with those of other transactions and balances in shareholders'
other accounts serviced by such financial institution; (iv) arranging for bank
wires; (v) responding to shareholder inquiries relating to the services
performed; (vi) responding to routine inquiries from shareholders concerning
their investments; (vii) providing subaccounting with respect to shares
beneficially owned by shareholders, or the information to the Fund necessary for
subaccounting; (viii) if required by law, forwarding shareholder communications
from the Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to
shareholders; (ix) assisting in processing purchase, exchange and redemption
requests from shareholders and in placing such orders with our service
contractors; (x) assisting shareholders in changing dividend options, account
designations and addresses; (xi) providing shareholders with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; and
<PAGE> 2
(xii) providing such other similar services as the Fund may reasonably request
to the extent the Distributor or financial institution is permitted to do so
under applicable statutes, rules and regulations.
SECTION 3. APPROVAL OF DIRECTORS.
The Plan will take effect when approved by a majority of both (a) the full
Board of Directors of the Company and (b) those Directors who are not interested
persons of the Company and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to it (the "Qualified
Directors"), cast in person at a meeting called for the purpose of voting on the
Plan. Agreements related to the Plan will take effect when duly executed by the
parties thereto, subject to such approvals as may be required by any Rule 12b-1
Plan that may be in effect with respect thereto.
SECTION 4. CONTINUANCE OF THE PLAN.
The Plan will continue in effect for one year from its effective date, and
thereafter for successive twelve-month periods; provided, however, that such
continuance is specifically approved at least annually by the Directors of the
Company and by a majority of the Qualified Directors.
SECTION 5. TERMINATION.
The Plan may be terminated at any time with respect to a Fund (i) by the
Company without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of the Fund or (ii) by a vote of the Qualified
Directors. The Plan may remain in effect with respect to a Fund even if the Plan
has been terminated in accordance with this Section 5 with respect to any other
Fund.
SECTION 6. AMENDMENTS.
No amendment that materially increases the amount to be paid under the Plan
may be made unless approved by the Company's Board of Directors in the manner
described in Section 3 above.
SECTION 7. SELECTION OF CERTAIN DIRECTORS.
While the Plan is in effect, the selection and nomination of the Company's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Company.
SECTION 8. WRITTEN REPORTS.
In each year during which the Plan remains in effect, a person authorized
to direct the disposition of monies paid or payable by a Fund pursuant to the
Plan or any related agreement will prepare and furnish to the Company's Board of
Directors, and the Board
2
<PAGE> 3
will review, at least quarterly, written reports which set out the amounts
expended under the Plan and the purposes for which those expenditures were made.
SECTION 9. PRESERVATION OF MATERIALS.
The Company will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.
SECTION 10. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act by the Securities and Exchange Commission.
Adopted: August 14, 1996; Effective: December 1, 1996
3
<PAGE> 4
SCHEDULE I
----------
August 14, 1996
This Shareholder Servicing Plan shall be adopted with respect to the
following Funds of Key Mutual Funds:
1. KeyChoice Growth Fund
2. KeyChoice Moderate Growth Fund
3. KeyChoice Income and Growth Fund
4
<PAGE> 5
SHAREHOLDER SERVICING AGREEMENT
KEY MUTUAL FUNDS
45 ROCKEFELLER PLAZA
NEW YORK, NY 10111
To: __________________
We (the "Company") wish to enter into this Servicing Agreement with you
concerning the provision of support services to your clients ("Clients") who may
from time to time beneficially own shares ("Shares") of the Funds (the "Funds")
offered by us.
The terms and conditions of this Servicing Agreement are as follows:
SECTION 1. You agree to provide the following support services to
Clients who may from time to time beneficially own Shares:1 (i) establishing and
maintaining accounts and records relating to Clients that invest in Shares; (ii)
processing dividend and distribution payments from us on behalf of Clients;
(iii) providing information periodically to Clients showing their positions in
Shares and integrating such statements with those of other transactions and
balances in Clients' other accounts serviced by you; (iv) arranging for bank
wires; (v) responding to Client inquiries relating to the services performed by
you; (vi) responding to routine inquiries from Clients concerning their
investments in Shares; (vii) providing subaccounting with respect to Shares
beneficially owned by Clients, or the information to us necessary for
subaccounting; (viii) if required by law, forwarding shareholder communications
from us (such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to Clients; (ix)
assisting in processing purchase, exchange and redemption requests from Clients
and in placing such orders with our service contractors; (x) assisting Clients
in changing dividend options, account designations and addresses; (xi) providing
Clients with a service that invests the assets of their accounts in Shares
pursuant to specific or pre-authorized instructions; and (xii) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations.
SECTION 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
SECTION 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us or the Shares except
those contained in our then current prospectuses and statements of additional
information,
- ----------------------------
1 Services may be modified or ommitied in a particular case and items
renumbered.
5
<PAGE> 6
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
SECTION 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions, or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares (or orders relating to the same) by or on
behalf of Clients. You and your employees will, upon request, be available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
SECTION 5. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of ______ one-hundredths of one percent (.____%) of the
average daily net asset value of the shares beneficially owned by your Clients
for whom you are the dealer of record or holder of record or with whom you have
a servicing relationship (the "Clients' Shares"), which fee will be computed
daily (on the basis of a 360-day year) and payable monthly. For purposes of
determining the fees payable under this Section 5, the average daily net asset
value of the Clients' Shares will be computed in the manner specified in our
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. By your written acceptance of this Agreement, you
agree to and do waive such portion of any fee payable to you hereunder to the
extent necessary to assure that such fee and other expenses required to be
accrued by us on any day with respect to the Clients' Shares in any Fund that
declares its net investment income as a dividend to shareholders on a daily
basis does not exceed the income to be accrued by us to such Shares on that day.
The fee rate stated above may be prospectively increased or decreased by us, in
our sole discretion, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of Shares to you for the account of any Client or Clients.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by us pursuant to this Agreement will provide to our Board of
Directors, and our directors will review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made. In addition, you will furnish us or our designees with such information as
we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to our Board of Directors concerning this Agreement and
the monies paid or payable by us pursuant hereto, as well as any other reports
or filings that may be required by law.
6
<PAGE> 7
SECTION 7. We may enter into other similar Servicing Agreements with
any other person or persons without your consent.
SECTION 8. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) the compensation payable to you in
connection with the investment of your Clients' assets in Shares will be
disclosed by you to your Clients, will be authorized by your Clients and will
not be excessive; and (ii) the series provided by you under this Agreement will
in no event be primarily intended to result in the sale of Shares.
SECTION 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue automatically for successive annual
periods provided such continuance is specifically approved at least annually by
us in the manner described in Section 12. This Agreement is terminable without
penalty at any time by us (which termination may be by a vote of a majority of
the Disinterested Directors as defined in Section 12) or by you upon written
notice to the other party hereto.
SECTION 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telefaxed or transmitted by similar
telecommunication device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
SECTION 11. This Agreement will be construed in accordance with the
laws of the State of Ohio and is non-assignable by the parties hereto.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, c/o BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219-3035.
Very truly yours,
SBSF Funds, Inc.
(d/b/a Key Mutual Funds)
Date: ________________________ By: ___________________________________
(Authorized Officer)
Title:
Accepted and Agreed to:
Date: ________________________ By: ___________________________________
(Authorized Officer)
Title:
7
