THE VICTORY PORTFOLIOS
Government Mortgage Fund
Ohio Regional Stock Fund
800-589-3863
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Victory Portfolios (the "Trust"), on behalf of each of the investment
portfolios named above (the "Funds"), will host a Special Meeting of
Shareholders on March 20, 2000, at 8:30 a.m., Eastern time. The Special Meeting
will be held at the Trust's offices, 3435 Stelzer Road, Columbus Ohio. At the
meeting, we will ask shareholders of each Fund to vote on:
1. The election of ten Trustees;
2. A proposal to reorganize each Fund into an existing portfolio of the
Trust;
3. A proposal to approve an Amended and Restated Trust Instrument;
4. Any other business properly brought before the meeting.
February 7, 2000
By Order of the Board of Trustees
Robert D. Hingston, Secretary
3435 Stelzer Road
Columbus, Ohio 43219
<PAGE>
Please read the full text of this proxy statement. Below is a
brief overview of the matters to be voted upon. Your vote is
important. If you have questions regarding the proposals
please call your Investment Consultant or The Victory
Portfolios at 1-800-539-3863. You are also welcome to visit
our web site at www.victoryfunds.com. Select "Vote Your Proxy
Here" for information about the shareholder meeting. We
appreciate the confidence you have placed in The Victory
Portfolios and look forward to helping you achieve your
financial goals through investment in The Victory Portfolios.
What proposals am I being asked to vote on?
You are being asked to vote on the following proposals:
1. The election of ten Trustees.
2. To reorganize each Fund into an existing Fund of The
Victory Portfolios.
3. To approve an Amended and Restated Trust Instrument.
VICTORY FUNDS REORGANIZING INTO EXISTING VICTORY FUNDS
Current Victory Fund Existing Victory Fund
Government Mortgage Fund -> Fund for Income -Class
A Shares
Ohio Regional Stock Fund -> Established Value Fund-Class A Shares
Has my Fund's Board of Trustees approved the Reorganization?
Yes. The Board of Trustees of The Victory Portfolios
unanimously approved the reorganization on December 1, 1999,
and recommends that you vote to approve the reorganization.
The Board of Trustees of The Victory Portfolios also approved
the Plan of Reorganization at this same meeting.
Why is the Reorganization being recommended for these Funds?
The Board of the Victory Portfolios recognized that Government
Mortgage Fund has substantially similar investment objectives
and policies as Fund for Income. The reorganization will help
reduce investor confusion and will reduce or eliminate the
duplicate marketing and other costs which result when
operating two similarly managed funds.
The Board also recognized that Ohio Regional Stock Fund has
not attracted new shareholders or assets, despite management's
best efforts. Assets in the Fund have declined since 1997.
In addition, after the reorganization, shareholders of both
Funds will own shares of Funds that are currently operating at
lower expense ratios.
Who will advise my Fund once the merger is completed?
The current portfolio managers of Fund for Income and
Established Value Fund will continue to manage each of the
funds after the reorganization, as noted below.
Current Victory Fund Existing Victory Fund Portfolio Manager
-------------------- --------------------- -----------------
Government Mortgage Fund Fund for Income Thomas Seay
Ohio Regional Stock Fund Established Value Fund William Leugers;
Daniel Shick,
Gary Miller
Will the fees and expenses of my funds increase?
No. Current shareholders will exchange their shares for the
Class A Shares of Fund for Income and Established Value Fund
with expenses that are currently less than current fund
expenses.
Will I, or my Funds have to pay taxes as a result of the Reorganization?
No. Neither you nor the Victory Funds will have any tax
consequences as a result of the share exchange. Your current
cost basis will remain the same.
<PAGE>
Will any sales load, sales commission or other fee be imposed on my shares in
connection with the Reorganization?
No.
What happens if I do not wish to participate in the reorganization of the
Victory Fund in which I own shares, or what if I do not wish to own shares of
the Victory Fund acquiring my Fund?
If you do not wish to participate in the reorganization, you
must redeem your shares as shown below, before the
reorganization date. Please note that redeeming your shares
may result in your incurring a tax liability. Redeeming Class
B shares of the Ohio Regional Stock Fund may also result in
your incurring a deferred sales charge.
VICTORY FUND REDEEM BY:
Government Mortgage Fund Before 4:00 p.m., May 5, 2000
Ohio Regional Stock Fund Before 4:00 p.m., May 5, 2000
When will the Shareholder Meeting be held?
A Shareholder Meeting will be held on March 20, 2000. The
approval of a simple majority of the shares voted of
Government Mortgage Fund and of Ohio Regional Stock Fund are
required to approve the reorganization for each Fund. In
addition, shareholders are being asked to approve two Trust
level issues, which also require the approval of a majority of
the shares of the Trust voted, and to elect Trustees of the
Trust, which requires a plurality of the votes cast in the
election.
Why am I being asked to approve an Amended and Restated Trust Instrument?
To modernize the Trust's organizational documents and create
greater flexibility in managing the affairs of the Trust. The
Amended and Restated Trust Instrument will:
o Allow the Funds' Board of Trustees to reorganize a
Fund into another Fund or investment company,
without holding a special shareholder meeting
(which can be costly), if it is in the
shareholders' best interests.
o Increase the maximum solicitation period from 60
days to 90 days when seeking shareholder approval.
o Allow the Board of Trustees to restructure one or
more of the Funds into a master/feeder structure
if it is in the Fund's best interest to invest its
assets in another investment company.
o Permit the Board of Trustees to change shareholder
voting powers to a dollar-based voting system to
ensure that shareholders' voting rights remain
proportionate to their investment in the Funds.
o Allow the Board of Trustees to amend the Trust
Instrument in the future without shareholder
approval unless required by law.
o Clarify that a Trustee is not an interested person
solely because of his or her affiliation with an
investment company which is affiliated with the
Trust.
o Permit the Board of Trustees to require
shareholders to redeem their shares when accounts
become too small or where certain account
information has not been made available by the
shareholders.
Why am I being asked to elect Trustees?
Certain regulations require that a majority of trustees be
elected by shareholders. New trustees cannot be appointed to
fill vacancies created by resignations or an expansion of the
Board unless after the appointments, two-thirds of the
trustees have been elected by shareholders. All members of the
current Board of Trustees, including three Trustees who are
Advisory Trustees of the Victory Portfolios, will stand for
election at this Special Meeting of shareholders.
I have received other proxies from Victory. Is this a duplicate? Do I have to
vote again?
This is NOT a duplicate proxy. You must vote separately for
each account you have with the Victory Funds.
<PAGE>
How do I vote my shares?
You can vote your shares by completing and signing the
enclosed proxy card(s), and mailing them in the enclosed
postage paid envelope. You may also vote your shares by phone
at 888-634-9896, by fax at 800-733-1885, or via the internet
at www.proxyvote.com. If you need assistance, or have any
questions regarding the proposals or how to vote your shares,
please call your Investment Consultant or the Victory
Portfolios at 1-800-539-3863.
<PAGE>
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YOUR VOTE IS IMPORTANT!
YOU CAN VOTE EASILY AND QUICKLY BY MAIL, BY PHONE (Toll-Free), BY FAX
OR BY THE INTERNET. JUST FOLLOW THE SIMPLE INSTRUCTIONS
THAT APPEAR ON YOUR ENCLOSED PROXY CARD.
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THE VICTORY PORTFOLIOS
Government Mortgage Fund
Ohio Regional Stock Fund
SPECIAL MEETING OF SHAREHOLDERS
MARCH 20, 2000
----------------------------------------------------
THE VICTORY PORTFOLIOS
3435 Stelzer Road
Columbus, Ohio 43219
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated February 7, 2000
INTRODUCTION
------------
This Combined Proxy Statement and Prospectus is being provided for a
Special Meeting of shareholders of the Government Mortgage Fund and Ohio
Regional Stock Fund to be held on March 20, 2000. We have divided this Combined
Proxy Statement and Prospectus into six parts:
Part 1 -- An Overview
Part 2 -- Your Fund's Proposals
Part 3 -- More on Proxy Voting and Shareholder Meetings
Part 4 -- Fund Information
Part 5 -- Prospectus for
Fund for Income
Established Value Fund
Part 6 -- Forms of Agreement and Plan of
Reorganization and Termination and Amended
and Restated Trust Instrument
Please read the entire proxy statement before voting. If you have any
questions, please call us at 800-539-FUND (800-539-3863). Information regarding
the shareholder meeting can be found by selecting "Vote Your Proxy Here" on our
web site, www.victoryfunds.com.
This Combined Proxy Statement and Prospectus was first mailed to
shareholders on or about February 14, 2000.
This Combined Proxy Statement and Prospectus contains information
about The Victory Portfolios that you should know. Please
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<PAGE>
keep it for future reference. A Statement of Additional Information
dated February 14, 2000 is incorporated by reference.
Neither the Securities and Exchange Commission (the "SEC") nor any
state securities commission has approved or disapproved
these securities, or determined that this Combined Proxy Statement
and Prospectus is truthful or complete. Anyone who tells you otherwise
is committing a crime.
o Shares of the Victory Funds are not insured by the
FDIC.
o Shares of the Victory Funds are not deposits of or
guaranteed by KeyBank or any of its affiliates, or
any other bank.
o You can lose money by investing in the Victory Funds,
because they are subject to investment risks.
The Victory Portfolios is required by federal law to file reports, proxy
statements and other information with the SEC. The SEC maintains a Web site that
contains information about the Trust, (www.sec.gov). Any such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
at the SEC's New York Regional Office, Seven World Trade Center, New York, NY
10048 and at the Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such filed materials can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
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<PAGE>
Table of Contents
Part 1 - An Overview................................................ 4
Part 2 - Your Fund's Proposals...................................... 4
Proposal 1 - To Elect Ten Trustees of the Trust............... 4
Proposal 2 - To Approve the Reorganization of each Fund....... 8
Introduction............................................... 8
How the Reorganization Works............................... 9
How the Fees of the Funds Compare to the Fees of the
Acquiring Funds........................................ 10
Information About Each Reorganization..................... 11
Why We Want to Reorganize the Funds....................... 12
Considerations by the Boards of Trustees.................. 13
Comparison of Investment Objectives.................... 14
Comparison of Investment Policies and Strategies....... 14
Comparison of Principal Investment Risks............... 16
Comparison of Potential Risks and Rewards.............. 16
Comparison of Operations............................... 19
Investment Advisory Agreements...................... 19
Distribution and Service Plans...................... 20
Administrator and Distributor....................... 20
Sub-Administrator................................... 20
Dividends and Other Distributions................... 21
Purchase Procedures................................. 21
Exchange Rights..................................... 21
Redemption Procedures............................... 21
Trustees............................................ 21
Comparison of Shareholder Rights....................... 21
Capitalization of the Funds............................ 21
Required Vote................................................ 22
Board Recommendation......................................... 22
Proposal 3 - To Approve An Amended and Restated
Trust Instrument for the Trust .............................. 22
Other Information............................................ 25
Part 3 - More on Proxy Voting and Shareholder Meetings............. 26
Part 4 - Fund Information.......................................... 28
Part 5 - Prospectuses for Class A Shares of the Acquiring Funds.... 29
Part 6 - Forms of Agreement and Plan of Reorganization and
Termination
and Amended and Restated Trust Instrument.................... 29
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<PAGE>
PART 1 - AN OVERVIEW
The Board of Trustees of The Victory Portfolios (the "Trust") has sent
you, as a shareholder of Government Mortgage Fund and/or Ohio Regional Stock
Fund (the "Funds"), this Combined Proxy Statement and Prospectus to ask for your
vote on proposals affecting your Fund.
The shareholders of each Fund will vote separately on the following item:
o Approval of an Agreement and Plan of Reorganization and Termination
The shareholders of each Fund will vote together with all of the
shareholders of all of the other Funds in the Trust on the following items:
o Election of Ten Trustees
o Approval of an Amended and Restated Trust Instrument
PART 2 - YOUR FUND'S PROPOSALS
PROPOSAL 1
ELECTION OF TRUSTEES
The Board of Trustees has nominated the individuals listed below (the
"Nominees"), each to serve until their successors have been elected and
qualified. The Board of Trustees presently consists of seven Trustees (five of
whom are not "interested persons" as defined in the Investment Company Act of
1940, as amended (the "1940 Act") ("Independent Trustees") and three Advisory
Trustees (two of whom are Independent Advisory Trustees). If authority is
granted on the accompanying proxy card to vote in the election of Trustees, the
persons named as proxies will vote for the election of the Nominees named below,
each of whom has consented to serve if elected. If any of the Nominees is unable
to serve for any reason, the persons named as proxies will vote for such other
Nominee or Nominees selected by the Board of Trustees, or the Board may reduce
the number of Trustees as provided in the Trust's Bylaws. Any other Nominee or
Nominees who would serve as Independent Trustees will be selected by the
Independent Trustees currently serving on the Board. The Trust knows of no
reason why any of the Nominees listed below would be unable to serve if elected.
A. Why should you vote for this proposal?
1940 Act Requirements
The Board of Trustees of the Trust presently consists of seven Trustees,
four of whom have been elected by shareholders, and three Advisory Trustees who
have been elected by the Board to fill vacancies created by resignations or
expansion of the Board. The 1940 Act generally provides that at all times, a
majority of trustees must be elected by shareholders, and that new trustees
cannot be appointed to fill vacancies unless, after such appointments,
two-thirds of the trustees have been elected by shareholders. At their regular
meeting on December
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<PAGE>
11, 1998, the Trustees elected Donald E. Weston and Theodore Emmerich as
Advisory Trustees. At their meeting on December 1, 1999, the Trustees elected
Frankie D. Hughes as an Advisory Trustee. The 1940 Act did not permit the
appointment of Mr. Weston, Mr. Emmerich and Ms. Hughes as Trustees, because
fewer than two-thirds of the Trustees then on the Board would have been elected
by shareholders. Additionally, if any present Trustee were to resign, under the
1940 Act the Trust would be required to call a special meeting for the election
of trustees within 60 days. Accordingly, you are being asked to elect all of the
current Trustees, plus Mr. Weston, Mr. Emmerich and Ms. Hughes to the Board of
Trustees.
B. Nominees for election to the Board of Trustees
The nominees for election to the Board of Trustees are:
o Theodore H. Emmerich
o Dr. Harry Gazelle
o Frankie D. Hughes
o Eugene J. McDonald
o Dr. Thomas F. Morrissey
o Roger Noall
o H. Patrick Swygert
o Frank A. Weil
o Donald E. Weston
o Leigh A. Wilson
The following tables summarize information about the Trustees, their
positions with the Trust, and their principal occupations.
<TABLE>
<CAPTION>
Position(s)
Held With
Name, Age and Address the Trust Principal Occupation During Past 5 Years
- --------------------- --------- ----------------------------------------
<S> <C> <C>
Theodore H. Emmerich, 74 Advisory Retired; until 1986, managing partner
1201 Edgecliff Place Trustee (Cincinnati office) Ernst & Whinney (now Ernst &
Apt. 1052 Young LLP); Director of Carillon Fund, Inc.
Cincinnati, Ohio 45206 (investment company), American Financial Group
(insurance) and Cincinnati Milacron Commercial
Corporation (financing); Trustee of Summit
Investment Trust (investment company).
Dr. Harry Gazelle, 72 Trustee Retired radiologist, Drs. Hill and Thomas
17822 Lake Road Corporation.
Lakewood, OH 44107
Frankie D. Hughes, 48 Advisory Since 1993, Principal and Chief Investment
Hughes Capital Trustee Officer of Hughes Capital Management, Inc.
Management, Inc. (fixed income asset management firm).
315 Cameron Street, 2nd
Floor Alexandria, VA 22314
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Eugene J. McDonald, 67 Trustee Since 1990, Executive Vice President and Chief
Duke Management Company Investment Officer for Asset Management of Duke
2200 West Main Street University and President and CEO of Duke Management
Suite 1000 Company; Director of CCB Financial
Durham, NC 27705 Corporation, Flag Group of Mutual Funds, Greater
Triangle Community Foundation, and North
Carolina Bar Association Investment Committee.
Dr. Thomas F. Morrissey, 66 Trustee Since 1970, Professor, Weatherhead School of
Weatherhead School of Management, Case Western Reserve University;
Management from 1989 to 1995, Associate Dean of Weatherhead
Case Western Reserve School of Management.
University
10900 Euclid Avenue
Cleveland, OH 44106-7235
Roger Noall, * 64 Chairman Since 1996, Executive of KeyCorp; from 1995 to
c/o Brighton Apt. 1603 Trustee and 1996, General Counsel and Secretary of KeyCorp;
8231 Bay Colony Drive from 1994 to 1996, Senior Executive Vice
Naples, FL 34108 President and Chief Administrative Officer of
KeyCorp.
H. Patrick Swygert, 56 Trustee Since 1995, President, Howard University; from
Howard University 1990 to 1995, President, State University of New
2400 6th Street, N.W. York at Albany; Director of Hartford Financial
Suite 402 Services Group, Hartford Life Insurance and
Washington, DC 20059 Federal National Mortgage Association; Chairman,
Community Business Partnership, Greater
Washington Board of Trade.
Frank A. Weil, 68 Trustee Since 1984, Chairman and Chief Executive Officer
Abacus & Associates of Abacus & Associates, Inc. (private investment
147 E. 47th Street firm); Director and President of the Hickrill
New York, NY 10017 Foundation.
Donald E. Weston,* 64 Advisory Since October 1998, Chairman of Gradison
McDonald Investments Inc. Trustee McDonald Investments, a division of McDonald
580 Walnut Street Investments Inc.; until October 1998, Chairman
Cincinnati, Ohio 45202 of the Gradison Division of McDonald & Company
Securities, Inc. and a Director of McDonald &
Company Investments Inc.; Director of Cincinnati
Milacron Commercial Corporation and Katchall
Industries Int'l, Inc..
Leigh A. Wilson,** 55 President Since 1989, Chairman and Chief Executive
New Century Care, Inc. and Officer, New Century Care, Inc. (merchant bank);
53 Sylvan Road North Trustee since 1995, Principal of New Century Living,
Westport, CT 06880 Inc.; since 1989, Director of Chimney Rock
Vineyard and Chimney Rock Winery.
</TABLE>
- --------
* Mr. Noall and Mr. Weston are "interested persons" and "affiliated persons"
of the Trust.
** Mr. Wilson is deemed to be an "interested person" of the Trust under the
1940 Act solely by reason of his position as President.
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<PAGE>
C. Information about the Board of Trustees
The Board currently has an Investment Committee, a Business, Legal and
Audit Committee, and a Board Process and Nominating Committee. The members of
the Investment Committee are Messrs. Weil (Chairman), McDonald, Swygert, Weston
and Dr. Morrissey. The function of the Investment Committee is to review the
existing investment policies of the Trust, including the levels of risk and
types of funds available to shareholders, and make recommendations to the
Trustees regarding the revision of such policies or, if necessary, the
submission of such revisions to the Trust's shareholders for their
consideration. The members of the Business, Legal and Audit Committee are Dr.
Gazelle (Chairman), Ms. Hughes, and Messrs. Emmerich and Wilson. The function of
the Business, Legal and Audit Committee is to recommend independent auditors,
monitor accounting and financial matters, and review compliance and contract
matters. Mr. Swygert is the Chairman of the Board Process and Nominating
Committee (consisting of all the Trustees and Advisory Trustees), which
nominates persons to serve as Independent Trustees and Trustees to serve on
committees of the Board. This Committee also reviews Trustee performance and
compensation issues. The Board Process and Nominating Committee has a Nominating
Subcommittee, composed of Messrs. Swygert, Emmerich, McDonald, Weil and Drs.
Gazelle and Morrissey. This Subcommittee makes recommendations to the Board
Process and Nominating Committee concerning candidates to serve as trustees.
Shareholders may submit to the Trust recommendations for individuals to serve as
Trustees. See Part 3 -- "More on Proxy Voting and Shareholder Meetings -- Future
Shareholder Proposals."
Last year, the Board of Trustees held eight meetings, of which four were
regular meetings. Each Committees held four meetings. The Nominating
Subcommittee of the Board Process and Nominating Committee held two meetings.
D. Remuneration of Trustees
Each Trustee (including Advisory Trustees) (other than Mr. Wilson)
receives an annual fee of $31,500 for serving as Trustee of all the Funds of the
Trust, and an additional per meeting fee ($3,500 in person and $1,500 per
telephonic meeting). Mr. Wilson receives an annual fee of $37,500 for serving as
President and Trustee of the Trust, and an additional per meeting fee ($4,100 in
person and $1,800 per telephonic meeting). The Adviser pays the expenses of
Messrs. Noall and Weston.
The following table indicates the estimated compensation received by each
Trustee from the Victory "Fund Complex"(1) for the fiscal year ended October 31,
1999:
<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Aggregate Compensation
Retirement Annual Compensation from Victory
Benefits Benefits Upon from Victory "Fund Complex"
Accrued as Retirement Portfolios
Portfolio
Expenses
<S> <C> <C> <C> <C>
Edward P. Campbell*... -0- -0- $9,150 $10,275
Theodore H. Emmerich#. -0- -0- 32,350 35,635
Harry Gazelle......... -0- -0- 42,900 47,900
Frankie D. Hughes**... -0- -0- -0- -0-
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Aggregate
Pension or Estimated Aggregate Compensation
Retirement Annual Compensation from Victory
Benefits Benefits Upon from Victory "Fund Complex"
Accrued as Retirement Portfolios
Portfolio
Expenses
<S> <C> <C> <C> <C>
Eugene J. McDonald.... -0- -0- 45,900 50,900
Thomas F. Morrissey... -0- -0- 45,900 50,900
Roger Noall........... -0- -0- -0- -0-
H. Patrick Swygert.... -0- -0- 41,400 46,400
Frank A. Weil......... -0- -0- 45,900 50,650
Donald Weston#........ -0- -0- -0- -0-
Leigh A. Wilson....... -0- -0- 56,500 61,500
</TABLE>
(1) There are currently 35 mutual funds in the Victory "Fund Complex" for
which the above-named Trustees are compensated.
* Mr. Campbell resigned as of December 31, 1998.
# Messrs. Emmerich and Weston commenced service as Advisory Trustees as of
January 1, 1999.
** Ms. Hughes commenced service as an Advisory Trustee as of January 1, 2000.
E. Required vote
Trustees are elected by a plurality of the votes cast at the Special
Meeting in person and by proxy.
F. Does the Board of Trustees recommend the election of these Nominees to
the Board of Trustees of the Trust?
Yes. The Board of Trustees recommends that shareholders
vote to elect the nominees for election to the Board of Trustees
of the Trust.
PROPOSAL 2
TO APPROVE THE REORGANIZATION OF THE FUNDS
Introduction
The Board of Trustees of the Trust has approved a proposal to reorganize
each of your Funds into a specific existing portfolio of the Trust.
>> The primary purpose of this proposal is to improve operating
efficiencies by combining each Fund with a larger existing portfolio.
Neither you nor your Fund will have any federal income tax liability
solely as a result of the reorganization.
To adopt the Agreement and Plan of Reorganization and Termination (the
"Plan of Reorganization") that applies to your Fund, we need shareholder
approval. The transactions described in the Plan are referred to as the
"reorganization."
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<PAGE>
The next few pages of this Combined Proxy Statement and Prospectus discuss
some of the details of each proposed reorganization and how it will affect your
Fund.
How the Reorganization Works
The Trust, on behalf of each Fund, has entered into the Plan of
Reorganization. If shareholders approve this proposal, each Fund will reorganize
into a corresponding existing portfolio of the Trust (the "Acquiring Funds").
Key Asset Management Inc. ("KAM") currently is the investment adviser of your
Fund and the Acquiring Funds. If the reorganization is approved, the
reorganization will work as follows:
-> Each Fund will transfer all its assets and liabilities to a
corresponding Acquiring Fund, in exchange for shares of the
Acquiring Fund.
-> Each Fund will distribute the Acquiring Fund's shares it receives to
you. You will receive the same dollar value of Acquiring Fund shares
as you owned of your Fund's shares.
-> You will not have to pay any federal income tax
solely as a result of the reorganization.
-> You will become a shareholder of the corresponding
Acquiring Fund. Your Fund would then cease
operations.
-> You will not incur any sales charge as a result of
the reorganization.
-> You will not pay any sales charges in connection with
the shares you receive.
Here is how the reorganization will apply to your Fund:
Your Fund would reorganize into Acquiring Fund
Government Mortgage Fund Fund for Income
Class A* -> Class A
Ohio Regional Stock Fund Established Value Fund
Class A -> Class A
Class B+
* Government Mortgage Fund has only Class A shares.
+ Class B shareholders of the Ohio Regional Stock Fund will receive Class A
shares of the Established Value Fund of the same total dollar value as the
dollar value of their Class B shares of the Ohio Regional Stock Fund on
the date of the merger.
The cost of the reorganization, including the cost of the solicitation
relating to the reorganization, will be borne equally by the Funds and the
Acquiring Funds.
A few words about this Combined Proxy Statement and Prospectus
This Combined Proxy Statement and Prospectus is a proxy statement for the
Special Meeting of shareholders for your Fund and a prospectus relating to the
Class A shares of the Acquiring Fund that you will receive in the
reorganization.
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<PAGE>
How the Fees of the Funds Compare to the Fees of the Acquiring Funds
The tables below demonstrate the differences between the shareholder
transaction expenses of your Funds and the Acquiring Funds:
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Government Mortgage Fund for Income Pro Forma
------------------- --------------- ---------
Class A
-------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on 5.75% 2.00% 2.00%
Purchases (as a percentage of
offering price)
Sales Charge Imposed on Reinvested None None None
Dividends
Maximum Deferred Sales Charge None* None* None*
Redemption Fees None None None
* Except for non-IRA tax deferred retirements accounts, there is no initial
sales charge on purchases of $1 million or more for Class A Shares.
However, if you sell those Class A Shares within one year, you will be
charged a contingent deferred sales charge (CDSC) of 1.00%. If you sell
your Class A Shares within two years, you will be charged a CDSC of 0.50%
</TABLE>
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Ohio Regional Ohio Regional Established Value Pro Forma
------------- ------------- ----------------- ---------
Stock Stock Class A Class A
----- ----- ------- -------
Class A Class B
------- -------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on 5.75% None 5.75% 5.75%
Purchases (as a percentage of
offering price)
Sales Charge Imposed on None None None None
Reinvested Dividends
Maximum Deferred Sales Charge None* 5.00%** None* None*
Redemption Fees None None None None
</TABLE>
* Except for non-IRA tax deferred retirements accounts, there is no initial
sales charge on purchases of $1 million or more for Class A Shares.
However, if you sell those Class A Shares within one year, you will be
charged a contingent deferred sales charge (CDSC) of 1.00%. If you sell
your Class A Shares within two years, you will be charged a CDSC of 0.50%
** 5% in the first year, declining to 1% in the sixth year, with no charge
after the sixth year.
The following tables compare the expenses paid by your Funds, as a
percentage of average daily net assets, with the expenses that you will incur
indirectly as a shareholder of the Acquiring Funds, after the reorganization.
The net expenses of the Victory Funds shown below are equivalent to the net
expenses of the corresponding Funds for the year ended October 31, 1999. Over
time, a Fund's annual expenses may be more or less than the amounts shown below.
Annual Fund Operating Government Fund for Pro Forma
Expenses Mortgage Fund Income Class A
Class A
Management Fees 0.50% 0.50% 0.50%
Distribution (Rule 12b-1) 0.00% 0.00% 0.00%
Fees
Other Expenses(1) 0.58% 0.72% 0.72%
Total Fund Operating 1.08% 1.22% 1.22%
Expenses
Fee Waiver None (0.22%) (0.22%)
Net Expenses 1.08% 1.00%2 1.00%(2)
1 For each fund, this item includes a 0.25% shareholder servicing fee.
2 KAM has contractually agreed to waive its fee and/or reimbursed expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses of Class A Shares of the Fund for Income at a maximum of 1.00%
until at least February 28, 2001.
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<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Ohio Regional Ohio Regional Established Pro Forma
Expenses Stock Fund Stock Fund Value Fund(1) Class A
Class A Class B Class A
<S> <C> <C> <C> <C>
Management Fees 0.75% 0.75% 0.51% 0.51%
Distribution (Rule 0.00% 0.25% 0.00% 0.00%
12b-1) Fees
Other Expenses(2) 0.73% 2.26% 0.54% 0.54%
Total Fund Operating 1.48% 3.76% 1.05% 1.05%
Expenses
Fee Waiver None None (0.17) (0.17%)
Net Operating Expenses 1.48% 3.76% 0.88%3 0.88%(3)
</TABLE>
1 The expenses shown are based on historical expenses of the Class G shares
of Established Value Fund for the fiscal year ended October 31, 1999.
Class A shares were established on January 18, 2000 and will incur no
expenses until the reorganization.
2 For each fund, this item includes a 0.25% shareholder servicing fee.
3 KAM has contractually agreed to waive its management fee or reimburse
expenses, as allowed by law, to the extent necessary to maintain the net
operating expenses of Class A shares at a maximum of 0.88% until at least
February 28, 2001.
Example
This Example is intended to help you compare the cost of investing in the
Funds with the cost of investing in the Acquiring Funds and other mutual funds.
The Example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.* Although your actual
costs or returns may be higher or lower, based on these assumptions, your costs
would be:
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
Government Mortgage Fund 679 899 1136 1816
Fund for Income - Class A 300 559 839 1642
Pro Forma 300 559 839 1642
- ------------------------------------------------------------------------------
Ohio Regional Stock Fund - Class A 717 1016 1336 2242
Ohio Regional Stock Fund - Class B 878 1149 1393 3205
Established Value Fund -- Class A 660 874 1107 1778
Pro Forma 660 874 1107 1778
- ------------------------------------------------------------------------------
* This Example assumes that Total Annual Fund Operating Expenses for each
Fund's Class A shares will not exceed the net expense amounts indicated in
the notes to the Annual Fund Operating Expense tables shown above until
the termination dates of the contractual waivers (or waivers permitted by
law), and thereafter will equal the amount indicated as the Fund's Total
Fund Operating Expenses, before fee waivers.
Information About Each Reorganization
This section describes some information you should know about the
reorganization of your Fund.
Description of transaction. The Plan of Reorganization provides that your
Fund will transfer its assets to the corresponding Acquiring Fund, as described
in the chart on page 9, in exchange for shares of the Acquiring Fund. The
Acquiring Fund also will assume all of your
-11-
<PAGE>
Fund's liabilities. After this transaction, your Fund will give you shares of
the corresponding Acquiring Fund. The total value of the shares you receive will
be equal to the total value of the Fund shares you owned at the end of business
on the day the transaction occurs.
Please see a copy of the form of the Plan of Reorganization for a more
detailed description of the reorganization. You can find a copy of the form of
the Plan of Reorganization in Part 6 of this Combined Proxy Statement and
Prospectus.
The reorganization will be "tax-free." We expect each reorganization to be
"tax-free." That is, each Fund will obtain an opinion of counsel saying, in
effect, that neither you nor the Fund will have to pay any federal income taxes
solely as a result of the reorganization. Your Fund, however, may pay a dividend
or distribute a taxable gain prior to the reorganization. You may be liable for
taxes on those distributions.
Conditions of the reorganization. Before the reorganization can occur, the
Trust must satisfy certain conditions. For example:
o The Trust, on behalf of your Fund, must receive an opinion of
counsel stating, in effect, that neither you nor the Fund will pay
any federal income taxes solely as a result of the reorganization;
o The Trust must receive an opinion of counsel certifying to certain
matters concerning the legal existence of each Fund;
o Shareholders of the Funds must approve each reorganization; and
o The Trust must receive an exemptive order from the SEC, if required.
Why We Want to Reorganize the Funds
KAM believes that the reorganization will benefit the shareholders of all
of the Funds. Among other things, KAM believes that:
o The Government Mortgage Fund is so similar to the Fund for Income
that by merging the two funds, the Fund for Income could become a
more economically efficient investment vehicle than each Fund
individually. The merger would also eliminate confusion caused by
maintaining similar fixed income managed portfolios.
o Despite the distributor's best efforts, the Ohio Regional Stock Fund
has not grown to a sufficient size to be an economically efficient
fund, and shareholders would be better served economically by
merging the Ohio Regional Stock Fund into the Established Value
Fund.
o The merger will also allow the Funds to operate a similar investment
portfolio at lower expense levels.
o By combining the Funds, Fund for Income and the Established Value
Fund will have larger asset bases, which may attract additional
investors.
-12-
<PAGE>
Considerations by the Board of Trustees
The Board of Trustees of the Trust unanimously approved the proposed Plan
of Reorganization on December 1, 1999. The Trustees concluded that the
reorganization of each of your Funds
o was in the best interests of the Funds' shareholders, and
o would not result in any dilution of the value of your investment.
In approving the Plan of Reorganization, the Trustees (including a
majority of the Trustees who are not "interested persons") considered, among
other things:
o The relatively small size of the Ohio Regional Stock Fund and its
lack of growth.
o The similarity between the Government Mortgage Fund and the Fund for
Income.
o The relative performance of your Funds and the Acquiring Funds.
o That you will not pay a sales charge to become a shareholder of the
Acquiring Funds.
o That shareholders will not have to pay any federal income tax solely
as a result of the reorganization.
The Government Mortgage Fund is very similar to the Fund for Income. By
merging into the Fund for Income, the Government Mortgage Fund would benefit
from having a larger asset base and the economies of scale that accompany a
larger fund, while having the same investment goals.
Although the Ohio Regional Stock Fund and the Established Value Fund do
not have the same investment strategies, they have similar investment
objectives. However, the Ohio Regional Stock Fund has not accumulated sufficient
assets, despite the best efforts of KAM and the distributor, to permit it to be
operated economically. By merging into the Established Value Fund, the Ohio
Regional Stock Fund could benefit from a reduction in expenses through economies
of scale while continuing to pursue a similar investment objective.
How Your Funds Compare to the Acquiring Funds
For complete information about your Funds, please refer to your Fund's
prospectus. You also can call us at 800-539-3863 for a free copy of your Fund's
prospectus. The information contained in your Fund's prospectus is incorporated
by reference into this Combined Proxy Statement and Prospectus.
For complete information about the Acquiring Funds, please refer to the
prospectus included with this Combined Proxy Statement and Prospectus.
-13-
<PAGE>
Comparison of Investment Objectives.
The following tables compare the investment objectives of your Fund and
its corresponding Acquiring Fund:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Government Mortgage Fund Fund for Income
- --------------------------------------------------------------------------------
<S> <C>
Seeks to provide a high level of Seeks to provide a high level of
current income consistent with current income consistent with
safety of principal preservation of shareholders' capital
- --------------------------------------------------------------------------------
Ohio Regional Stock Fund Established Value Fund
- --------------------------------------------------------------------------------
Seeks to provide capital appreciation Seeks to provide long-term capital
growth by investing primarily in common
stocks
- --------------------------------------------------------------------------------
</TABLE>
Comparison of Investment Policies and Strategies.
The following tables compare the principal investment policies and
strategies of your Fund and its corresponding Acquiring Fund:
<TABLE>
<CAPTION>
- ----------------------------------------- -----------------------------------------
Government Mortgage Fund Fund for Income
- ----------------------------------------- -----------------------------------------
<S> <C>
The Government Mortgage Fund invests The Fund for Income invests primarily
exclusively in obligations issued or in securities issued by the U.S.
guaranteed by the U.S. Government or Government and its agencies and
its agencies or instrumentalities. instrumentalities. The Fund for Income
currently invests only in securities
Under normal market conditions, at that are guaranteed by the full faith
least 80% of the total assets of the and credit of the U.S. Government and
Government Mortgage Fund will be repurchase agreements collateralized by
invested in U.S. Government such securities.
mortgage-backed securities.
Under normal market conditions, the
Important characteristics of the Fund for Income primarily invests in:
Government Mortgage Fund's investments: o Mortgage-backed obligations and
o Quality: Securities purchased by collateralized mortgage obligations
the Government Mortgage Fund are (CMOs) issued by the Government
considered to be of the highest National Mortgage Association
quality. (GNMA). The Fund for Income will
o Maturity: The dollar-weighted invest at least 65% of its total
effective average maturity of the assets in GNMA securities.
Government Mortgage Fund generally o Obligations issued or guaranteed by
will not exceed 12 years. Under the U.S. Government or by its
certain market conditions, the agencies or instrumentalities with
portfolio manager may go outside maturities generally in the range of
these boundaries. 2 to 30 years.
The Government Mortgage Fund's high
portfolio turnover may result in higher
expenses and taxable gain distributions.
- ----------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------ ------------------------------------------
<S> <C>
Ohio Regional Stock Fund Established Value Fund
- ------------------------------------------ ------------------------------------------
The Ohio Regional Stock Fund pursues its The Established Value Fund pursues its
investment objective by investing at investment objective by investing
least 80% of its total assets in equity primarily in equity securities of
securities issued by companies companies with market capitalization of
headquartered in the State of Ohio. $1 billion or more. The companies are
usually selected from those in the
In making investment decisions, KAM Standard & Poor's Composite Stock Price
analyzes cash flow, book value, dividend Index (S&P 500).
growth potential, quality of management,
earnings, and capitalization. The Ohio In making investment decisions, KAM
Regional Stock Fund looks at any looks for companies whose stock is
information that reflects the potential trading at prices below what KAM
for future earnings growth. The Ohio believes represent their true value.
Regional Stock Fund invests in When selecting investments for the
nationally recognized companies and Established Value Fund's portfolio, KAM
lesser-known companies that may have looks for the following characteristics,
smaller capitalization, but also the among others: consistent earnings
potential for growth. growth; stable earnings growth combined
with dividend yield; rising earnings
Under normal market conditions, the Ohio prospects; price-to-book ratios and
Regional Stock Fund will invest at least price-to-earnings ratios that are
80% of its total assets in common stocks generally lower than those prevalent in
and securities convertible into common the market; and the rate at which a
stocks. stocks price is rising. KAM uses a
computer model that examines the
characteristics described above, among
others, to assis in selecting securities
that appear favorably priced.
Under normal market conditions, the Fund:
o Will invest at least 80% of its
total assets in equity securities
of companies with market
capitalization of $1 billion or
more.
------------------------------------------
</TABLE>
Comparison of Investment Restrictions. Shareholders of the Fund for Income
and the Established Value Fund are being asked to approve certain changes to
fundamental investment restrictions at a Special Meeting to be held on March 20,
2000. The proposed changes are summarized in a table in the Statement of
Additional Information dated February 7, 2000. You can obtain a copy of the
Statement of Additional Information by calling the Trust at 800-539-3863. The
proposed changes will not materially impact the way the Acquiring Funds operate.
-15-
<PAGE>
Comparison of Principal Investment Risks. The following tables compare the
principal investment risks of investing in your Funds and the corresponding
Acquiring Funds:
- --------------------------------------------------------------------------------
Government Mortgage Fund Fund for Income
- --------------------------------------------------------------------------------
The Government Mortgage Fund is subject Same as Government Mortgage Fund.
to the following principal risks. The
Fund's net asset value, yield and/or
total return may be adversely affected
if any of the following occurs:
o The market value of securities
acquired by the Government Mortgage
Fund declines.
o A particular strategy does not
produce the intended result or the
portfolio manager does not execute
the strategy effectively.
o Interest rates rise.
o An issuer's credit quality is
downgraded.
o The Government Mortgage Fund must
reinvest interest or sale proceeds at
lower rates.
o The rate of inflation increases.
o The average life of a
mortgage-related security is
shortened or lengthened.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ohio Regional Stock Fund Established Value Fund
- --------------------------------------------------------------------------------
The Ohio Regional Stock Fund is subject The Established Value Fund is subject
to the following principal risks. The to the following principal risks.
Fund's net asset value, yield and/or The Fund's net assets value, yield
total return may be adversely affected and/or total return may be adversely
if any of the following occurs: affected if any of the following
occurs:
o The market values of securities
acquired by the Fund decline. o The market value of securities
o Growth stocks fall out of favor acquired by the Fund declines.
because the companies' earnings o Value stocks decline in price
growth does not meet expectations. faster than growth stocks.
o Value stocks fall out of favor o The portfolio manager does not
relative to growth stocks. execute the strategy effectively.
o A particular strategy does not o A company's earnings do not
produce the intended result or the increase as expected.
portfolio manager does not execute
the strategy effectively.
o A company's earnings do not increase
as expected.
Since the Ohio Regional Stock Fund
concentrates its investments in the
State of Ohio, its assets may be at
greater risk because of economic,
political, or regulatory risks
associated with the state.
- --------------------------------------------------------------------------------
Comparison of Potential Risks and Rewards.
Each of the Victory Funds has its own risks and potential rewards. The bar
charts and tables below compare the potential risks and rewards of investing in
your Fund and the Fund into which your Fund would merge.
-16-
<PAGE>
Each bar chart provides an indication of the risks of investing in each
Fund by showing changes in the Fund's performance from year to year, for the
last ten years or since the inception of the Fund. Sales loads are not reflected
on the bar chart and if they were reflected, returns would be lower than those
shown. The table shows how each Fund's average annual returns for one year, five
years and ten years (or since inception) compare to the returns of a broad-based
securities market index. The figures shown assume reinvestment of dividends and
distributions.
The information shown below reflects the performance of the Class A shares
of Fund for Income and Class G shares of Established Value Fund, as presently
there are no Class A shares of the Established Value Fund outstanding. Returns
for the Class A shares of Established Value Fund would be similar to returns for
Class G shares, because both classes of shares will be invested in the same
portfolio of securities. The annual returns would differ only to the extent that
each class has a different expense ratio.
Keep in mind that past performance does not indicate future results.
-17-
<PAGE>
The Funds' highest and lowest quarterly returns are as follows:
Fund Highest Quarterly Lowest Quarterly
Return Return
Government Mortgage Fund 5.54% in 4th Quarter (2.37)% in 1st
1991 Quarter 1994
Fund for Income 5.57% in 2nd Quarter (3.04)% in 1st
1989 Quarter 1994
Ohio Regional Stock Fund 26.20% in 1st Quarter (25.47)% in 3rd
1991 Quarter 1990
Established Value Fund 14.12% in 4th Quarter (13.22)% in 3rd
1998 Quarter 1998
The Average Annual Total Returns for the Class A Shares of the Government
Mortgage Fund and Fund for Income, and Ohio Regional Stock Fund and Class G
shares of Established Value Fund, including the effects of sales charges, for
the periods ended December 31, 1999, are as follows:
- --------------------------------------------------------------------------------
Average Annual Total Returns Past One Year Past 5 Years Past 10 Years
(for the period ended December 31,
1999)
- --------------------------------------------------------------------------------
Government Mortgage Fund -- Class A -5.68% 5.61% 6.60%+
- --------------------------------------------------------------------------------
Fund for Income* -- Class A -1.31% 6.84% 6.65%
- --------------------------------------------------------------------------------
Lehman GNMA Index** 1.93% 8.07% 7.87%
- --------------------------------------------------------------------------------
+ Reflects performance since the Government Mortgage Fund's inception on May
18, 1990.
* After a reorganization with the Gradison Government Income Fund that was
completed on March 26, 1999, the Fund for Income assumed the performance
information of the Gradison Government Income Fund.
** The Lehman GNMA Index is a broad-based unmanaged index that represents the
general performance of GNMA securities.
- --------------------------------------------------------------------------------
Average Annual Total Returns Past One Year Past 5 Past 10
(for the period ended December 31, 1999) Years Years
- ----------------------------------------- ------------------------
Ohio Regional Stock Fund
- --------------------------------------------------------------------------------
- -- Class A -15.78% 10.39% 10.61%
- --------------------------------------------------------------------------------
- -- Class B -13.98% 10.53% 10.73%
- --------------------------------------------------------------------------------
Established Value Fund* -- Class A 17.07% 18.12% 13.18%
- --------------------------------------------------------------------------------
S & P 500 Index** 19.53% 26.15% 15.30%
- --------------------------------------------------------------------------------
* Performance results are shown for Class G Shares. Returns for Class A
Shares would be similar because both classes of shares will be invested in
the same portfolio of securities. The annual returns would differ only to
the extent that each class has a different expense ratio.
** The S & P 500 Index is a broad-based unmanaged index that represents the
general performance of domestically traded common stocks of mid- to
large-sized companies.
Comparison of Operations.
Investment Advisory Agreements
All of the Funds in the Trust are presently managed under the same
investment advisory agreement between the Trust and KAM. KAM is a registered
investment adviser with the SEC and is a wholly-owned subsidiary of KeyCorp.
Subject to the authority of the Board of Trustees, KAM manages the investment
and reinvestment of the assets of the Funds, and provides its employees to act
as the officers of the Funds, who are responsible for the day-to-day
-18-
<PAGE>
management of the Funds. Affiliates of KAM manage approximately $79 billion for
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114.
In executing brokerage trades, KAM will seek best execution, but may pay
more than the lowest amount of commission if KAM requires research or other
services that benefit its managed accounts. KAM may allocate brokerage
commissions to its affiliates.
Distribution and Service Plans
The Trust on behalf of the Funds has adopted a shareholder servicing plan,
under which the Funds pay an annual service fee of up to 0.25% of each Fund's
average daily net assets. These fees are paid monthly. The shareholder servicing
agent performs a number of services for customers who are shareholders,
including establishing and maintaining accounts and records, processing dividend
payments, arranging for bank wires, assisting in transactions, and changing
account information.
The Trust on behalf of each Fund and the Class A shares of both the Fund
for Income and Established Value Fund has adopted a defensive distribution plan
pursuant to Rule 12b-1 under which no fees are paid. Rather, the plan
contemplates that KAM, the administrator or the distributor may use its past
profits and other resources to pay amounts for goods or services that could be
construed as intended primarily for the distribution to the public of the Fund's
shares. The Plan also recognizes that KAM, the administrator or distributor may
make payments from these sources to securities dealers and other third parties
who engage in the sale of shares or who render shareholder services. The Plan
provides that, to the extent that the Fund's payment of management fees to KAM,
or administration fees to BISYS might be considered to constitute "indirect"
financing of activities primarily intended to result in the sale of shares, such
payment is expressly authorized.
Administrator and Distributor
BISYS Fund Services ("BISYS") serves as the administrator and fund
accountant for the Victory Funds pursuant to administration, distribution and
accounting agreements with the Trust. For expenses incurred and services
provided as administrator of the Victory Funds, BISYS receives a fee at the
following annual rate based on each Victory Fund's average daily net assets:
0.15% for portfolio assets up to $300 million; 0.12% for the next $300 million
of portfolio assets; and 0.10% for portfolio assets in excess of $600 million.
BISYS also serves as the distributor of the Victory Funds. BISYS does not
charge the Victory Funds a fee for its services as distributor, but receives
sales charges paid by shareholders. Under its distribution agreement with
Victory, BISYS may provide sales support, including cash or other compensation
to dealers for selling shares of the Victory Funds. BISYS does this at its own
expense and not at the expense of any Fund or its shareholders.
Sub-Administrator
KAM serves as sub-administrator of the Victory Funds. For its services as
sub-administrator of the Victory Funds, BISYS pays KAM an annual fee of up to
0.05% of the average daily net assets of the Victory Funds.
-19-
<PAGE>
Dividends and Other Distributions
Ordinarily, Government Mortgage Fund and Fund for Income declare and pay
dividends monthly while Ohio Regional Stock Fund and Established Value Fund
declare and pay dividends quarterly. Generally, each Fund pays realized capital
gains, if any, at least once a year. Each class of shares declares and pays
dividends, if any, separately. Each Fund pays no federal income tax on the
earnings it distributes to shareholders. Ordinary dividends from the Fund are
taxable to the shareholder as ordinary income; dividends from the Fund's
long-term capital gains are taxable as long-term capital gain.
Purchase Procedures
There are no differences in purchase procedures between the Funds and the
Acquiring Funds.
The Class A shares of the Funds and of the Acquiring Funds have a
front-end sales charge, although they may differ in amount. There are ways to
reduce this charge (more fully explained in each Fund's prospectus, which is
incorporated by reference). Fund for Income currently offers two classes of
shares, Class A and Class G, which have different sales charges and ongoing
fees. Established Value Fund currently offers only Class G Shares, but will
begin offering Class A Shares after the reorganization, if it is approved.
Exchange Rights
There are no differences in exchange rights between the Funds and the
Acquiring Funds. You may exchange shares of a Victory Fund, generally without a
sales charge, for shares of any other series of The Victory Portfolios that are
of the same class as the shares being exchanged. For more information on
exchange rights, please refer to the enclosed prospectuses for the Fund for
Income and the Established Value Fund.
Redemption Procedures
There are no differences in redemption procedures between the Funds and
the Acquiring Funds.
Trustees
Victory's Board of Trustees is responsible for the management of the
Victory Funds.
Comparison of Shareholder Rights.
There are no differences between rights of shareholders of the Trust.
Capitalization of the Funds.
The tables below show existing capitalization as of October 31, 1999, as
well as pro forma capitalization as of that date, which reflects the impact of
any corporate actions, including stock splits and accounting adjustments,
required to facilitate the reorganization. For these
-20-
<PAGE>
reasons, the total pro forma combined Total Net Assets may differ from the
combined net assets of the Funds prior to the reorganization.
Total Net Assets (000) Shares Outstanding (000)
---------------------- ------------------------
Government Mortgage Fund - Class A $99,326 9,364
Fund for Income - Class A 232,692 18,201
Pro Forma Combined 332,018 25,966
Total Net Assets (000) Shares Outstanding (000)
---------------------- ------------------------
Ohio Regional Stock Fund
Class A $23,529 1,384
Class B 734 44
Established Value Fund - Class A 469,288 13,678
Pro Forma Combined 493,551 14,385
Required Vote
Approval of Proposal 2 requires the approval of majority of each Fund's
shares voted in person or by proxy at the Special Meeting. Approval of Proposal
2 by the shareholders of one Fund is not contingent upon the approval of
Proposal 2 by the shareholders of the other Fund.
Should Proposal 2 not be approved by the shareholders of a Fund, the Board
of Trustees would determine what if any further action should be taken including
continuing that Fund or liquidating it.
Board Recommendation
THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
PROPOSAL 3
TO APPROVE AN AMENDED AND RESTATED TRUST
INSTRUMENT
The Board of Trustees has approved an Amended and Restated
Trust Instrument for the Trust.
o The primary purpose of this proposal is to modernize the governing
document of the Trust and to allow the Trustees more flexibility in
overseeing the affairs of the Trust.
To adopt the Amended and Restated Trust Instrument, we need shareholder
approval.
The next few pages of this proxy statement discuss the details of each
material proposed change in the Amended and Restated Trust Instrument and how it
will affect your Fund.
A. Why do we want to adopt the Amended and Restated Trust Instrument?
The Trust was originally established as a business trust under the laws of
the Commonwealth of Massachusetts in 1984. In 1996, the Trust reorganized as a
business trust
-21-
<PAGE>
under Delaware law. The operations of the Trust are governed by a
Trust Instrument dated December 5, 1995, as amended on October 23, 1997.
The following summarizes the material changes that the Amended and
Restated Trust Instrument would contain, and summarizes the reasons that the
Board of Trustees believes that those changes would be in the best interests of
shareholders. Certain non-material changes, which are also included in the
Amended and Restated Trust Instrument, are not described here, but are noted in
the form of Amended and Restated Trust Instrument included with this Proxy
Statement. Because this is a summary, it does not contain all of the information
that may be important to you. Please refer to the complete Amended and Restated
Trust Instrument, which appears as Exhibit B in Part 6 of this Proxy Statement,
to review all of the proposed changes before you decide how to vote on this
proposal.
o Reorganizations. The amendments would clarify the ability of the Board of
Trustees to reorganize a Fund with another investment company or another
series of the Trust or to liquidate a Fund, if the Board determines that
it would be in the best interests of shareholders. The Trustees could take
these actions without shareholder approval, unless such approval is
required by law. The additional flexibility would save shareholders the
expense of costly special meetings. One situation where the Board of
Trustees might choose to reorganize a Fund without first obtaining
shareholder approval is where the acquiring fund is a shell created
specifically for the reorganization and which after the reorganization
will be identical to the acquired fund. [Section 4.01(x)].
o Voting powers. The amendments would allow the Board of Trustees, in its
discretion, to make your voting rights "dollar-based," which is a
different voting rights system than your Fund uses now. Currently, all
Funds of the Trust provide shareholders with one vote for each whole share
that they own and a fractional vote for each fractional share that they
own. This share-based system treats shareholders equitably so long as all
shares of various Funds have the same share price. However, the share
prices of the Funds will vary significantly over time due to their
different investment programs. Similarly, the share prices of a Fund's
various share classes will differ over time because of their different
expense structures. As a result, when issues are voted at the Trust level,
shareholders who acquired their shares at lower prices have relatively
greater voting power than shareholders who paid more for their shares.
Giving the Board of Trustees the option to change to dollar-based voting
will ensure that shareholders' voting rights remain proportionate to their
financial interests if the Board believes it to be in the best interests
of shareholders. [Section 7.01(c)]
o Required redemptions. The amendments would clarify the ability of the
Board of Trustees to allow the Trust to require shareholders to redeem
their shares under certain circumstances. The Board of Trustees may
determine that it is in the best interest of all shareholders to require
redemptions of small accounts, which are costly to maintain, or where a
shareholder fails to provide a Social Security number or taxpayer
identification number as required by law. This amendment could result in
lower expenses to the Trust or individual Funds. [Section 9.05]
o Record date. The amendments would change the maximum number of days for a
shareholder meeting to be held after the record date to 90 days from the
current 60-day
-22-
<PAGE>
requirement. This change would allow additional time to solicit
shareholder votes and avoid additional costs which can arise when
shareholder meetings are delayed. [Section 11.03]
o Master/Feeder structure. The amendments would allow the Trustees to
restructure one or more Funds into a "master/feeder" structure, in which
one Fund (a "feeder") would invest all of its assets in another "master"
Fund. Sometimes a master/feeder structure can benefit shareholders,
because combining the asset bases of funds with similar investment
objectives and strategies may achieve economies of scale in portfolio
management while retaining the benefits of discrete, targeted investment
products. Although there are no current plans to adopt this structure, the
Trustees would have the power to use the structure in the future if they
determined it would be in the best interests of shareholders. [Section
11.05(e)]
o Derivative actions. Any Trustee who is also a trustee of an investment
company affiliated with the Trust would not be deemed to be an "interested
person" under state law solely because of such affiliation for purposes of
determining whether the Trust satisfies the notification provisions in the
event of a shareholder derivative action. Under current law, notification
of a shareholder derivative suit must be given to the Board where fewer
than the majority of the Trustees are interested persons. This amendment
is in response to recent litigation addressing the issue. Whether a
trustee is an "interested person" under state and federal law depends on a
number of factual circumstances. This amendment merely clarifies that the
fact that a trustee is also a trustee of an affiliated investment company
does not make that trustee an "interested person" solely because of that
affiliation. [Section 11.08]
o Future amendments to the Trust Instrument. The amendments would clarify
the ability of the Trustees to amend the Trust Instrument in the future
without shareholder consent unless such consent is required by law. This
change would give the Board of Trustees greater flexibility in overseeing
the operations of the Trust without incurring the additional expense of
holding a special meeting of shareholders to approve amendments to the
Trust Instrument where shareholder approval is not required by law.
[Section 11.09]
B. Required vote
Proposal 3 requires the approval of a majority of the shares of the Trust
voted in person or by proxy at the Special Meeting. You may vote in favor of, or
abstain from voting on, all of the proposed material changes to the Trust
Instrument or, should you wish to vote against any particular proposed material
change, you may so indicate on the proxy card. If shareholders of the Trust do
not approve this proposal, or anyh part of this proposal, the existing Trust
Instrument will remain in effect and the Board of Trustees will consider
possible alternatives.
C. Has the Board of Trustees approved this Amended and Restated Trust
Instrument?
Yes. The Board of Trustees of the Trust carefully considered this proposal
at its meeting on December 1, 1999. After full consideration, the Board,
including all of the Independent Trustees, unanimously approved this Amended and
Restated Trust Instrument and recommended that it be submitted to shareholders
for approval. The Board recommends that shareholders vote "for" Proposal 3.
-23-
<PAGE>
PROPOSAL 4
OTHER MATTERS
The Board of Trustees of the Trust does not know of any matters to be
presented at the Special Meeting other than those set forth in this Proxy
Statement. If any other business should come before the Special Meeting, the
persons named in the accompanying proxy will vote thereon in accordance with
their best judgment.
OTHER INFORMATION
Officers.
The officers of the Trust, their ages, and principal occupations during
the past five years, are as follows:
<TABLE>
<CAPTION>
Position(s)
with the
Name and Age Trust Principal Occupation During Past 5 Years
- ------------ ----- ----------------------------------------
<S> <C> <C>
Roger Noall, 64 Chairman See biographical information under "Board of
Trustees" in Proposal 1.
Leigh A. Wilson, President See biographical information under "Board of
54 and Trustee Trustees" in Proposal 1.
William B. Vice Senior Vice President of BISYS Fund Services Inc.
Blundin, 60+ President ("BISYS"); officer of other investment companies
administered by BISYS.
J. David Huber, 53 Vice Managing Director, BISYS; officer of BISYS since
President June 1987.
Robert D. Secretary Since November 1998, Vice President of BISYS;
Hingston, 47 from January 1995 to October 1998, founder and
principal of RDH Associates (mutual fund
management consulting firm); from June 1980 to
January 1995, Vice President of Investors Bank &
Trust Company.
Joel B. Engle, 34 Treasurer Since September 1998, Vice President of BISYS;
from March 1995 to September 1998, Vice
President, Northern Trust Company; from July 1994
to February 1995, General Accountant, Wanger
Asset Management; from September 1988 to June
1994, Audit Manager with Ernst & Young LLP.
Gary Tenkman, 29 Assistant Since April 1998, Financial Services Director for
Treasurer BISYS; from August 1997 to March 1998, Audit
Manager, Ernst & Young LLP; from August 1994 to
July 1997, Audit Senior, Ernst & Young LLP; from
July 1993 to July 1994, Audit Staff, Ernst &
Young LLP.
Jay Baris, 45 Assistant Since September 1994, Partner, Kramer
Secretary Levin Naftalis & Frankel LLP.
Richard F. Baxt, 46 Assistant Since March 1996, Senior Vice President of BISYS;
Secretary from March 1994 to March 1996, President of First
Fidelity Brokers; from June 1984 to March 1994,
President of Citicorp Investment Services.
</TABLE>
- ----------
+ Mr. Blundin was an officer of the Trust during the fiscal year ending
October 31, 1999. He resigned from BISYS and as an officer of the Trust
effective August 23, 1999
-24-
<PAGE>
The mailing address of each officer of the Trust is 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
The officers of the Trust (other than Mr. Wilson) receive no compensation
directly from the Trust for performing the duties of their offices. BISYS
receives fees from the Trust as Administrator.
As of December 31, 1999, the Trustees and officers as a group owned
beneficially less than 1% of all classes of the outstanding shares of the Funds.
PART 3 - MORE ON PROXY VOTING AND SHAREHOLDER MEETINGS
General information about proxy voting. The Board of Trustees of the Trust
is soliciting your proxy to vote on the matters described in this combined proxy
statement and prospectus. We expect to solicit proxies primarily by mail, but
representatives of KAM or its affiliates or others may communicate with you by
mail or by telephone or other electronic means to discuss your vote. We have
also retained Shareholders Communication Corporation as an outside proxy
solicitor to assist us in this solicitation. Representatives of Shareholders
Communication Corporation may contact you if we do not receive your ballot. We
estimate the cost of the outside proxy solicitor to be approximately $1300.00
which will be paid by the Trust on behalf of the Funds. We will ask
broker-dealers and other institutions that hold shares for the benefit of their
customers to send the proxy materials to the beneficial owners and to obtain
authorization to vote on their behalf.
You may vote directly over the telephone by calling (800) 786-8764. You
may also fax your ballot to (800) 733-1885 or return it by mail. In addition,
internet voting is available at www.proxyvote.com. You may also access this site
by selecting "Vote Your Proxy Here" on our web site, www.victoryfunds.com.
Only shareholders of record of the Funds at the close of business on the
record date, January 21, 2000, may vote at the Special Meeting. As of the record
date, each of the Funds had the number of shares issued and outstanding listed
below, each share being entitled to one vote:
- --------------------------------------------------------------------------------
Fund Name Total Shares Outstanding
- --------- ------------------------
- --------------------------------------------------------------------------------
Government Mortgage Fund 8,985,056
- --------------------------------------------------------------------------------
Ohio Regional Stock Fund
- --------------------------------------------------------------------------------
Class A 1,452,154
- --------------------------------------------------------------------------------
Class B 57,472
- --------------------------------------------------------------------------------
-25-
<PAGE>
As of January 21, 2000, the record date, the Trustees and officers of the
Trust, as a group, owned less than 1% of the outstanding shares of each Fund. To
the best of the knowledge of the Trust, the following shareholders beneficially
owned 5% or more of the outstanding shares of a Fund as of January 21, 2000:
- --------------------------------------------------------------------------------
Percent of Percent of
Fund Name and Address Fund Owned of Fund Owned of
Record Record and
Beneficially
- --------------------------------------------------------------------------------
Government Mortgage SNBOC and Company 95.10%
Fund 4900 Tiedeman Road
Brooklyn, OH 44144-2338
- --------------------------------------------------------------------------------
Ohio Regional Stock SNBOC and Company 81.32%
Fund -- Class A PO Box 93971
4900 Tiedeman Road
Brooklyn, OH 44144-2338
- --------------------------------------------------------------------------------
Ohio Regional Stock Jerry L. Ufford IRA 8.34%
Fund -- Class B McDonald Investments Inc.
C/FBO
3303 Linden Road, Suite 308
Rocky River, Ohio
44116-4105
- --------------------------------------------------------------------------------
Stephen A. Warth IRA 7.01%
McDonald Investments Inc.
C/FBO
10064 Hunting Drive
Brecksville, Ohio
44141-3645
- --------------------------------------------------------------------------------
You may cast one vote for each proposal for each whole share that you own
of a Fund. We count your fractional shares as fractional votes. If we receive
your proxy before the Special Meeting date, we will vote your shares as you
instruct the proxies. If you sign and return your proxy, but do not specify
instructions, we will vote your shares in favor of each proposal. You may revoke
your proxy at any time before the Special Meeting if you notify us in writing,
or if you attend the Special Meeting in person and vote in person.
If a broker or nominee returns a proxy indicating that it did not receive
voting instructions from the beneficial owner, or if the beneficial owner marked
an abstention, we will count those shares when we determine if a quorum is
present, but those proxieswill not affect the outcome of any proposal because
those proxies will not be "voted" at the Special Meeting.
Quorum and adjournments. Each Fund will vote separately on Proposal 2. All
shareholders of the Trust will vote together on Proposals 1 and 3, and
shareholders of other funds in the Trust will receive a separate Proxy Statement
for that purpose. Each Fund requires that a quorum at the Special Meeting be
present, in person or by proxy, to conduct the Special Meeting. One-third of all
of the shares outstanding on the record date will be a quorum. If a quorum is
not present at the special meeting, the persons named as proxies may propose one
or more adjournments of the Special Meeting to permit further solicitation of
proxies. An affirmative vote of a majority of the shares of each Fund present at
the Special Meeting may adjourn the Special Meeting without further notice,
until the Fund obtains a quorum. In the event a quorum is present but sufficient
votes to approve a proposal are not received, the persons named as proxies may
propose one or more adjournments to permit further solicitation of proxies. If
this
-26-
<PAGE>
should occur, we will vote proxies for or against a motion to adjourn in the
same proportion to the votes received in favor or against the proposal.
Future shareholder proposals. The Trust is not required to hold annual
meetings, unless required to do so by law. If you have a proposal you wish to be
considered by shareholders, send your proposal to the Trust at 3435 Stelzer
Road, Columbus, Ohio 43219-3035. We must receive your proposal in sufficient
time before the next meeting of shareholders for it to be included. We do not
guarantee that we will be able to include any proposal in a proxy statement.
Recommendation of Board of Trustees. After carefully considering all of
the issues involved, the Board of Trustees of the Trust has unanimously
concluded that each proposal is in the best interests of shareholders.
PART 4 - FUND INFORMATION
The Victory Portfolios is a business trust established under Delaware law.
The operations of the Trust are governed by a Trust Instrument dated December 5,
1995, as amended.
Each Victory Fund is a separate series of the Trust and, as such, has
similar rights under the Trust Instrument of The Victory Portfolios and
applicable Delaware law. You should be aware of the following features of the
Victory Funds:
o Shares of each class of the Victory Funds participate equally in
dividends and other distributions attributable to that class,
including any distributions in the event of a liquidation.
o Each share of each Victory Fund is entitled to one
vote for all purposes.
o Shares of all series of the Trust vote for the election of Trustees
and on any other matter that affects each Victory Fund in
substantially the same manner, except as otherwise required by law.
o As to matters that affect each Fund differently, such as approval of
an investment advisory agreement, shares of each series vote as a
separate series.
o On matters that affect the classes of a series differently, shares
of each class vote separately.
o Delaware law does not require registered investment companies, such
as the Trust or its series, to hold annual meetings of shareholders
and it is anticipated that shareholder meetings will be held only
when specifically required by federal or state law.
o Shareholders have available certain procedures for
the removal of Trustees.
o The Trust indemnifies trustees and officers to the fullest extent
permitted under federal and Delaware law.
-27-
<PAGE>
Financial Statements. PricewaterhouseCoopers LLP, independent auditors of
the Trust, has audited the financial statements for the fiscal year ended
October 31, 1999 that are incorporated by reference in the Statement of
Additional Information dated February 7, 2000.
PART 5 - PROSPECTUS FOR CLASS A SHARES OF THE ACQUIRING FUNDS
These prospectuses can be found under separate cover provided with your
proxy materials.
PART 6 - FORMS OF AGREEMENT AND PLAN OF REORGANIZATION AND
TERMINATION AND AMENDED AND RESTATED TRUST INSTRUMENT
Attached as Exhibit A is the form of the Plan of Reorganization referred
to in proposal 2. Attached as Exhibit B is the form of Amended and Restated
Trust Instrument referred to in proposal 3.
-28-
<PAGE>
EXHIBIT A
VICTORY ESTABLISHED VALUE FUND
VICTORY FUND FOR INCOME
VICTORY GOVERNMENT MORTGAGE FUND
VICTORY OHIO REGIONAL STOCK FUND
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement") is
made as of May __, 1999, between The Victory Portfolios, a Delaware business
trust ("Victory"), on behalf of Fund for Income and Established Value Fund,
segregated portfolios of assets ("series") thereof (each, an "Acquiring Fund"),
and Victory, on behalf of Government Mortgage Fund and Ohio Regional Stock Fund,
segregated portfolios of assets ("series") thereof (each, a "Target"). (Each
Acquiring Fund and Target are sometimes referred to herein individually as a
"Fund" and collectively as the "Funds," and Victory is sometimes referred to
herein as the "Investment Company.")
All agreements, representations, and obligations described herein made or
to be taken or undertaken by any Fund are made or shall be taken or undertaken
by Victory on the Fund's behalf.
Government Mortgage Fund and Fund for Income are corresponding Target and
Acquiring Funds, respectively, with respect to each other and Ohio Regional
Stock Fund and Established Value Fund are corresponding Target and Acquiring
Funds, respectively, with respect to each other.
In accordance with the terms and conditions set forth in this Agreement,
the parties desire that each Target transfer its assets to the corresponding
Acquiring Fund in exchange solely for voting shares of beneficial interest of
each comparable Class in the corresponding Acquiring Fund, ("Acquiring Fund's
Shares") and the assumption by the corresponding Acquiring Fund of the Target's
liabilities, and that each Target distribute the corresponding Acquiring Fund's
Shares pro rata to the holders of shares of beneficial interest in Target
("Target's Shares") in liquidation of Target. All such transactions with respect
to a Target and its corresponding Acquiring Fund are referred to herein
collectively as a "Reorganization."
It is intended by the parties hereto that each Reorganization constitute a
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Treasury
Regulation Sections 1.368-2(g) and 1.368-3(a).
Shares of Fund for Income are currently divided into two classes,
designated Class A Shares and Class G Shares. Government Mortgage Fund currently
has only one class of shares, designated Class A Shares. Established Value Fund
currently has only one class of shares, designated Class G Shares. An amendment
to Victory's registration statement on Form N-1A will be filed to register Class
A Shares for Established Value Fund. Shares of Ohio Regional Stock Fund are
currently divided into two classes, designated Class A Shares and Class B
A-1-
<PAGE>
Shares. Class A Shares of Fund for Income will be distributed to holder of Class
A Shares of Government Mortgage Fund in the Reorganization of that Fund. Class A
Shares of Established Value Fund will be distributed to holders of Class A and
Class B Shares of Ohio Regional Stock Fund in the Reorganization of those Funds.
In consideration of the mutual promises herein, the parties covenant and
agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGETS
1.1. At the Effective Time (as defined in paragraph 3.1), each Target
agrees to assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to the corresponding
Acquiring Fund. Each Acquiring Fund agrees in exchange therefor
(a) to issue and deliver to its corresponding Target the number of
full and fractional Acquiring Fund's Shares determined by
dividing the net value of such Target (computed as set forth
in paragraph 2.1) by the NAV (computed as set forth in
paragraph 2.2) of the Acquiring Fund's Shares; and
(b) to assume all of such Target's liabilities described in
paragraph 1.3 ("Liabilities").
1.2. Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and records,
deferred and prepaid expenses shown as assets on Target's books, and
other property owned by Target at the Effective Time.
1.3. Liabilities shall include (except as otherwise provided herein) all
of Target's liabilities, debts, obligations, and duties of whatever
kind or nature, whether absolute, accrued, contingent, or otherwise,
whether or not arising in the ordinary course of business, whether
or not determinable at the Effective Time, and whether or not
specifically referred to in this Agreement, including without
limitation Target's share of the expenses described in paragraph 7.2
and the liabilities to which the transferred Assets are subject.
Notwithstanding the foregoing, each Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the
Effective Time.
1.4. At or immediately before the Effective Time, each Target shall
declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have
distributed substantially all (and in any event not less than 90%)
of its investment company taxable income (computed without regard to
any deduction for dividends paid) and substantially all of its
realized net capital gain, if any, for the current taxable year
through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), each Target shall distribute the corresponding
Acquiring Fund's Shares received by it pursuant to paragraph 1.1 to
such Target's shareholders of record, determined as of the Effective
A-2-
<PAGE>
Time (collectively "Shareholders" and individually a "Shareholder"),
in exchange for such Target's Shares and in liquidation of such
Target. To accomplish this distribution, the corresponding Acquiring
Fund's transfer agent ("Transfer Agent") shall open accounts on such
Acquiring Fund's share transfer books in the Shareholders' names and
transfer such Acquiring Fund's Shares thereto. Each Shareholder's
account shall be credited with the pro rata number of full and
fractional (rounded to the third decimal place) Acquiring Fund's
Shares due that Shareholder. All outstanding Shares of such Target,
including any represented by certificates, shall simultaneously be
canceled on such Target's share transfer books. An Acquiring Fund
shall not issue certificates representing such Acquiring Fund's
Shares in connection with its Reorganization. However, certificates
representing each Target's Shares shall represent the corresponding
Acquiring Fund's Shares after each Reorganization.
1.6. As soon as reasonably practicable after distribution of an Acquiring
Fund's Shares pursuant to paragraph 1.5, the corresponding Target
shall be terminated and any further actions shall be taken in
connection therewith as required by applicable law. Each Target
shall file such instruments and shall take all other steps necessary
to effect a complete liquidation and dissolution of such Target.
1.7. Any reporting responsibility of a Target to a public authority is
and shall remain its responsibility up to and including the date on
which it is terminated.
1.8. Any transfer taxes payable upon issuance of an Acquiring Fund's
Shares in a name other than that of the registered holder on the
corresponding Target's books of such Target's Shares exchanged
therefor shall be paid by the person to whom such Acquiring Fund's
Shares are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), each Target's net value shall be
(a) the value of the Assets computed as of the close of regular
trading on the New York Stock Exchange ("NYSE") on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth
in such Target's then current prospectus and statement of additional
information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of each Acquiring Fund's
Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then current
prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Key Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. Each Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal
offices on _____________, 2000, or at such other place and/or on
such other date upon which the parties may agree. All acts
A-3-
<PAGE>
taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at
such other time upon which the parties may agree ("Effective Time").
If, immediately before the Valuation Time, (a) the NYSE is closed to
trading or trading thereon is restricted or (b) trading or the
reporting of trading on the NYSE or elsewhere is disrupted, so that
accurate appraisal of the net value of each Target and the NAV per
share for each Acquiring Fund is impracticable, the Effective Time
shall be postponed until the first business day after the day when
such trading shall have been fully resumed and such reporting shall
have been restored.
3.2. Each Target shall deliver to Victory at the Closing a schedule of
its Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax bases and
holding periods by lot. Each Target's custodian shall deliver at the
Closing a certificate of an authorized officer stating that (a) the
Assets held by the custodian will be transferred to the
corresponding Acquiring Fund at the Effective Time and (b) all
necessary taxes in conjunction with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if
any, have been paid or provision for payment has been made.
3.3. The Transfer Agent shall deliver at the Closing a certificate as to
the opening on each Acquiring Fund's share transfer books of
accounts in the names of the corresponding Target's Shareholders.
Victory shall issue and deliver a confirmation to each Target
evidencing the Acquiring Fund's Shares to be credited to such Target
at the Effective Time or provide evidence satisfactory to such
Target that the corresponding Acquiring Fund's Shares have been
credited to such Target's account on such Acquiring Fund's books. At
the Closing, each party shall deliver to the other such bills of
sale, checks, assignments, stock certificates, receipts, or other
documents as the other party or its counsel may reasonably request.
3.4. Victory, on behalf of each Target and Acquiring Fund, respectively,
shall deliver at the Closing a certificate executed in its name by
its President or a Vice President and dated as of the Effective
Time, to the effect that the representations and warranties it made
in this Agreement are true and correct in all material respects at
the Effective Time, with the same force and effect as if made at and
as of the Effective Time, except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Each Target represents and warrants as follows:
4.1.1. At the Closing, Target will have good and marketable title
to its Assets and full right, power, and authority to sell,
assign, transfer, and deliver its Assets free of any liens
or other encumbrances; and upon delivery and payment for
the Assets, the corresponding Acquiring Fund will acquire
good and marketable title thereto;
A-4-
<PAGE>
4.1.2. The corresponding Acquiring Fund's Shares are not being
acquired for the purpose of making any distribution
thereof, other than in accordance with the terms hereof;
4.1.3. Target's current prospectus and statement of additional
information conform in all material respects to the
applicable requirements of the Securities Act of 1933, as
amended ("1933 Act"), and the 1940 Act and the rules and
regulations thereunder and do not include any untrue
statement of a material fact or omit 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;
4.1.4. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the
transactions contemplated hereby will not (a) conflict with
or violate, Delaware law or any provision of Victory's
Certificate of Declaration of Trust or Trust Instrument or
By-laws or of any agreement, instrument, lease, or other
undertaking to which Target is a party or by which it is
bound or (b) result in the acceleration of any obligation,
or the imposition of any penalty, under any agreement,
judgment, or decree to which Target is a party or by which
it is bound, except as previously disclosed in writing to
and accepted by Victory;
4.1.5. Except as otherwise disclosed in writing to and accepted by
Victory, all material contracts and other commitments of or
applicable to Target (other than this Agreement and
investment contracts, including options and futures) will
be terminated, or provision for discharge of any
liabilities of Target thereunder will be made, at or prior
to the Effective Time, without Target incurring any
liability or penalty with respect thereto and without
diminishing or releasing any rights Target may have had
with respect to actions taken or not taken by any other
party thereto prior to the Closing;
4.1.6. Except as otherwise disclosed in writing to and accepted by
Victory on behalf of the corresponding Acquiring Fund, no
litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently
pending or (to Target's knowledge) threatened against
Target or any of its properties or assets that, if
adversely determined, would materially and adversely affect
Target's financial condition or the conduct of its
business; Target knows of no facts that might form the
basis for the institution of any such litigation,
proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment
of any court or governmental body that materially or
adversely affects its business or its ability to consummate
the transactions contemplated hereby;
4.1.7. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all
necessary action on the part of Victory's board of trustees
on behalf of Target, which has made the determinations
required by Rule 17a-8(a) under the 1940 Act; and, subject
to approval by
A-5-
<PAGE>
Target's shareholders and receipt of any necessary
exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff
with respect to Sections 17(a) and 17(d) of the 1940 Act,
this Agreement will constitute a valid and legally binding
obligation of Target, enforceable in accordance with its
terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.1.8. At the Effective Time, the performance of this Agreement
shall have been duly authorized by all necessary action by
Target's shareholders;
4.1.9. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act"), or the 1940
Act for the execution or performance of this Agreement by
Target, except for (a) the filing with the SEC of a
registration statement by Victory on Form N-14 relating to
the corresponding Acquiring Fund's Shares issuable
hereunder, and any supplement or amendment thereto
("Registration Statement"), including therein a
prospectus/proxy statement ("Proxy Statement"), (b) receipt
of the exemptive relief or no-action assurances referenced
in subparagraph 4.1.7, and (c) such consents, approvals,
authorizations, and filings as have been made or received
or as may be required subsequent to the Effective Time;
4.1.10. On the effective date of the Registration Statement, at
the time of the shareholders' meeting referred to in
paragraph 5.2, and at the Effective Time, the Proxy
Statement will (a) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act, and
the 1940 Act and the rules and regulations thereunder and
(b) not contain any untrue statement of a material fact or
omit any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which such statements were made, not
misleading. This provision shall not apply to statements in
or omissions from the Proxy Statement made in reliance on
and in conformity with information furnished by Victory for
use therein;
4.2. Each Acquiring Fund represents and warrants as follows:
4.2.1. No consideration other than Acquiring Fund's Shares (and
Acquiring Fund's assumption of the Liabilities) will be
issued in exchange for the corresponding Target's Assets in
the Reorganization;
4.2.2. Acquiring Fund's Shares to be issued and delivered to the
corresponding Target hereunder will, at the Effective Time,
have been duly authorized and, when issued and delivered as
provided herein, will be duly and validly issued and
outstanding shares of Acquiring Fund, fully paid and
nonassessable by Victory (except as disclosed in Victory's
then current prospectus and statement of additional
information). Except as contemplated by this Agreement,
A-6-
<PAGE>
Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any
of its shares, nor is there outstanding any security
convertible into any of its shares;
4.2.3. Acquiring Fund's current prospectus and statement of
additional information conform in all material respects to
the applicable requirements of the 1933 Act and the 1940
Act and the rules and regulations thereunder and do not
include any untrue statement of a material fact or omit 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;
4.2.4. Acquiring Fund is not in violation of, and the execution
and delivery of this Agreement and consummation of the
transactions contemplated hereby (a) will not conflict with
or violate, Delaware law or any provision of Victory's
Certificate of Trust or Trust Instrument or By-laws or any
provision of any agreement, instrument, lease, or other
undertaking to which Acquiring Fund is a party or by which
it is bound or (b) result in the acceleration of any
obligation, or the imposition of any penalty, under any
agreement, judgment, or decree to which Acquiring Fund is a
party or by which it is bound, except as previously
disclosed in writing to and accepted by Victory;
4.2.5. Except as otherwise disclosed in writing to and accepted by
Victory on behalf of its corresponding Target, no
litigation, administrative proceeding, or investigation of
or before any court or governmental body is presently
pending or (to Acquiring Fund's knowledge) threatened
against Victory with respect to Acquiring Fund or any of
its properties or assets that, if adversely determined,
would materially and adversely affect Acquiring Fund's
financial condition or the conduct of its business;
Acquiring Fund knows of no facts that might form the basis
for the institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the
provisions of any order, decree, or judgment of any court
or governmental body that materially or adversely affects
its business or its ability to consummate the transactions
contemplated hereby;
4.2.6. The execution, delivery, and performance of this Agreement
has been duly authorized as of the date hereof by all
necessary action on the part of Victory's board of trustees
on behalf of Acquiring Fund, which has made the
determinations required by Rule 17a-8(a) under the 1940
Act; and, subject to receipt of any necessary exemptive
relief or no-action assurances requested from the SEC or
its staff with respect to Sections 17(a) and 17(d) of the
1940 Act, this Agreement will constitute a valid and
legally binding obligation of Acquiring Fund, enforceable
in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or
affecting creditors' rights and by general principles of
equity;
A-7-
<PAGE>
4.2.7. No governmental consents, approvals, authorizations, or
filings are required under the 1933 Act, the 1934 Act, or
the 1940 Act for the execution or performance of this
Agreement by Victory, except for (a) the filing with the
SEC of the Registration Statement and a post-effective
amendment to Victory's registration statement on Form N-1A,
(b) receipt of the exemptive relief or no-action assurances
referenced in subparagraph 4.2.6, and (c) such consents,
approvals, authorizations, and filings as have been made or
received or as may be required subsequent to the Effective
Time;
4.2.8. On the effective date of the Registration Statement, at the
time of the shareholders' meeting referred to in paragraph
5.2, and at the Effective Time, the Proxy Statement will
(a) comply in all material respects with the applicable
provisions of the 1933 Act, the 1934 Act, and the 1940 Act
and the rules and regulations thereunder and (b) not
contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which such statements were made, not misleading;
provided that the foregoing shall not apply to statements
in or omissions from the Proxy Statement made in reliance
on and in conformity with information furnished by the
corresponding Target for use therein;
4.3. Victory, on behalf of each Fund, represents and warrants as
follows:
4.3.1. Victory is a business trust that is duly organized, validly
existing, and in good standing under the laws of the State
of Delaware; and a copy of its Certificate of Trust is on
file with the Secretary of the State of Delaware;
4.3.2. Victory is duly registered as an open-end management
investment company under the 1940 Act, and such
registration will be in full force and effect at the
Effective Time;
4.3.3. Each Fund is a duly established and designated series of
Victory.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring
and paying customary dividends and other distributions and such
changes in operations as are contemplated by each Fund's normal
business activities and (b) each Fund will retain exclusive
control of the composition of its portfolio until the Closing;
provided that no Target shall dispose of more than an
insignificant portion of its historic business assets during such
period without the corresponding Acquiring Fund's prior consent.
5.2. Each Target covenants to call a special meeting of shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated
hereby.
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5.3. Each Target covenants that its corresponding Acquiring Fund's
Shares to be delivered hereunder are not being acquired for the
purpose of making any distribution thereof, other than in
accordance with the terms hereof.
5.4. Each Target covenants that it will assist Victory in obtaining
such information as Victory reasonably requests concerning the
beneficial ownership of its Shares.
5.5. Each Target covenants that its books and records (including all
books and records required to be maintained under the 1940 Act and
the rules and regulations thereunder) will be turned over to
Victory at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement
in compliance with applicable federal securities laws.
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the corresponding Fund, execute and deliver or cause
to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further
action, as the corresponding Fund may deem necessary or desirable
in order to vest in, and confirm to, (a) each Acquiring Fund,
title to and possession of all corresponding Target's Assets, and
(b) each Target, title to, and possession of the corresponding
Acquiring Fund's Shares to be delivered hereunder, and otherwise
to carry out the intent and purpose hereof.
5.8. Each Acquiring Fund covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act,
the 1940 Act, and such state securities laws as it may deem
appropriate in order to continue its operations after the
Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to
be taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and
effectuate the transactions contemplated hereby.
5.10. Victory covenants to file an amendment to its registration
statement on Form N-1A to register Class A Shares of Established
Value Fund.
5.11. Victory, on behalf of Ohio Regional Stock Fund, covenants that it
will take all reasonable action to ensure that comparable classes
of shares exist between it and Established Value Fund.
6. CONDITIONS PRECEDENT
6.1. Each Fund's obligations hereunder shall be subject to (a)
performance by its corresponding Fund of all the obligations to be
performed hereunder at or before the Effective Time, (b) all
representations and warranties of the corresponding Fund contained
herein being true and correct in all material respects as of the
date hereof and, except as they may be affected by the
transactions contemplated hereby, as of the Effective Time, with
the same force and effect as if made at and as of the Effective
Time, and (c) the following further conditions that, at or before
the Effective Time:
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6.1.1. This Agreement and the transactions contemplated hereby
shall have been duly adopted and approved by Victory's
board of trustees on behalf of Target and Acquiring Fund
and shall have been approved by each Target's shareholders
in accordance with applicable law.
6.1.2. All necessary filings shall have been made with the SEC and
state securities authorities, and no order or directive
shall have been received that any other or further action
is required to permit the parties to carry out the
transactions contemplated hereby. The Registration
Statement shall have become effective under the 1933 Act,
no stop orders suspending the effectiveness thereof shall
have been issued, and the SEC shall not have issued an
unfavorable report with respect to the Reorganization under
section 25(b) of the 1940 Act nor instituted any
proceedings seeking to enjoin consummation of the
transactions contemplated hereby under section 25(c) of the
1940 Act. All consents, orders, and permits of federal,
state, and local regulatory authorities (including the SEC
and state securities authorities) deemed necessary by any
Fund to permit consummation, in all material respects, of
the transactions contemplated hereby shall have been
obtained, except where failure to obtain the same would not
involve a risk of a material adverse effect on the assets
or properties of any Fund, provided that any Fund may for
itself waive any of such conditions.
6.1.3. At the Effective Time, no action, suit, or other proceeding
shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit, or to obtain
damages or other relief in connection with, the
transactions contemplated hereby.
6.1.4. The amendment to the Fund's registration statement on Form
N-1A filed by Victory on behalf of Established Value Fund
registering Class A Shares shall have become effective.
6.1.5. Each Target shall have received an opinion of Kramer Levin
Naftalis & Frankel LLP, counsel to Victory, substantially
to the effect that:
6.1.5.1. Its corresponding acquiring Fund is a duly
established series of Victory, a business trust
duly organized and validly existing under the
laws of the State of Delaware with the power
under its Trust Instrument to own all of its
properties and assets and, to the knowledge of
such counsel, to carry on its business as
presently conducted;
6.1.5.2. This Agreement (a) has been duly authorized,
executed, and delivered by Victory on behalf of
its corresponding Acquiring Fund and (b)
assuming due authorization, execution, and
delivery of this Agreement by Target, is a valid
and legally binding obligation of Victory with
respect to the corresponding Acquiring Fund,
enforceable in accordance with its terms, except
as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or
affecting creditors' rights and remedies by
general
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principles of equity and principles of course of
dealing or course of performance and standards
of good faith, fair dealing, materiality or
reasonableness that may be applied by a court to
the exercise of rights and remedies;
6.1.5.3. Each Acquiring Fund's Shares to be issued and
distributed to the Shareholders under this
Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly
authorized and validly issued and outstanding
and fully paid and nonassessable (except as
disclosed in Victory's then current prospectus
and statement of additional information);
6.1.5.4. The execution and delivery of this Agreement
did not, and the consummation of the
transactions contemplated hereby will not,
materially violate Victory's Trust Instrument or
By-laws or any provision of any agreement (known
to such counsel, without any independent inquiry
or investigation) to which Victory (with respect
to the corresponding Acquiring Fund) is a party
or by which it is bound or (to the knowledge of
such counsel, without any independent inquiry or
investigation) result in the acceleration of any
obligation, or the imposition of any penalty,
under any agreement, judgment, or decree to
which Victory (with respect to the corresponding
Acquiring Fund) is a party or by which it (with
respect to the corresponding Acquiring Fund) is
bound, except as set forth in such opinion or as
previously disclosed in writing to and accepted
by Victory;
6.1.5.5. To the knowledge of such counsel (without any
independent inquiry or investigation), no
consent, approval, authorization, or order of
any court or governmental authority is required
for the consummation by Victory on behalf of the
corresponding Acquiring Fund of the transactions
contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act, and
the 1940 Act and such as may be required under
state securities laws;
6.1.5.6. Victory is registered with the SEC as an
investment company, and to the knowledge of such
counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.1.5.7. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no
litigation, administrative proceeding, or
investigation of or before any court or
governmental body is pending or threatened as to
Victory (with respect to the corresponding
Acquiring Fund) or any of its properties or
assets attributable or allocable to the
corresponding Acquiring Fund and (b) Victory
(with respect to the corresponding Acquiring
Fund) is not a party to or subject to the
provisions of any order, decree, or judgment of
any court or governmental body that materially
and adversely affects
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the corresponding Acquiring Fund's business,
except as set forth in such opinion or as
otherwise disclosed in writing to and accepted
by Victory.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion of
competent Delaware counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then
with such firm who have devoted substantive attention to matters
directly related to this Agreement and each Reorganization; and (v)
rely on certificates of officers or trustees of Victory, in each case
reasonably acceptable to Victory.
6.1.6. Each Acquiring Fund shall have received an opinion of Kramer
Levin Naftalis & Frankel LLP, counsel to Victory, substantially
to the effect that:
6.1.6.1. Its corresponding Target is an established series of
Victory, a business trust duly organized and validly
existing under the laws of the State of Delaware with
power under its Trust Instrument to own all of its
properties and assets and, to the knowledge of such
counsel, to carry on its business as presently
conducted;
6.1.6.2. This Agreement (a) has been duly authorized, executed,
and delivered by Victory on behalf of its corresponding
Target and (b) assuming due authorization, execution,
and delivery of this Agreement by Victory on behalf of
the Acquiring Fund, is a valid and legally binding
obligation of each corresponding Target, enforceable in
accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to
or affecting creditors' rights and remedies, by general
principles of equity, and principles of course of
dealing or course of performance and standards of good
faith, fair dealing, materiality or reasonableness that
may be applied by a court to the exercise of rights and
remedies;
6.1.6.3. The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated
hereby will not, (a) materially violate Victory's Trust
Instrument or By-laws or any provision of any agreement
(known to such counsel, without any independent inquiry
or investigation) to which Victory (with respect to the
corresponding Target) is a party or by which it is bound
or (b) (to the knowledge of such counsel, without any
independent inquiry or investigation) result in the
acceleration of any obligation, or the imposition of any
penalty, under any agreement, judgment, or decree to
which Victory (with respect to the corresponding Target)
is a party or by which it (with respect to the
corresponding Target) is bound, except as set forth in
such opinion or as previously disclosed in writing to
and accepted by Victory;
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6.1.6.4. To the knowledge of such counsel (without any
independent inquiry or investigation), no consent,
approval, authorization, or order of any court or
governmental authority is required for the consummation
by Victory on behalf of the corresponding Target of the
transactions contemplated hereby, except such as have
been obtained under the 1933 Act, the 1934 Act, and the
1940 Act and such as may be required under state
securities laws;
6.1.6.5. Victory is registered with the SEC as an investment
company, and to the knowledge of such counsel no order
has been issued or proceeding instituted to suspend such
registration; and
6.1.6.6. To the knowledge of such counsel (without any
independent inquiry or investigation), (a) no
litigation, administrative proceeding, or investigation
of or before any court or governmental body is pending
or threatened as to Victory (with respect to the
corresponding Target) or any of its properties or assets
attributable or allocable to the corresponding Target
and (b) Victory (with respect to the corresponding
Target) is not a party to or subject to the provisions
of any order, decree, or judgment of any court or
governmental body that materially and adversely affects
the corresponding Target's business, except as set forth
in such opinion or as otherwise disclosed in writing to
and accepted by Victory.
In rendering such opinion, such counsel may (i) rely, as to
matters governed by the laws of the State of Delaware, on an
opinion of competent Delaware counsel, (ii) make assumptions
regarding the authenticity, genuineness, and/or conformity of
documents and copies thereof without independent verification
thereof, (iii) limit such opinion to applicable federal and
state law, (iv) define the word "knowledge" and related terms to
mean the knowledge of attorneys then with such firm who have
devoted substantive attention to matters directly related to
this Agreement and each Reorganization, and (v) rely on
certificates of officers or trustees of Target; in each case
reasonably acceptable to Victory.
6.1.7. Victory, on behalf of each Target and its corresponding
Acquiring Fund, shall have received an opinion of Kramer Levin
Naftalis & Frankel LLP addressed to and in form and substance
reasonably satisfactory to it, as to the federal income tax
consequences of each Reorganization ("Tax Opinion"). In
rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on
the representations made in this Agreement (and/or in separate
letters addressed to such counsel) and each Fund's separate
covenants. Each party agrees to make reasonable covenants and
representations as to factual matters as of the Effective Time
in connection with the rendering of such opinion. The Tax
Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein and conditioned on
consummation of each Reorganization in accordance with this
Agreement, for federal income tax purposes:
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6.1.7.1. Each Reorganization will constitute a reorganization
within the meaning of section 368(a)(1) of the Code,
and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.1.7.2. No gain or loss will be recognized by Target on the
transfer to the corresponding Acquiring Fund of
Assets in exchange solely for the Acquiring Fund's
Shares and Acquiring Fund's assumption of Liabilities
or on the subsequent distribution of those shares to
the Shareholders in liquidation of such Target;
6.1.7.3. No gain or loss will be recognized by the Acquiring
Fund on its receipt of Assets in exchange solely for
Acquiring Fund's Shares and its assumption of
Liabilities;
6.1.7.4. Each Acquiring Fund's adjusted tax basis in the
Assets acquired will be equal to the basis thereof in
the corresponding Target's hands immediately before
such Reorganization, and each Acquiring Fund's
holding period for the Assets will include the
corresponding Target's holding period therefor;
6.1.7.5. A Shareholder will recognize no gain or loss on the
exchange of its Target Shares solely for the
corresponding Acquiring Fund's Shares pursuant to a
Reorganization; and
6.1.7.6. A Shareholder's aggregate tax basis in any Acquiring
Fund's Shares received by it in a Reorganization will
equal its aggregate tax basis in its Target Shares
surrendered in exchange therefor, and its holding
period for such Acquiring Fund Shares will include
its holding period for such Target Shares, provided
such Target Shares are held as capital assets by the
Shareholder at the Effective Time.
6.2. At any time before the Closing, each Fund may waive any of the
foregoing conditions if, in the judgment of Victory's board of
trustees, such waiver will not have a material adverse effect
on its shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Victory, on behalf of each Fund, represents and warrants that
there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for
herein.
7.2. Each Fund will be responsible for its own expenses incurred in
connection with each Reorganization, as agreed to by the
parties.
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8. ENTIRE AGREEMENT; SURVIVAL
8.1. Neither party has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes
the entire agreement between the parties. The representations,
warranties, and covenants contained herein or in any document
delivered pursuant hereto or in connection herewith shall
survive the Closing.
9. TERMINATION OF AGREEMENT
9.1. This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by each
Target's Shareholders:
9.1.1. By any Fund (a) in the event of a material breach of
any representation, warranty, or covenant contained
herein to be performed at or prior to the Effective
Time, (b) if a condition to its obligations has not
been met and it reasonably appears that such
condition will not or cannot be met, or (c) if the
Closing has not occurred on or before March 30, 2000;
or
9.1.2. By the parties' mutual agreement.
9.2. In the event of termination under paragraphs 9.1.1(c) or
9.1.2, there shall be no liability for damages on the part of
either Fund affected by the termination, or the trustees or
officers of Victory, to its corresponding Fund.
10. AMENDMENT
10.1. This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by each Target's
Shareholders, in such manner as may be mutually agreed upon in
writing by the parties; provided that following such approval
no such amendment shall have a material adverse effect on such
Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware;
provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or
corporation other than the parties and their respective
successors and assigns any rights or remedies under or by
reason of this Agreement.
11.3. The parties acknowledge that Victory is a business trust.
Notice is hereby given that this instrument is executed on
behalf of Victory's trustees solely in their capacity as
trustees, and not individually, and that Victory's obligations
under this instrument on behalf of each Fund are not binding
on or enforceable against any of its trustees, officers, or
shareholders, but are only binding on and enforceable against
the respective Funds' assets and property. Each Fund agrees
that, in asserting any rights or claims
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under this Agreement, it shall look only to the corresponding
Fund's assets and property in settlement of such rights or
claims and not to such trustees or shareholders.
11.4. Victory agrees to indemnify and hold harmless each trustee of
Victory at the time of the execution of this Agreement against
expenses, including reasonable attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably
incurred by such trustee in connection with any claim that is
asserted against such trustee arising out of such person's
service as a trustee of Victory, provided that such
indemnification shall be limited to the full extent of the
indemnification that is available to the trustees of Victory
pursuant to the provisions of Victory's Trust Instrument and
applicable law.
11.5. For the period beginning at the time of the Reorganization and
ending not less than three years thereafter, Victory shall
provide for liability coverage for the actions of each trustee
of Victory on behalf of each Target at the time of the
execution of this Agreement for the period they served as
such.
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IN WITNESS WHEREOF, each party has caused this Agreement to be executed by
its duly authorized officer.
ATTEST: THE VICTORY PORTFOLIOS, on behalf of
its series:
Fund for Income
Established Value Fund
- ----------------------------------- -------------------------------------
___________________________________ By: ________________________________
Secretary Vice President
ATTEST: THE VICTORY PORTFOLIOS, on behalf of
its series:
Government Mortgage Fund
Ohio Regional Stock Fund
- ----------------------------------- -------------------------------------
___________________________________ By: _________________________________
Secretary Vice President
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EXHIBIT B
THE VICTORY PORTFOLIOS
December 6, 1995
Amended and Restated as of __________ ___, 2000
TRUST INSTRUMENT of The Victory Portfolios, a Delaware business trust
(the "Trust"), amended and restated by Harry Gazelle, Eugene J. McDonald, Thomas
F. Morrissey, Roger Noall, Frank A. Weil, Leigh A. Wilson, and H. Patrick
Swygert (the "Trustees").
WHEREAS Robert G. Brown, Edward P. Campbell, Harry Gazelle, Stanley
I. Landgraf, Thomas F. Morrissey, Leigh A. Wilson, and H. Patrick Swygert, as
the initial Trustees of the Trust, established the Trust pursuant to a Trust
Instrument dated December 6, 1995 (the "Original Trust Instrument"); and
WHEREAS, the Trustees declare that all money and property contributed
to the Trust hereunder shall be held and managed in trust under this Trust
Instrument as set forth herein; and
WHEREAS, the Trustees consider it necessary and appropriate to amend
and restate the Original Trust Instrument; and
WHEREAS, a majority of the Shareholders of the Trust voted to approve
the amendment and restatement of the Original Trust Instrument at a meeting held
on __________ ___, 2000;
NOW THEREFORE, the Original Trust Instrument is amended and restated
as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.01 Name. The name of the trust created under the Original
Trust Instrument and continued hereby is "The Victory Portfolios."
Section 1.02 Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) The "1940 Act" means the Investment Company Act of 1940, as
amended from time to time. Whenever reference is made hereunder to the 1940 Act,
such references shall be interpreted as including any applicable order or orders
of the Commission or any rules or regulations adopted by the Commission
thereunder or interpretive releases of the Commission staff;
(b) "Bylaws" means the Bylaws of the Trust as adopted by the
Trustees, as amended from time to time;
(c) "Commission" has the meaning given it in the 1940 Act. In
addition, "Affiliated Person," "Assignment," "Interested Person" and "Principal
Underwriter" shall have the respective meanings given them in the 1940 Act.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" under the
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1940 Act;
(d) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware
Code titled "Treatment of Delaware Business Trusts," as amended from time to
time;
(e) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article IX, Section 9.03 hereof;
(f) "Outstanding Shares" means those Shares shown from time to time
in the books of the Trust or its transfer agent as then issued and outstanding,
but shall not include Shares which have been redeemed or repurchased by the
Trust and which are at the time held in the treasury of the Trust;
(g) "Series" means a series of Shares of the Trust established in
accordance with the provisions of Article II, Section 2.06 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares of the
Trust;
(i) "Shares" means the equal proportionate transferable units of
beneficial interest into which the beneficial interest of each Series of the
Trust or class thereof shall be divided and may include fractions of Shares as
well as whole Shares;
(j) The "Trust" means The Victory Portfolios, a Delaware business
trust, and reference to the Trust when applicable to one or more Series of the
Trust, shall refer to any such Series;
(k) The "Trustees" means the person or persons who has or have signed
this Trust Instrument so long as he or they shall continue in office in
accordance with the terms hereof and all other persons who may from time to time
be duly qualified and serving as Trustees in accordance with the provisions of
Article III hereof, and reference herein to a Trustee or to the Trustees shall
refer to the individual Trustees in their respective capacity as Trustees
hereunder;
(l) "Trust Instrument" means this Trust Instrument, as amended or
restated from time to time.
(m) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of one or
more of the Trust or any Series, or the Trustees on behalf of the Trust or any
Series.
ARTICLE II
BENEFICIAL INTEREST
Section 2.01 Shares Of Beneficial Interest. The beneficial interest
in the Trust shall be divided into such Shares of one or more separate and
distinct Series or classes of a Series as set forth in Section 2.06 or as the
Trustees shall otherwise from time to time create and establish as provided in
Section 2.06. The number of Shares of each Series and class thereof authorized
hereunder is unlimited. Each Share shall have a par value of $0.001. All Shares
issued hereunder, including, without limitation, Shares issued in connection
with a dividend paid in
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Shares or a split of Shares, shall be fully paid and non-assessable.
Section 2.02 Issuance of Shares. The Trustees in their discretion
may, from time to time, without a vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, subject to applicable law, including cash or securities, at such
time or times and on such terms as the Trustees may deem appropriate, and may in
such manner acquire other assets (including the acquisition of assets subject
to, and in connection with, the assumption of liabilities) and businesses. In
connection with any issuance of Shares, the Trustees may issue fractional Shares
and Shares held in the treasury. The Trustees may from time to time divide or
combine the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1000ths
of a Share or integral multiples thereof. The Trustees or any person the
Trustees may authorize for the purpose may, in their discretion, reject any
application for the issuance of shares.
Section 2.03 Register of Shares and Share Certificates. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. No
share certificates shall be issued by the Trust except as the Trustees may
otherwise authorize, and the persons indicated as shareholders in such register
shall be entitled to receive dividends or other distributions or otherwise to
exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled
to receive payment of any dividend or other distribution, nor to have notice
given to him as herein or in the Bylaws provided, until he has given his address
to the transfer agent or such officer or other agent of the Trustees as shall
keep the said register for entry thereon.
Section 2.04 Transfer of Shares. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required by the Trustees.
Upon such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereunder and neither the Trustees nor
the Trust, nor any transfer agent or registrar nor any officer, employee or
agent of the Trust shall be affected by any notice of the proposed transfer.
Section 2.05 Treasury Shares. Shares held in the treasury shall,
until reissued pursuant to Section 2.02 hereof, not confer any voting rights on
the Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.06 Establishment of Series. Subject to the provisions of
this Section 2.06, the Trust shall consist of the Series indicated on Schedule A
attached hereto, as such Schedule may be amended from time to time. The initial
Series of the Trust were comprised of twenty-four Series, each of which
corresponded to a series of shares of The Victory Portfolios, a Massachusetts
business trust (the "Predecessor Trust"). The preferences, voting powers, rights
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and privileges of the Series and any classes thereof existing as of the date
hereof shall be as set forth in the Trust's registration statement or statements
as filed with the Commission, as from time to time in effect. Distinct records
shall be maintained by the Trust for each Series and the assets associated with
each Series shall be held and accounted for separately from the assets of the
Trust or any other Series. The Trustees shall have full power and authority, in
their sole discretion and without obtaining any prior authorization or vote of
the Shareholders of any Series, to establish and designate and to change in any
manner any Series or any classes of initial or additional Series and to fix such
preferences, voting powers, rights and privileges of such Series or classes
thereof as the Trustees may from time to time determine, to divide or combine
the Shares or any Series or classes thereof into a greater or lesser number, to
classify or reclassify any issued Shares or any Series or classes thereof into
one or more Series or classes of Shares, and to take such other action with
respect to the Shares as the Trustees may deem desirable. The establishment and
designation of any Series or any classes thereof (other than those existing as
of the date hereof) shall be effective upon the adoption of a resolution by a
majority of the Trustees setting forth such establishment and designation and
the relative rights and preferences of the Shares of such Series, whether
directly in such resolution or by reference to, or approval of, another document
that sets forth such relative rights and preferences of such Series (or class)
including, without limitation, any registration statement of the Trust, or as
otherwise provided in such resolution. Upon the establishment of any such Series
(or class), Schedule A shall be amended to reflect the addition of such Series
(or class) thereto; provided that amendment of Schedule A shall not be a
condition precedent to the establishment of any Series (or class) in accordance
with this Trust Instrument. A Series may issue any number of Shares, but need
not issue Shares. At any time that there are no Shares outstanding of any
particular Series (or class) previously established and designated, the Trustees
may by a majority vote abolish that Series (or class) and the establishment and
designation thereof, and, in connection with such abolishment, Schedule A shall
be amended to reflect the removal of such Series (or class) therefrom; provided
that amendment of Schedule A shall not be a condition precedent to the
abolishment of any Series (or class) in accordance with this Trust Instrument.
All references to Shares in this Trust Instrument shall be deemed to
be Shares of any or all Series, or classes thereof as the context may require.
All provisions herein relating to the Trust shall apply equally to each Series
of the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his proportionate share of all distributions
made with respect to such Series, based upon the number of full and fractional
Shares of the Series held. Upon redemption of his Shares, such Shareholder shall
be paid solely out of the funds and property of such Series of the Trust.
Section 2.07 Investment in the Trust. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full and fractional Shares at the net asset
value per Share next determined after the investment is received or accepted as
may be determined by the Trustees; provided, however,
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that the Trustees may, in their sole discretion, (a) fix minimum amounts for
initial and subsequent investments or (b) impose a sales charge upon investments
in such manner and at such time determined by the Trustees.
Section 2.08 Assets and Liabilities of Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be held and accounted for separately from the other assets of
the Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, and shall be
subject only to the rights of creditors of that Series. In addition, any assets,
income, earnings, profits or funds, or payments and proceeds with respect
thereto, which are not readily identifiable as belonging to any particular
Series shall be allocated by the Trustees between and among one or more of the
Series in such manner as the Trustees, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets, income, earnings,
profits or funds, or payments and proceeds with respect thereto shall be assets
belonging to that Series. The assets belonging to a particular Series shall be
so recorded upon the books of the Trust, and shall be held by the Trustees in
trust for the benefit of the holders of Shares of that Series, and separate and
distinct records shall be maintained for each Series. The assets belonging to
each particular Series shall be charged with the liabilities of that Series and
all expenses, costs, charges and reserves attributable to that Series. Any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular Series shall be
allocated and charged by the Trustees between or among any one or more of the
Series in such manner as the Trustees in their sole discretion deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Without limitation of the foregoing
provisions of this Section 2.08, but subject to the right of the Trustees in
their discretion to allocate general liabilities, expenses, costs, changes or
reserves as herein provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
Series shall be enforceable against the assets of such Series only, and not
against the assets of the Trust generally or of any other Series and none of the
debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to the Trust generally or any other Series
thereof shall be enforceable against the assets of such Series. Notice of this
contractual limitation on inter-Series liabilities may, in the Trustee's sole
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
inter-Series liabilities (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may look only to the assets of that Series
to satisfy or enforce any debt, with respect to that Series. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
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Section 2.09 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or other
Series.
Section 2.10 No Personal Liability of Shareholder. No Shareholder
shall be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
by or on behalf of any Series. The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for the payment of any
sum of money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise. Every note, bond, contract or other understanding issued by or on
behalf of the Trust or the Trustees relating to the Trust or to a Series shall
include a recitation limiting the obligation represented thereby to the Trust or
to one or more Series and its or their assets (but the omission of such a
recitation shall not operate to bind any Shareholder or Trustee of the Trust).
Section 2.11 Assent to Trust Instrument. Every Shareholder, by virtue
of having purchased a Share or by virtue of having received a Share in
connection with the conversion of the Predecessor Trust, shall become a
Shareholder and shall be held to have expressly assented and agreed to be bound
by the terms hereof.
ARTICLE III
THE TRUSTEES
Section 3.01 Management of the Trust. The Trustees shall have
exclusive and absolute control over the Trust Property and over the business of
the Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and business in their own right, but with such powers of
delegation as may be permitted by this Trust Instrument. The Trustees shall have
power to conduct the business of the Trust and carry on its operations in any
and all of its branches and maintain offices both within and without the State
of Delaware, in any and all states of the United States of America, in the
District of Columbia, in any and all commonwealths, territories, dependencies,
colonies, or possessions of the United States of America, and in any foreign
jurisdiction and to do all such other things and execute all such instruments as
they deem necessary, proper or desirable in order to promote the interests of
the Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this Trust
Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees may
be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Any Shareholder meeting held for such purpose shall be held on
a date fixed by the Trustees. In the event that less than a majority of the
Trustees holding office have been elected by Shareholders, the Trustees then in
office will
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call a Shareholders' meeting for the election of Trustees in accordance with the
provisions of the 1940 Act.
Section 3.02 Initial Trustees. The initial Trustees shall be the
persons named in the Original Trust Instrument. The (i) election of initial
Trustees and (ii) an approval of the Plan of Conversion for the transfer of
assets from the Predecessor Trust to the Trust, at the Special Meeting of the
Shareholders was conducted in accordance with the Proxy Statement of the
Predecessor Trust dated October 31, 1995, and is deemed to constitute an
election of Trustees for all purposes hereunder, including for purposes of the
last sentence of Section 3.01.
Section 3.03 Term of Office. The Trustees shall hold office during
the lifetime of this Trust, and until its termination as herein provided, except
(a) that any Trustee may resign his trust by written instrument signed by him
and delivered to the other Trustees, which shall take effect upon such delivery
or upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, becomes physically or mentally incapacitated by reason
of illness or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares of the Trust.
Section 3.04 Vacancies and Appointments. In case of a Trustee's
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of illness, disease or otherwise, or if a Trustee is
otherwise unable to serve, or if there is an increase in the number of Trustees,
a vacancy shall occur. Whenever a vacancy in the Board of Trustees shall occur,
until such vacancy is filled, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy shall be
conclusive. In the case of a vacancy, the remaining Trustees shall fill such
vacancy by appointing such other person as they in their discretion see fit, to
the extent consistent with the limitations provided under the 1940 Act. Such
appointment shall be evidenced by a written instrument signed by a majority of
the Trustees in office or by resolution of the Trustees, duly adopted, which
shall be recorded in the minutes of a meeting of the Trustees, whereupon the
appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in
office in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees effective at a later date,
provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any person appointed as a Trustee pursuant to this Section
3.04 shall have accepted this Trust, the trust estate shall vest in the new
Trustee or Trustees, together with the continuing Trustees, without any further
act or conveyance, and such person shall be deemed a Trustee.
Section 3.05 Temporary Absence. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any time
to any other Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
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Section 3.06 Number of Trustees. The number of Trustees shall be at
least two (2), and thereafter shall be such number as shall be fixed from time
to time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than twelve (12).
Section 3.07 Effect of Ending of a Trustee's Service. The declination
to serve, death, resignation, retirement, removal, incapacity, or inability of
the Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
Section 3.08 Ownership of Assets of the Trust. The assets of the
Trust and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and the
right to conduct any business shall at all times be considered as vested in the
Trustees on behalf of the Trust, except that the Trustees may cause legal title
to any Trust Property to be held by, or in the name of, the Trust or in the name
of any person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
the Trust or Series based upon the number of Shares owned. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.01 Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall not in any way be bound or limited by present or future laws or
customs in regard to trust investments, but shall have full authority and power
to make any and all investments which they, in their sole discretion, shall deem
proper to accomplish the purpose of this Trust without recourse to any court or
other authority. Subject to any applicable limitation in this Trust Instrument
or the Bylaws of the Trust, the Trustees shall have the power and authority:
(a) To invest and reinvest cash and other property (including
investment, notwithstanding any other provision hereof, of all of the assets of
any Series in a single open-end investment company, including investment by
means of transfer of such assets in exchange for an interest or interests in
such investment company), and to hold cash or other property of the Trust
uninvested, without in any event being bound or limited by any present or future
law or custom in regard to investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or all of the
assets of the Trust:
(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other
evidence of
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indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of an obligation or engagement of any other person and to lend
Trust Property;
(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies that
are members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents and shareholder servicing
agents, or both;
(i) To set record dates in the manner provided herein or in the
Bylaws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XI, subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
powers of attorney to such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties
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as they may provide consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided herein;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the
powers of the Trustees to said committees and to adopt a committee charter
providing for such responsibilities, membership (including Trustees, officers or
other agents of the Trust therein) and any other characteristics of said
committees as the Trustees may deem proper. Notwithstanding the provisions of
this Article IV, and in addition to such provisions or any other provision of
this Trust Instrument or of the Bylaws, the Trustees may by resolution appoint a
committee consisting of less than the whole number of Trustees then in office,
which committee may be empowered to act for and bind the Trustees and the Trust,
as if the acts of such committee were the acts of all the Trustees then in
office, with respect to the institution, prosecution, dismissal, settlement,
review or investigation of any action, suit or proceeding which shall be pending
or threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices or limitations of
any Series;
(w) To establish a registered office and have a registered agent in
the state of Delaware;
(x) To invest part or all of the Trust Property (or part or all of
the assets of any Series), or to dispose of part or all of the Trust Property
(or part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act (including investment by means of transfer of part
or all of the Trust Property in exchange for an interest or interests in such
one or more investment companies) all without any requirement of approval by
Shareholders unless required by the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws
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of the State of Delaware or of any other state) which is classified as a
partnership for federal income tax purposes; and
(y) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one or
more of the Trustees in their capacity as such hereunder shall be deemed an
action on behalf of the Trust or the applicable Series, and not an action in an
individual capacity.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 4.02 Issuance and Repurchase of Shares. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of and otherwise deal in Shares and, subject to
the provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
Section 4.03 Trustees and Officers as Shareholders. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued and sold Shares to and buy such Shares
from any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
Section 4.04 Action by the Trustees. In any action taken by the
Trustees hereunder, unless otherwise specified, the Trustees shall act by
majority vote at a meeting (including a telephone meeting) duly called, provided
a quorum of Trustees participate, or by written consent of a majority of the
Trustees without a meeting, unless the 1940 Act requires that a particular
action be taken only at a meeting at which the Trustees are present in person.
At any meeting of the Trustees, a majority of the Trustees shall constitute a
quorum. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Board of Trustees or by any two other Trustees. Notice of the
time, date and place of all meetings of the Trustees shall be given by the
person calling the meeting to each Trustee by telephone, facsimile or other
electronic mechanism sent to his home or business address at least twenty-four
hours in advance of the meeting or by
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written notice mailed to his home or business address at least seventy-two hours
in advance of the meeting. Notice need not be given to any Trustee who attends
the meeting without objecting to the lack of notice or who executes a written
waiver of notice with respect to the meeting. Any meeting conducted by telephone
shall be deemed to take place at the principal office of the Trust, as
determined by the Bylaws or by the Trustees. Subject to the requirements of the
1940 Act, the Trustees by majority vote may delegate to any one or more of their
number their authority to approve particular matters or take particular actions
on behalf of the Trust. Written consents or waivers of the Trustees may be
executed in one or more counterparts. Execution of a written consent or waiver
and delivery thereof to the Trust may be accomplished by facsimile or other
similar electronic mechanism.
Section 4.05 Chairman of the Board of Trustees. The Trustees shall
appoint one of their number to be Chairman of the Board of Trustees. The
Chairman shall preside at all meetings of the Trustees, shall be responsible for
the execution of policies established by the Trustees and the administration of
the Trust, and may be (but is not required to be) the chief executive, financial
and/or accounting officer of the Trust.
Section 4.06 Principal Transactions. Except to the extent prohibited
by applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
interested person of such person; and the Trust may employ any such person, or
firm or company in which such person is an interested person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the
Trustees shall be reimbursed from the Trust estate or the assets belonging to
the appropriate Series for their expenses and disbursements, including, without
limitation, interest charges, taxes, brokerage fees and commissions; expenses of
issue, repurchase and redemption of Shares; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, distributors, custodians,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining its existence;
costs of preparing and printing the Trust's prospectuses, statements of
additional information and shareholder reports and delivering them to existing
Shareholders; expenses of meetings of Shareholders and proxy solicitations
therefor; costs of maintaining books and accounts; costs of reproduction,
stationery and supplies; fees and expenses of the Trustees; compensation of the
Trust's officers and employees and costs of other personnel performing services
for the Trust; costs of Trustee meetings; Commission registration fees and
related expenses; state or foreign securities laws registration fees and related
expenses and for such non-recurring items as may arise, including litigation to
which the Trust (or a Trustee acting as such)
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is a party, and for all losses and liabilities by them incurred in administering
the Trust, and for the payment of such expenses, disbursements, losses and
liabilities, the Trustees shall have a lien on the assets belonging to the
appropriate Series, or in the case of an expense allocable to more than one
Series, on the assets of each such Series, prior to any rights or interests of
the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
Section 6.01 Investment Adviser.
(a) The Trustees may in their discretion, from time to time, enter
into an investment advisory contract or contracts with respect to the Trust or
any Series whereby the other party or parties to such contract or contracts
shall undertake to furnish the Trustees with such investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, all upon such terms and conditions (including any Shareholder
vote) that may be required under the 1940 Act, as may be prescribed in the
Bylaws, or as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws). Notwithstanding any other provision of this Trust Instrument,
the Trustees may authorize any investment adviser (subject to such general or
specific instructions as the Trustees may from time to time adopt) to effect
purchases, sales or exchanges of portfolio securities, other investment
instruments of the Trust, or other Trust Property on behalf of the Trustees, or
may authorize any officer, agent, or Trustee to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser (and all without
further action by the Trustees). Any such purchases, sales and exchanges shall
be deemed to have been authorized by all of the Trustees.
(b) The Trustees may authorize the investment adviser to employ, from
time to time, one or more sub-advisers to perform such of the acts and services
of the investment adviser, and upon such terms and conditions, as may be agreed
upon between the investment adviser and sub-adviser (such terms and conditions
not to be inconsistent with the provisions of this Trust Instrument or of the
Bylaws). Any reference in this Trust Instrument to the investment adviser shall
be deemed to include such sub-advisers, unless the context otherwise requires;
provided that no Shareholder approval shall be required with respect to any
sub-adviser unless required under the 1940 Act or other law, contract or order
applicable to the Trust.
Section 6.02 Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws); and such contract may also provide for the repurchase or sale
of Shares by such other party as principal or as agent of the Trust.
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Section 6.03 Administration. The Trustees may in their discretion
from time to time enter into one or more management or administrative contracts
whereby the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the Trustees
may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
Section 6.04 Transfer Agent. The Trustees may in their discretion
from time to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
Section 6.05 Parties to Contract. Any contract of the character
described in Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any
contract of the character described in Article VIII hereof may be entered into
with any corporation, firm, partnership, trust or association, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding such relationship be liable merely
by reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article VI or Article VIII hereof or of
the Bylaws. The same person (including a corporation, firm, partnership, trust,
or association) may be the other party to contracts entered into pursuant to
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or pursuant to Article
VIII hereof and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 6.05.
Section 6.06 Provisions and Amendments. Any contract entered into
pursuant to Section 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 or 6.02 of this Article VI shall be
effective unless assented to in a manner consistent with the requirements of
said Section 15, as modified by any applicable rule, regulation or order of the
Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 7.01 Voting Powers.
(a) The Shareholders shall have power to vote only (a) for the
election of Trustees to the
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extent provided in Article III, Section 3.01 hereof, (b) for the removal of
Trustees to the extent provided in Article III, Section 3.03(d) hereof, (c) with
respect to any investment advisory contract to the extent provided in Article
VI, Section 6.01 hereof, (d) with respect to an amendment of this Trust
Instrument, to the extent provided in Article XI, Section 11.08, and (e) with
respect to such additional matters relating to the Trust as may be required by
law, by this Trust Instrument, or any registration of the Trust with the
Commission or any State, or as the Trustees may consider desirable.
(b) Notwithstanding paragraph (a) of this Section 7.01 or any other
provision of this Trust Instrument (including the Bylaws) which would by its
terms provide for or require a vote of Shareholders, the Trustees may take
action without a Shareholder vote if (i) the Trustees shall have obtained an
opinion of counsel that a vote or approval of such action by Shareholders is not
required under (A) the 1940 Act or any other applicable laws, or (B) any
registrations, undertakings or agreements of the Trust known to such counsel,
and if the Trustees determine that the taking of such action without a
Shareholder vote would be consistent with the best interests of the Shareholders
(considered as a group).
(c) On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, and whenever the Trustees
determine that the matter affects only certain Series, may be submitted for a
vote by only such Series, except (i) when required by the 1940 Act, Shares shall
be voted in the aggregate and not by individual Series; and (ii) when the
Trustees have determined that the matter affects the interests of more than one
Series and that voting by shareholders of all Series would be consistent with
the 1940 Act, then the Shareholders of all such Series shall be entitled to vote
thereon (either by individual Series or by Shares voted in the aggregate, as the
Trustees in their discretion may determine). The Trustees may also determine
that a matter affects only the interests of one or more classes of a Series, in
which case (or if required under the 1940 Act) such matter shall be voted on by
such class or classes. As determined by the Trustees without the vote or consent
of Shareholders (except as required by the 1940 Act), on any matter submitted to
a vote of Shareholders, either (i) each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote, and each fractional Share
shall be entitled to a proportionate fractional vote or (ii) each dollar of Net
Asset Value (number of Shares owned times Net Asset Value per share of such
Series or class thereof, as applicable) shall be entitled to one vote on any
matter on which such Shares are entitled to vote and each fractional dollar
amount shall be entitled to a proportionate fractional vote. Without limiting
the power of the Trustees in any way to designate otherwise in accordance with
the preceding sentence, the Trustees hereby establish that each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy or in any manner provided for in the Bylaws. A proxy
may be given in writing. The Bylaws may provide that proxies may also, or may
instead, be given by any electronic or telecommunications device or in any other
manner. Notwithstanding anything else herein or in the Bylaws, in the event a
proposal by anyone other than the officers or Trustees of the Trust is submitted
to a vote of the Shareholders, or in the event of any proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders.
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Section 7.02 Meetings. Meetings may be held within or without the
State of Delaware. Special meetings of the Shareholders of any Series may be
called by the Trustees and shall be called by the Trustees upon the written
request of Shareholders owning at least one tenth of the Outstanding Shares of
the Trust entitled to vote. Whenever ten or more Shareholders meeting the
qualifications set forth in Section 16(c) of the 1940 Act, as the same may be
amended from time to time, seek the opportunity of furnishing materials to the
other Shareholders with a view to obtaining signatures on such a request for a
meeting, the Trustees shall comply with the provisions of said Section 16(c)
with respect to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such materials to such
Shareholders of record, subject to any rights provided to the Trust or any
Trustees provided by said Section 16(c). Notice shall be sent, by First Class
Mail or such other means determined by the Trustees, at least 10 days prior to
any such meeting. Notwithstanding anything to the contrary in this Section 7.02,
the Trustees shall not be required to call a special meeting of the Shareholders
of any Series or to provide Shareholders seeking the opportunity of furnishing
the materials to other Shareholders with a view to obtaining signatures on a
request for a meeting except to the extent required under the 1940 Act.
Section 7.03 Quorum and Required Vote. One-third of Shares
outstanding and entitled to vote in person or by proxy as of the record date for
a Shareholders' meeting shall be a quorum for the transaction of business at
such Shareholders' meeting, except that where any provision of law or of this
Trust Instrument permits or requires that holders of any Series shall vote as a
Series (or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
Series (or that class). Any meeting of Shareholders may be adjourned from time
to time by a majority of the votes properly cast upon the question of adjourning
a meeting to another date and time, whether or not a quorum is present. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument or the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series (or class), voted on the matter in person or by proxy
shall decide that matter insofar as that Series (or class) is concerned.
Shareholders may act by unanimous written consent, to the extent not
inconsistent with the 1940 Act, and any such actions taken by a Series (or
class) may be consented to unanimously in writing by Shareholders of that Series
(or class).
ARTICLE VIII
CUSTODIAN
Section 8.01 Appointment and Duties. The Trustees shall employ a
bank, a company that is a member of a national securities exchange, or a trust
company, that in each case shall have capital, surplus and undivided profits of
at least twenty million dollars ($20,000,000) and that is a member of the
Depository Trust Company (or such other person or entity as may be permitted to
act as custodian of the Trust's assets under the 1940 Act) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be
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contained in the Bylaws of the Trust: (a) to hold the securities owned by the
Trust and deliver the same upon written order or oral order confirmed in
writing; (b) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may direct;
and (c) to disburse such funds upon orders or vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, or a trust company organized under the laws of the
United States or one of the states thereof and having capital, surplus and
undivided profits of at least twenty million dollars ($20,000,000) and that is a
member of the Depository Trust Company or such other person or entity as may be
permitted by the Commission or is otherwise able to act as custodian of the
Trust's assets in accordance with the 1940 Act.
Section 8.02 Central Certificate System. Subject to the 1940 Act and
such other rules, regulations and orders as the Commission may adopt, the
Trustees may direct the custodian to deposit all or any part of the securities
owned by the Trust in a system for the central handling of securities
established by a national securities exchange or a national securities
association registered with the Commission under the Securities Exchange Act of
1934, as amended, or such other person as may be permitted by the Commission, or
otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the Trust or its
custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
Section 9.01 Distributions.
(a) The Trustees may from time to time declare and pay dividends or
other distributions with respect to any Series and/or class of a Series. The
amount of such dividends or distributions and the payment of them and whether
they are in cash or any other Trust Property shall be wholly in the discretion
of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees
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may at any time declare and distribute a stock dividend to the Shareholders of a
particular Series, or class thereof, as of the record date of that Series fixed
as provided in Subsection 9.01(b) hereof.
Section 9.02 Redemptions. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof he may
deposit at the office of the transfer agent or other authorized agent of that
Series a written request or such other form of request as the Trustees may from
time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and, subject to Section 9.04 hereof, the
Shareholder so requesting shall be entitled to require the Series to purchase,
and the Series or the principal underwriter of the Series shall purchase his
said Shares, but only at the Net Asset Value thereof (as described in Section
9.03 of this Article IX). The Series shall make payment for any such Shares to
be redeemed, as aforesaid, in cash or property from the assets of that Series
and, subject to Section 9.04 hereof, payment for such Shares shall be made by
the Series or the principal underwriter of the Series to the Shareholder of
record within seven (7) days after the date upon which the request is effective.
Upon redemption, shares shall become Treasury shares and may be reissued from
time to time.
Section 9.03 Determination of Net Asset Value and Valuation of
Portfolio Assets. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series exceed its liabilities, all as
determined by or under the direction of the Trustees. The Trustees may delegate
any of their powers and duties under this Section 9.03 with respect to valuation
of assets and liabilities. Such value shall be determined separately for each
Series and shall be determined on such days and at such times as the Trustees
may determine. Such determination shall be made with respect to securities for
which market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair value
as determined in good faith by the Trustees; provided, however, that the
Trustees, without Shareholder approval, may alter the method of valuing
portfolio securities insofar as permitted under the 1940 Act. The resulting
amount, which shall represent the total Net Asset Value of the particular
Series, shall be divided by the total number of shares of that Series
outstanding at the time and the quotient so obtained shall be the Net Asset
Value per Share of that Series. At any time the Trustees may cause the Net Asset
Value per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective.
The Trustees shall not be required to adopt, but may at any time
adopt, discontinue or amend a practice of seeking to maintain the Net Asset
Value per Share of the Series at a constant amount. If, for any reason, the net
income of any Series, determined at any time, is a negative amount, the Trustees
shall have the power with respect to that Series (a) to offset each
Shareholder's pro rata share of such negative amount from the accrued dividend
account of such Shareholder, (b) to reduce the number of Outstanding Shares of
such Series by reducing the number of Shares in the account of each Shareholder
by a pro rata portion of that number of full and fractional Shares which
represents the amount of such excess negative net income, (c) to cause to be
recorded on the books of such Series an asset account in the amount of such
negative net income (provided that the same shall thereupon become the property
of such Series with respect to such Series and shall not be paid to any
Shareholder), which account may be reduced by the amount of dividends declared
thereafter upon the Outstanding Shares of such Series on
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the day such negative net income is experienced, until such asset account is
reduced to zero; (d) to combine the methods described in clauses (a) and (b) and
(c) of this sentence; or (e) to take any other action they deem appropriate, in
order to cause (or in order to assist in causing) the Net Asset Value per Share
of such Series to remain at a constant amount per Outstanding Share immediately
after each such determination and declaration. The Trustees shall also have the
power not to declare a dividend out of net income for the purpose of causing the
Net Asset Value per Share to be increased.
In the event that any Series is divided into classes, the provisions
of this Section 9.03, to the extent applicable as determined in the discretion
of the Trustees and consistent with the 1940 Act and other applicable law, may
be equally applied to each such class.
Section 9.04 Suspension of the Right of Redemption. The Trustees may
declare a suspension of the right of redemption or postpone the date of payment
if permitted under the 1940 Act. Such suspension shall take effect at such time
as the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.
Section 9.05 Required Redemption of Shares. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including, but not limited to, (i) the determination of the Trustees that direct
or indirect ownership of Shares of any Series has or may become concentrated in
such Shareholder to an extent that would disqualify any Series as a regulated
investment company under the Internal Revenue Code of 1986, as amended (or any
successor statute thereto), (ii) the failure of a Shareholder to supply a tax
identification number if required to do so, or to have the minimum investment
required (which may vary by Series), (iii) the failure of a Shareholder to make
payment when due for the purchase of Shares issued to him or (iv) the Shares
owned by such Shareholder being below the minimum investment set by the
Trustees, from time to time, for investments in the Trust or in such Series or
classes thereof, as applicable.
The holders of Shares shall upon demand disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the requirements of any taxing
authority or for the Trustees to make any determination contemplated by this
Section 9.05.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 10.01 Limitation of Liability. Neither a Trustee nor an
officer of the Trust, when acting in such capacity, shall be personally liable
to any person other than the Trust or the Shareholders for any act, omission or
obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission or
any conduct whatsoever in his capacity as Trustee or as an officer of the Trust,
provided that nothing contained herein or in the Delaware Act shall protect any
Trustee or any officer of the Trust
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against any liability to the Trust or to Shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee or officer of the Trust hereunder.
Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer
of the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding
in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither interested persons of the Trust nor
are parties to the matter based upon a review of readily available
facts (as opposed to a full trial-type inquiry); or (C) by written
opinion of independent legal counsel based upon a review of readily
available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection (a) of this Section 10.02
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may be paid by the Trust or Series from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if it is
ultimately determined that he is not entitled to indemnification under this
Section 10.02; provided, however, that either (i) such Covered Person shall have
provided appropriate security for such undertaking, (ii) the Trust is insured
against losses arising out of any such advance payments or (iii) either a
majority of the Trustees who are neither interested persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to believe that
such Covered Person will be found entitled to indemnification under this Section
10.02.
Section 10.03 Shareholders. In case any Shareholder of any Series
shall be held to be personally liable solely by reason of his being or having
been a Shareholder of such Series and not because of his acts or omissions or
for some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives, or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Trust, on behalf of the affected Series, shall, upon request by
the Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Trust Not A Partnership. It is hereby expressly
declared that a trust and not a partnership is created hereby. No Trustee
hereunder shall have any power to bind personally either the Trust officers or
any Shareholder. All persons extending credit to, contracting with or having any
claim against the Trust or the Trustees shall look only to the assets of the
appropriate Series or (if the Trustees shall have yet to have established
Series) of the Trust for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of their agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Trust Instrument shall protect a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the office of Trustee hereunder.
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees or the officers of the Trust of their
powers and discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees and the officers of the Trust shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees and the officers of the Trust
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for any
act or omission in accordance with such advice or for failing to follow such
advice. The Trustees and the officers of the Trust shall not be required to give
any bond as such,
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nor any surety if a bond is obtained.
Section 11.03 Establishment of Record Dates. The Trustees may close
the share transfer books of the Trust for a period not exceeding ninety (90)
days preceding the date of any meeting of Shareholders, or the date for the
payment of any dividends or other distributions, or the date for the allotment
of rights, or the date when any change or conversion or exchange of Shares shall
go into effect; or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding ninety (90) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a record
date for the determination of the Shareholders entitled to notice of, and to
vote at, any such meeting, or entitled to receive payment of any such dividend
or other distribution, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of Shares, and in
such case such Shareholders and only such Shareholders as shall be Shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or other distribution,
or to receive such allotment or rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any Shares on the books of the Trust
after any such record date fixed as aforesaid.
Section 11.04 Dissolution and Termination of Trust.
(a) This Trust shall continue without limitation of time but subject
to the provisions of Subsection 11.04(b).
(b) The Trustees may, subject to any necessary Shareholder, Trustee,
and regulatory approvals:
(i) sell and convey all or substantially all of the assets
of the Trust or any affected Series to another trust, partnership,
association or corporation, or to a separate series of shares
thereof, organized under the laws of any state which trust,
partnership, association or corporation is an open-end management
investment company as defined in the 1940 Act, or is a series
thereof, for adequate consideration which may include the assumption
of all outstanding obligations, taxes and other liabilities, accrued
or contingent, of the Trust or any affected Series, and which may
include shares of beneficial interest, stock or other ownership
interests of such trust, partnership, association or corporation or
of a series thereof;
(ii) enter into a plan of liquidation in order to dissolve
and liquidate any Series (or class) of the Trust, or the Trust; or
(iii) at any time sell and convert into money all of the
assets of the Trust or any affected Series.
Upon making reasonable provision, in the determination of the
Trustees, for the payment of all liabilities by assumption or otherwise, the
Trustees shall distribute the remaining proceeds or assets (as the case may be)
of each Series (or class) ratably among the holders of Shares of the affected
Series, based upon the ratio that each Shareholder's Shares bears to the number
of
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Shares of such Series (or class) then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in Subsection 11.04(b), the Trustees and the
Trust or any affected Series shall be discharged of any and all further
liabilities and duties hereunder and the right, title and interest of all
parties with respect to the Trust or Series shall be canceled and discharged and
any such Series shall terminate.
Following completion of winding up of its business, the Trustees
shall cause a certificate of cancellation of the Trust's certificate of trust to
be filed in accordance with the Delaware Act, which certificate of cancellation
may be signed by any one Trustee. Upon filing of the certificate of cancellation
for the Trust, the Trust shall terminate.
Section 11.05 Reorganization and Master/Feeder.
(a) Notwithstanding anything else herein, the Trustees, in order to
change the form or jurisdiction of organization of the Trust, may (i) cause the
Trust to merge or consolidate with or into one or more trusts, partnerships
(general or limited), associations or corporations so long as the surviving or
resulting entity is an open-end management investment company under the 1940
Act, or is a series thereof, that will succeed to or assume the Trust's
registration under that Act and which is formed, organized or existing under the
laws of a state, commonwealth, possession or colony of the United States or (ii)
cause the Trust to incorporate under the laws of Delaware.
(b) The Trustees may, subject to a vote of a majority of the Trustees
and any shareholder vote required under the 1940 Act, if any, cause the Trust to
merge or consolidate with or into one or more trusts, partnerships (general or
limited), associations, limited liability companies or corporations formed,
organized or existing under the laws of a state, commonwealth, possession or
colony of the United States.
(c) Any agreement of merger or consolidation or certificate of merger
or consolidation may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
(d) Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Trust Instrument, an agreement of merger or consolidation
approved by the Trustees in accordance with paragraph (a) or (b) of this Section
11.05 may effect any amendment to the Trust Instrument or effect the adoption of
a new trust instrument of the Trust if it is the surviving or resulting trust in
the merger or consolidation.
(e) Notwithstanding anything else herein, the Trustees may, without
Shareholder approval (unless required by the 1940 Act), invest all or a portion
of the Trust Property of any Series, or dispose of all or a portion of the Trust
Property of any Series, and invest the proceeds of such disposition in interests
issued by one or more other investment companies registered under the 1940 Act.
Any such other investment company may (but need not) be a trust (formed under
the laws of the State of Delaware or any other state or jurisdiction) (or series
thereof) which is classified as a partnership for federal income tax purposes.
Notwithstanding anything else herein, the Trustees may, without Shareholder
approval unless such approval is required by
B-23-
<PAGE>
the 1940 Act, cause a Series that is organized in the master/feeder fund
structure to withdraw or redeem its Trust Property from the master fund and
cause such series to invest its Trust Property directly in securities and other
financial instruments or in another master fund.
Section 11.06 Filing of Copies, References, Headings. The original or
a copy of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions such
as "herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument. All
expressions like "his," "he" and "him," shall be deemed to include the feminine
and neuter, as well as masculine, genders. Headings are placed herein for
convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust Instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 11.07 Applicable Law. The trust set forth in this instrument
is made in the State of Delaware, and the Trust and this Trust Instrument, and
the rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said state; provided, however, that there shall not be applicable to the
Trust, the Trustees or this Trust Instrument (a) the provisions of Section 3540
of Title 12 of the Delaware Code or (b) any provisions of the laws (statutory or
common) of the State of Delaware (other than the Delaware Act) pertaining to
trusts which relate to or regulate (i) the filing with any court or governmental
body or agency of trustee accounts or schedules of trustee fees and charges,
(ii) affirmative requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or other
governmental approval concerning the acquisition, holding or disposition of real
or personal property, (iv) fees or other sums payable to trustees, officers,
agents or employees of a trust, (v) the allocation of receipts and expenditures
to income or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or requirements relating to
the titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or limitations
on the acts or powers of trustees, which are inconsistent with the limitations
or liabilities or authorities and powers of the Trustees set forth or referenced
in this Trust Instrument. The Trust shall be of the type commonly called a
"business trust," and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 11.08 Derivative Actions. In addition to the requirements set
forth in Section
B-24-
<PAGE>
3816 of the Delaware Act, a Shareholder may bring a derivative action on behalf
of the Trust only if the following conditions are met:
(a) The Shareholder or Shareholders must make a pre-suit demand upon
the Trustees to bring the subject action unless an effort to cause the Trustees
to bring such an action is not likely to succeed. For purposes of this Section
11.08(a), a demand on the Trustees shall only be deemed not likely to succeed
and therefore excused if a majority of the Board of Trustees, or a majority of
any committee established to consider the merits of such action, has a personal
financial interest in the transaction at issue, and a Trustee shall not be
deemed interested in a transaction or otherwise disqualified from ruling on the
merits of a Shareholder demand by virtue of the fact that such Trustee receives
remuneration for his service on the Board of Trustees of the Trust or on the
boards of one or more investment companies that are under common management with
or otherwise affiliated with the Trust.
(b) Unless a demand is not required under paragraph (a) of this
Section 11.08, Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the Outstanding Shares of the Trust, or
10% of the Outstanding Shares of the Series or Class to which such action
relates, shall join in the request for the Trustees to commence such action; and
(c) Unless a demand is not required under paragraph (a) of this
Section 11.08, the Trustees must be afforded a reasonable amount of time to
consider such Shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisors in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisors in the event that the Trustees determine not to bring such action.
For purposes of this Section 11.08, the Board of Trustees may
designate a committee of one Trustee to consider a Shareholder demand if
necessary to create a committee with a majority of Trustees who do not have a
personal financial interest in the transaction at issue.
Section 11.09 Amendments. Except as specifically provided herein, the
Trustees may, without shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto or an
amended and restated trust instrument. Shareholders shall have the right to vote
(a) on any amendment as may be required by law or by the Trust's registration
statement filed with the Commission and (b) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series shall be authorized by vote of the Shareholders of each
Series affected and no vote of shareholders of a Series not affected shall be
required. Notwithstanding any other provision of this Trust Instrument, any
amendment to Article X hereof shall not limit the rights to indemnification or
insurance provided therein with respect to action or omission of Covered Persons
prior to such amendment.
Section 11.10 Fiscal Year. The fiscal year of the Trust shall end on
a specified date as set forth in the Bylaws, provided, however, that the
Trustees may change the fiscal year of the Trust.
B-25-
<PAGE>
Section 11.11 Name Reservation. The Trustees on behalf of the Trust
acknowledge that KeyCorp has licensed to the Trust the non-exclusive right to
use the name "Victory" as part of the name of the Trust, and has reserved the
right to grant the non-exclusive use of the name "Victory" or any derivative
thereof to any other party. In addition, KeyCorp reserves the right to grant the
non-exclusive use of the name "Victory" to, and to withdraw such right from, any
other business or other enterprise. KeyCorp reserves the right to withdraw from
the Trust the right to use said name "Victory" and will withdraw such right if
the Trust ceases to employ, for any reason, KeyCorp, an affiliate or any
successor as adviser of the Trust.
Section 11.12 Provisions in Conflict With Law. The provisions of this
Trust Instrument are severable, and if the Trustees shall determine, with the
advice of counsel, that any of such provision is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any matter affect such provision in any other jurisdiction or any
other provision of this Trust Instrument in any jurisdiction.
B-26-
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the current
Trustees of the Trust, have executed this instrument as of date first written
above.
------------------------------ -------------------------------
Harry Gazelle, as Trustee Leigh A. Wilson, as Trustee
and not individually and not individually
------------------------------- -------------------------------
Eugene J. McDonald, as Trustee H. Patrick Swygert, as Trustee
and not individually and not individually
------------------------------- -------------------------------
Thomas F. Morrissey, as Trustee Frank A. Weil, as Trustee
and not individually and not individually
-------------------------------
Roger Noall, as Trustee
and not individually
B-27-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C>
Fund Classes
Balanced Fund.......................................................Class A, Class G and Class G
Convertible Securities Fund.........................................Class A and Class G
Diversified Stock Fund..............................................Class A, Class B and Class G
Equity Income Fund..................................................Class A
Established Value Fund..............................................Class A and Class G
Federal Money Market Fund...........................................Investor and Select
Financial Reserves Fund.............................................Class A
Fund for Income.....................................................Class A and Class G
Government Mortgage Fund............................................Class A
Gradison Government Reserves Fund...................................Class G
Growth Fund.........................................................Class A and Class G
Institutional Money Market Fund.....................................Investor and Select
Intermediate Income Fund............................................Class A and Class G
International Growth Fund...........................................Class A, Class B and Class G
Investment Quality Bond Fund........................................Class A and Class G
Lakefront Fund......................................................Class A
LifeChoice Conservative Investor Fund...............................Class A
LifeChoice Moderate Investor Fund...................................Class A
LifeChoice Growth Investor Fund.....................................Class A
Limited Term Income Fund............................................Class A
Maine Municipal Bond Fund (Intermediate)............................Class A
Maine Municipal Bond Fund (Long)....................................Class A
Michigan Municipal Bond Fund........................................Class A
National Municipal Bond Fund........................................Class A, Class B and Class G
National Municipal Bond Fund (Short Intermediate)...................Class A
National Municipal Bond Fund (Long).................................Class A
New York Tax-Free Fund..............................................Class A, Class B and Class G
Ohio Municipal Bond Fund............................................Class A and Class G
Ohio Municipal Money Market Fund....................................Class A
Ohio Regional Stock Fund............................................Class A and Class B
Prime Obligations Fund..............................................Class A
Real Estate Investment Fund.........................................Class A and Class G
Small Company Opportunity Fund......................................Class A and Class G
Special Value Fund..................................................Class A, Class B and Class G
Stock Index Fund....................................................Class A and Class G
Tax-Free Money Market Fund..........................................Class A
U.S. Government Obligations Fund....................................Investor and Select
Value Fund..........................................................Class A and Class G
As of December 1, 1999
</TABLE>
<PAGE>
LOGO
After reviewing the Proxy Statement, please vote by utilizing one of the
following convenient options:
1. Vote by Telephone
To vote by Touch-Tone Telephone call 1-888-634-9896.
2. Vote by Fax
Complete, sign and date the proxy card and fax it to 1-800-733-1885 anytime.
3. Vote by Mail
Simply enclose your executed proxy in the enclosed postage-paid envelope.
THE VICTORY PORTFOLIOS
GOVERNMENT MORTGAGE FUND
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 20, 2000
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The Victory Portfolios, on
behalf of Government Mortgage Fund (the "Fund"), for use at the Special Meeting
of shareholders to be held at the offices of The Victory Portfolios, 3435
Stelzer Road, Columbus, OH 43219-3035 on March 20, 2000 at 8:30 a.m. Eastern
time. The undersigned hereby appoints Karen Haber and Anne M. Dombrowski and
each of them, with full power of substitution, as proxies of the undersigned to
vote at the above stated Special Meeting, and at all adjournments thereof, all
shares of beneficial interest of the Fund that are held of record by the
undersigned on the record date for the Special Meeting, upon the matters
enumerated below:
IF THIS PROXY CARD IS RETURNED, AND NO CHOICE IS INDICATED AS TO ANY MATTER,
THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTERS PRESENTED. THE BOARD OF
TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" THE FOLLOWING PROPOSALS.
If you wish to vote Against a specific item in proposal Three, you must mail or
fax your proxy card. If you choose to vote the same for all items in this
proposal, Telephone and Internet services are available.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
GOVERNMENT MORTGAGE FUND
Vote on Trustees
1. To elect trustees to serve as members of the Board of Trustees of The
Victory Portfolios, the nominees are:
01) Theodore H. Emmerich, 02) Dr. Harry Gazelle, 03) Frankie D.
Hughes, 04) Roger Noall, 05) Eugene J. McDonald, 06) Dr. Thomas F.
Morrissey, 07) H. Patrick Swygert, 08) Frank A. Weil, 09) Donald E.
Weston and 10) Leigh A. Wilson
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
<PAGE>
To withhold authority to vote, mark "For All Except" and write the nominee's
number on the line below:
- -------------------------------
Vote on Proposals
2. To approve the Agreement and Plan of Reorganization and Termination, as is
more fully described in the accompanying Combined Prospectus/Proxy
Statement, together with each and every transaction contemplated thereby.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the adoption of an Amended and Restated Trust Instrument for
The Victory Portfolios.
(a) Reorganizations
(b) Voting powers
(c) Required redemptions
(d) Record date
(e) Master/Feeder structure
(f) Derivative actions
(g) Future amendments
- -------------------------------
To vote against a particular change, mark "For All Except" and write the
corresponding letter of the item on the line above.
FOR ALL ABSTAIN
FOR ALL EXCEPT ALL
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as your name appears on this card. When account is joint
tenants, all should sign. When signing as executor, administrator, trustee or
guardian, please give title. If a corporation or partnership, sign entity's name
and by authorized person.
X___________________________________________
Signature (Please sign within box) (Date)
X___________________________________________
Signature (Joint Owners) (Date)
<PAGE>
LOGO
After reviewing the Proxy Statement, please vote by utilizing one of the
following convenient options:
1. Vote by Telephone
To vote by Touch-Tone Telephone call 1-800-690-6903. Please have the 12 digit
control number available at the time of the call.
2. Vote by Internet
Got to Website www.proxyvote.com. Please enter the 12 digit control number
found on the proxy card and follow the simple instructions.
3. Vote by Fax
Complete, sign and date the proxy card and fax it to 1-800-733-1885 anytime.
4. Vote by Mail
Simply enclose your executed proxy in the enclosed postage-paid envelope.
THE VICTORY PORTFOLIOS
OHIO REGIONAL STOCK FUND - CLASS A
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 20, 2000
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The Victory Portfolios, on
behalf of Ohio Regional Stock Fund (the "Fund"), for use at the Special Meeting
of shareholders to be held at the offices of The Victory Portfolios, 3435
Stelzer Road, Columbus, OH 43219-3035 on March 20, 2000 at 8:30 a.m. Eastern
time. The undersigned hereby appoints Karen Haber and Anne M. Dombrowski and
each of them, with full power of substitution, as proxies of the undersigned to
vote at the above stated Special Meeting, and at all adjournments thereof, all
shares of beneficial interest of the Fund that are held of record by the
undersigned on the record date for the Special Meeting, upon the matters
enumerated below:
IF THIS PROXY CARD IS RETURNED, AND NO CHOICE IS INDICATED AS TO ANY MATTER,
THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTERS PRESENTED. THE BOARD OF
TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" THE FOLLOWING PROPOSALS.
If you wish to vote Against a specific item in proposal Three, you must mail or
fax your proxy card. If you choose to vote the same for all items in this
proposal, Telephone and Internet services are available.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
OHIO REGIONAL STOCK FUND - CLASS A
Vote on Trustees
1. To elect trustees to serve as members of the Board of Trustees of The
Victory Portfolios, the nominees are:
01) Theodore H. Emmerich, 02) Dr. Harry Gazelle, 03)
Frankie D. Hughes, 04) Roger Noall, 05) Eugene J.
McDonald, 06) Dr. Thomas F. Morrissey, 07) H. Patrick
Swygert, 08) Frank A. Weil, 09) Donald E. Weston and
10) Leigh A. Wilson
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
<PAGE>
To withhold authority to vote, mark "For All Except" and write the nominee's
number on the line below:
- -------------------------------
Vote on Proposals
2. To approve the Agreement and Plan of Reorganization and Termination, as is
more fully described in the accompanying Combined Prospectus/Proxy
Statement, together with each and every transaction contemplated thereby.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the adoption of an Amended and Restated Trust Instrument for
The Victory Portfolios.
(a) Reorganizations
(b) Voting powers
(c) Required redemptions
(d) Record date
(e) Master/Feeder structure
(f) Derivative actions
(g) Future amendments
- -------------------------------
To vote against a particular change, mark "For All Except" and write the
corresponding letter of the item on the line above.
FOR ALL ABSTAIN
FOR ALL EXCEPT ALL
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as your name appears on this card. When account is joint
tenants, all should sign. When signing as executor, administrator, trustee or
guardian, please give title. If a corporation or partnership, sign entity's name
and by authorized person.
X____________________________________________
Signature (Please sign within box) (Date)
X____________________________________________
Signature (Joint Owners) (Date)
<PAGE>
LOGO
After reviewing the Proxy Statement, please vote by utilizing one of the
following convenient options:
1. Vote by Telephone
To vote by Touch-Tone Telephone call 1-800-690-6903. Please have the 12 digit
control number available at the time of the call.
2. Vote by Internet
Got to Website www.proxyvote.com. Please enter the 12 digit control number
found on the proxy card and follow the simple instructions.
3. Vote by Fax
Complete, sign and date the proxy card and fax it to 1-800-733-1885 anytime.
4. Vote by Mail
Simply enclose your executed proxy in the enclosed postage-paid envelope.
THE VICTORY PORTFOLIOS
OHIO REGIONAL STOCK FUND - CLASS B
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 20, 2000
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The Victory Portfolios, on
behalf of Ohio Regional Stock Fund (the "Fund"), for use at the Special Meeting
of shareholders to be held at the offices of The Victory Portfolios, 3435
Stelzer Road, Columbus, OH 43219-3035 on March 20, 2000 at 8:30 a.m. Eastern
time. The undersigned hereby appoints Karen Haber and Anne M. Dombrowski and
each of them, with full power of substitution, as proxies of the undersigned to
vote at the above stated Special Meeting, and at all adjournments thereof, all
shares of beneficial interest of the Fund that are held of record by the
undersigned on the record date for the Special Meeting, upon the matters
enumerated below:
IF THIS PROXY CARD IS RETURNED, AND NO CHOICE IS INDICATED AS TO ANY MATTER,
THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTERS PRESENTED. THE BOARD OF
TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" THE FOLLOWING PROPOSALS.
If you wish to vote Against a specific item in proposal Three, you must mail or
fax your proxy card. If you choose to vote the same for all items in this
proposal, Telephone and Internet services are available.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
OHIO REGIONAL STOCK FUND - CLASS B
Vote on Trustees
1. To elect trustees to serve as members of the Board of Trustees of The
Victory Portfolios, the nominees are:
01) Theodore H. Emmerich, 02) Dr. Harry Gazelle, 03)
Frankie D. Hughes, 04) Roger Noall, 05) Eugene J.
McDonald, 06) Dr. Thomas F. Morrissey, 07) H. Patrick
Swygert, 08) Frank A. Weil, 09) Donald E. Weston and
10) Leigh A. Wilson
FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
[ ] [ ] [ ]
<PAGE>
To withhold authority to vote, mark "For All Except" and write the nominee's
number on the line below:
- -------------------------------
Vote on Proposals
2. To approve the Agreement and Plan of Reorganization and Termination, as is
more fully described in the accompanying Combined Prospectus/Proxy
Statement, together with each and every transaction contemplated thereby.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the adoption of an Amended and Restated Trust Instrument for
The Victory Portfolios.
(a) Reorganizations
(b) Voting powers
(c) Required redemptions
(d) Record date
(e) Master/Feeder structure
(f) Derivative actions
(g) Future amendments
- -------------------------------
To vote against a particular change, mark "For All Except" and write the
corresponding letter of the item on the line above.
FOR ALL ABSTAIN
FOR ALL EXCEPT ALL
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as your name appears on this card. When account is joint
tenants, all should sign. When signing as executor, administrator, trustee or
guardian, please give title. If a corporation or partnership, sign entity's name
and by authorized person.
X____________________________________________
Signature (Please sign within box) (Date)
X____________________________________________
Signature (Joint Owners) (Date)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 7, 2000
Acquisition of the Assets of
THE VICTORY PORTFOLIOS
Government Mortgage Fund
Ohio Regional Stock Fund
by and in exchange for all the shares of
THE VICTORY PORTFOLIOS
Fund for Income
Established Value Fund
This Statement of Additional Information dated February 7, 2000, is not a
prospectus, but should be read in conjunction with the Combined Proxy Statement
and Prospectus dated February 7, 2000. This Statement of Additional Information
is incorporated by reference in its entirety into the Combined Proxy Statement
and Prospectus. Copies of the Combined Proxy Statement and Prospectus may be
obtained by writing The Victory Portfolios at P.O. Box 8527, Boston, MA
02266-8527 or by calling toll free 800-539-FUND (800-539-3863).
<PAGE>
TABLE OF CONTENTS
1. Statement of Additional Information of Fund for Income, a portfolio of The
Victory Portfolios, dated December 15, 1999.
2. Statement of Additional Information of Established Value Fund, a portfolio
of The Victory Portfolios, dated April 5, 1999, as supplemented July 28,
1999.
3. Statements of Additional Information of Government Mortgage Fund and Ohio
Regional Stock Fund, portfolios of The Victory Portfolios, dated December
15, 1999.
4. Financial Statements of Fund for Income, Established Value Fund,
Government Mortgage Fund and Ohio Regional Stock Fund, portolios of The
Victory Portfolios, dated October 31, 1999.
2
<PAGE>
ADDITIONAL INFORMATION ABOUT THE REGISTRANT
The Statement of Additional Information dated December 15, 1999, of Fund
for Income, a portfolio of The Victory Portfolios, as filed with the Securities
and Exchange Commission (SEC) on December 20, 1999, pursuant to Rule 497(c), is
hereby incorporated by reference. A copy may be obtained by writing The Victory
Portfolios, P.O. Box 8527, Boston MA 02266-8527 or by calling toll free
800-539-3863.
The Statement of Additional Information dated April 5, 1999, of
Established Value Fund, a portfolio of The Victory Portfolios, is incorporated
by reference to Post-Effective Amendment No. 50 to The Victory Portfolio's
Registration Statement on Form N-1A (File No. 33-08982). A copy may be obtained
by writing The Victory Portfolios, P.O. Box 8527, Boston MA 02266-8527 or by
calling toll free 800-539-3863.
The Statements of Additional Information dated December 15, 1999, of
Government Mortgage Fund and Ohio Regional Stock Fund, portfolios of The Victory
Portfolios, as filed with the Securities and Exchange Commission (SEC) on
December 20, 1999, pursuant to Rule 497(c), is hereby incorporated by reference.
A copy may be obtained by writing The Victory Portfolios, P.O. Box 8527, Boston
MA 02266-8527 or by calling toll free 800-539-3863.
3
<PAGE>
FINANCIAL STATEMENTS
The audited Financial Statements of Fund for Income, a portfolio of The
Victory Portfolios, are incorporated by reference to the Annual Report of the
predecessor to Fund for Income, Gradison Government Income Fund, a portfolio of
Gradison Custodian Trust (File No. 811-5198) dated December 31, 1998.
The audited Financial Statements of Established Value Fund, a portfolio of
The Victory Portfolios, are incorporated by reference to the Annual Report of
The Victory Portfolios (File No. 811-4852) dated March 31, 1999.
The audited Financial Statements of Government Mortgage Fund and Ohio
Regional Stock Fund, portfolios of The Victory Portfolio, are incorporated by
reference to the Annual Report of The Victory Portfolios (File No. 811-4852)
dated October 31, 1998.
Pro forma financial statements as of October 31, 1999, which give effect
to the Reorganization of Government Mortgage Fund into Fund for Income and Ohio
Regional Stock Fund and Established Value Fund follow.
4
<PAGE>
Fund Policies. Shareholders of the Fund for Income and Established Value
Fund are being asked to approve certain chnges to fundamental investment
restrictions at a Special Meeting of Shareholders be held March 20, 2000 (the
"Special Meeting"). The charts on the next few pages show the restrictions of
the Government Mortgage Fund and Ohio Regional Stock Fund and the restrictions
of the Fund for Income and the Established Value Fund, first as they are
currently, and second, as they will be if shareholders of those Funds approve
certain investment restriction changes at the Special Meeting to
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Government Mortgage Fund Fund for Income - Present Fund for Income - Proposed
- ---------------------------------------------------------------------------------------------------------------
Concentration:
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Government Mortgage Fund has no The Fund may not: The Fund may not:
separately stated concentration
restriction because it invests at invest more than 25% of the Fund's purchase the securities of any
least 80% of its total assets in total assets in securities whose issuer (other than the securities
obligations issued or guaranteed by interest payments are derived from issued or guaranteed by the U.S.
the United States government or its revenue from similar projects. government or any of its agencies
agencies or instrumentalities. A or instrumentalities, or
fund "concentrates" if it invests As a matter of non-fundamental repurchase agreements secured
25% or more of its total assets, policy, the Fund for Income may thereby) if, as a result, 25% or
excluding obligations issued or not, with respect to non-municipal more of the Fund's total assets
guaranteed by the United States bond investments, purchase would be invested in the
government or its agencies or securities (other than securities securities of companies whose
instrumentalities, in a single of the United States government, principal business activities are
industry. its agencies or instrumentalities), in the same industry. This
if as a result of such purchase 25% restriction shall not prevent the
or more of the total Fund's assets Fund from investing all of its
would be invested in any one assets in a "master" fund that has
industry. adopted similar investment
objectives, policies and
restrictions.
- ---------------------------------------------------------------------------------------------------------------
Borrowing
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund may not:
borrow money, except that (a) the borrow money, except for temporary borrow money, except that the Fund
Fund may enter into commitments to or emergency purposes and not for may (a) enter into commitments to
purchase securities in accordance investment purposes, and then only purchase securities and
with its investment program, in an amount not exceeding 5% of instruments in accordance with its
including delayed-delivery and the value of its total assets at investment program, including
when-issued securities and reverse the time of the borrowing. when-issued and delayed-delivery
repurchase agreements, provided that transactions, reverse repurchase
the total amount of any such agreements and "dollar roll"
borrowing does not exceed 33 1/3 % transactions, provided that the
of the Fund's total assets; and (b) total amount of any borrowing does
the Fund may borrow money for not exceed 33 1/3% of the Fund's
temporary or emergency purposes in total assets at the time of the
an amount not exceeding 5% of the transaction; (b) borrow money in
value of its total assets at the an amount not to exceed 33 1/3% of
time when the loan is made. Any the value of its total assets at
borrowings representing more than 5% the time the loan is made; and (c)
of the Fund's total assets must be borrow money on a short-term basis
repaid before the Fund may make from investment companies that are
additional investments. part of the same group of investment
companies to the extent allowed by
applicable laws, rules or
regulatory orders in an amount not
to exceed 33 1/3% of the value of
its total assets at the time the
loan is made. Borrowings
representing more than 33 1/3% of
the Fund's total assets must be
repaid before the Fund may make
additional investments.
- ---------------------------------------------------------------------------------------------------------------
2
<PAGE>
Senior securities
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: Same as the Government Mortgage Fund The Fund may not:
issue any senior security (as issue any senior security (as
defined in the Investment Company defined in the 1940 Act), except
Act of 1940, as amended (the "1940 that (a) the Fund may engage in
Act")), except that (a) the Fund may transactions that may result in
engage in transactions that may the issuance of senior securities
result in the issuance of senior to the extent permitted under
securities to the extent permitted applicable regulations and
under applicable regulations and interpretations of the 1940 Act,
interpretations of the 1940 Act or an exemptive order or
an exemptive order; (b) the Fund may interpretation of the staff of the
acquire other securities, the SEC; (b) the Fund may acquire
acquisition of which may result in other securities, the acquisition
the issuance of a senior security, of which may result in the
to the extent permitted under issuance of a senior security, to
applicable regulations or the extent permitted under
interpretations of the 1940 Act; (c) applicable regulations or
subject to the restrictions set interpretations of the 1940 Act;
forth above, the Fund may borrow (c) subject to the restrictions
money as authorized by the 1940 Act. described in the Statement of
Additional Information, the Fund
may borrow money as authorized by
the 1940 Act; and (d) the Fund may
issue multiple classes of shares in
accordance with regulations of the
SEC.
- ---------------------------------------------------------------------------------------------------------------
Lending:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund may not:
lend any security or make any other make loans to other persons except make loans, except as follows:
loan if, as a result, more than 33 through the use of repurchase The Fund, consistent with its
1/3% of its total assets would be agreements or the purchase of investment program, may (a)
lent to other parties, but this commercial paper. For these purchase bonds, debentures, other
limitation does not apply to purposes, the purchase of a portion debt securities and hybrid
purchases of publicly issued debt of an issue of debt securities instruments, including short-term
securities or to repurchase which is part of an issue to the obligations; (b) enter into
agreements. public shall not be considered the repurchase transactions; (c) lend
making of a loan. portfolio securities, provided
that the value of loaned
securities does not exceed 33 1/3%
of the Fund's total assets; and
(d) make short-term loans to other
investment companies that are part
of the same group of investment
companies, as part of an interfund
loan program, as allowed by
applicable laws, rules and
regulatory orders.
- ---------------------------------------------------------------------------------------------------------------
3
<PAGE>
Joint trading accounts:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not participate on a No fundamental restriction. No change is proposed.
joint or joint and several basis in
any securities trading account. A specific joint trading account
restriction is not required under
any applicable law. If the Fund
for Income wanted to participate in
a joint trading account or
arrangement, it would have to
obtain exemptive relief from the
SEC.
- ---------------------------------------------------------------------------------------------------------------
Underwriting:
- ---------------------------------------------------------------------------------------------------------------
The Funds may not: Same as Government Mortgage Fund The Fund may not:
underwrite securities issued by underwrite securities issued by
others, except to the extent that a others, except to the extent that
Fund may be considered an the Fund may be considered an
underwriter within the meaning of underwriter within the meaning of
the Securities Act of 1933, as the Securities Act when reselling
amended (the "Securities Act"), in securities held in its own
the disposition of restricted portfolio.
securities.
- ---------------------------------------------------------------------------------------------------------------
Diversification:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund is diversified.
with respect to 75% of its total purchase the securities of any Under the 1940 Act, a fund is
assets, purchase the securities of issuer (except the U.S. government, "diversified" if with respect to
any issuer (other than securities its agencies and 75% of its assets, no more than 5%
issued or guaranteed by the U.S. instrumentalities), with regard to can be invested in any one issuer
government or any of its agencies or 75% of its total assets, if as a (other than U.S. Government
instrumentalities) if, as a result, result more than 5% of its total Securities), and no more than 10%
(a) more than 5% of its total assets assets would be invested in the of the outstanding voting
would be invested in the securities securities of such issuer. In securities of any issuer can be
of that issuer, or (b) the Fund determining the issuer of a held by a fund.
would hold more than 10% of the tax-exempt security, each state and
outstanding voting securities of each political subdivision, agency,
that issuer. and instrumentality of each state
and each multi-state agency of
which such state is a member is a
separate issuer. Where securities
are backed only by assets and revenues of
a particular instrumentality, facility or
subdivision, such entity is considered the
issuer.
- ---------------------------------------------------------------------------------------------------------------
4
<PAGE>
Real estate:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: No fundamental restriction. The Fund may not:
purchase or sell real estate unless purchase or sell real estate
acquired as a result of ownership of unless acquired as a result of
securities or other instruments (but direct ownership of securities or
this shall not prevent the Fund from other instruments. This
investing in securities or other restriction shall not prevent the
instruments backed by real estate or Fund from investing in securities
securities of companies engaged in or other instruments backed by
the real estate business). real estate or securities of
Investments by the Fund in companies engaged in the real
securities backed by mortgages on estate business, including real
real estate or in marketable estate investment trusts. This
securities of companies engaged in restriction does not preclude the
such activities are not hereby Fund from buying securities backed
precluded. by mortgages on real estate or
securities of companies engaged in
such activities. This restriction
shall not prevent a Fund from
investing in real estate operating
companies and shares of companies
engaged in other real estate
related businesses.
- ---------------------------------------------------------------------------------------------------------------
Pledging:
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund may not: No fundamental restriction.
pledge, mortgage, or hypothecate The restriction on pledging was
its assets, except that, to secure based on state law requirements
borrowings permitted by its that are no longer applicable.
fundamental restriction on
borrowing, it may pledge securities
having a market value at the time
of pledge not exceeding 10% of the
value of its total assets.
- ---------------------------------------------------------------------------------------------------------------
Commodities:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: No change is proposed.
purchase or sell physical purchase or sell commodities or
commodities unless acquired as a commodity contracts, oil, gas or
result of ownership of securities or other mineral exploration or
other instruments (but this shall development programs.
not prevent the Fund from purchasing
or selling options and futures
contracts or from investing in
securities or other instruments
backed by physical commodities).
- ---------------------------------------------------------------------------------------------------------------
4
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Ohio Regional Stock Fund Established Value - Current Established Value - Proposed
- ---------------------------------------------------------------------------------------------------------------
Concentration:
- ---------------------------------------------------------------------------------------------------------------
The Fund will not: The Fund will not concentrate more The Fund may not:
than 25% of its total assets in any
purchase the securities of any one industry. purchase the securities of any
issuer (other than securities issued issuer (other than the securities
or guaranteed by the U.S. government issued or guaranteed by the U.S.
or any of its agencies or government or any of its agencies
instrumentalities, or repurchase or instrumentalities, or
agreements secured thereby) if, as a repurchase agreements secured
result, more than 25% of its total thereby) if, as a result, 25% or
assets would be invested in the more of its total assets would be
securities of companies whose invested in the securities of
principal business activities are in companies whose principal business
the same industry. In the utilities activities are in the same
category, the industry shall be industry. This restriction shall
determined according to the service not prevent the Fund from
provided. For example, gas, investing all of its assets in a
electric, water and telephone will "master" fund that has adopted
be considered as separate industries. similar investment objections,
policies and restrictions.
- ---------------------------------------------------------------------------------------------------------------
Borrowing
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not borrow money, The Fund may not:
except as a temporary measure for
borrow money, except that (a) the extraordinary or emergency borrow money, except that the Fund
Fund may enter into commitments to purposes, and then only in amounts may (a) enter into commitments to
purchase securities in accordance not exceeding 5% of the total purchase securities and
with its investment program, assets of the Fund, taken at the instruments in accordance with its
including delayed-delivery and lower of acquisition cost or market investment program, including
when-issued securities and reverse value. when-issued and delayed-delivery
repurchase agreements, provided that transactions, reverse repurchase
the total amount of any such agreements and "dollar roll"
borrowing does not exceed 33 1/3 % transactions, provided that the
of the Fund's total assets; and (b) total amount of any borrowing does
the Fund may borrow money for not exceed 33 1/3% of the Fund's
temporary or emergency purposes in total assets at the time of the
an amount not exceeding 5% of the transaction; (b) borrow money in
value of its total assets at the an amount not to exceed 33 1/3% of
time when the loan is made. Any the value of its total assets at
borrowings representing more than 5% the time the loan is made; and (c)
of the Fund's total assets must be borrow money on a short-term basis
repaid before the Fund may make from investment companies that are
additional investments. part of the same group of
investment companies to the extent
allowed by applicable laws, rules
or regulatory orders in an amount
not to exceed 33 1/3% of the value
of its total assets at the time the
loan is made. Borrowings
representing more than 33 1/3% of
the Fund's total assets must be
repaid before the Fund may make
additional investments.
5
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Senior securities
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: No fundamental restriction. The Fund may not:
issue any senior security (as issue any senior security (as
defined in the 1940 Act), except defined in the 1940 Act), except
that (a) the Fund may engage in that (a) the Fund may engage in
transactions that may result in the transactions that may result in
issuance of senior securities to the the issuance of senior securities
extent permitted under applicable to the extent permitted under
regulations and interpretations of applicable regulations and
the 1940 Act or an exemptive order; interpretations of the 1940 Act,
(b) the Fund may acquire other an exemptive order or
securities, the acquisition of which interpretation of the staff of the
may result in the issuance of a SEC; (b) the Fund may acquire
senior security, to the extent other securities, the acquisition
permitted under applicable of which may result in the
regulations or interpretations of issuance of a senior security, to
the 1940 Act; and (c) subject to the the extent permitted under
restrictions set forth above, the applicable regulations or
Fund may borrow money as authorized interpretations of the 1940 Act;
by the 1940 Act. (c) subject to the restrictions
described in the Statement of
Additional Information, the Fund
may borrow money as authorized by
the 1940 Act; and (d) the Fund may
issue multiple classes of shares in
accordance with regulations of the
SEC.
- ---------------------------------------------------------------------------------------------------------------
Lending:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not make loans, The Fund may not:
except (a) through the purchase of
lend any security or make any other publicly distributed corporate make loans, except as follows: the
loan if, as a result, more than 33 securities, U.S. government Fund, consistent with its
1/3% of its total assets would be obligations, certificates of investment program, may (a)
lent to other parties, but this deposit, high-grade commercial purchase bonds, debentures, other
limitation does not apply to paper and other money market debt securities and hybrid
purchases of publicly issued instruments, and (b) loans of instruments, including short-term
debt securities or to repurchase portfolio securities to persons obligations; (b) enter into
agreements. unaffiliated with the Trust not repurchase transactions; (c) lend
in excess of 20% of the value of portfolio securities, provided that
the Fund's total assets (taken at the value of loaned securities does
market value) made in accordance not exceed 33 1/3% of the
with the guidelines of the SEC Fund's total assets; and (d) make
and with any standards established short-term loans to other
from time to time by the Trust's investment companies that are part
Board of Trustees, including the of the same group of investment
maintenance of collateral from the companies, as part of an interfund
borrower at all times in an amount loan program, as allowed by
at least equal to the current applicable laws, rules and
market value of the securities regulatory orders."
loaned.
- ---------------------------------------------------------------------------------------------------------------
6
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Joint trading accounts:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not participate on a No fundamental restriction.
joint, or a joint and several,
participate on a joint or joint and basis in any securities trading A specific joint trading account
several basis in any securities account. restriction is not required under
trading account. any applicable law. If the
Established Value Fund wanted to
participate in a joint trading
account or arrangement, it would
have to obtain exemptive relief
from the SEC.
- ---------------------------------------------------------------------------------------------------------------
Underwriting:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not underwrite the The Fund may not:
securities of other issuers, except
underwrite securities issued by insofar as it may technically be underwrite securities issued by
others, except to the extent that deemed an underwriter under the others, except to the extent that
the Fund may be considered an Securities Act in connection with the Fund may be considered an
underwriter within the meaning of the disposition of portfolio underwriter within the meaning of
the Securities Act in the securities. the Securities Act when reselling
disposition of restricted securities held in its own
securities. portfolio.
- ---------------------------------------------------------------------------------------------------------------
Diversification:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase The Established Value Fund is
any securities (other than diversified.
obligations issued or guaranteed
with respect to 75% of its total by the U.S.government or its
assets, purchase the securities of agencies or instrumentalities) Under the 1940 Act, a fund is
any issuer (other than securities if immediately after such purchase, "diversified" if with respect to
issued or guaranteed by the U.S. more than 5% of its total assets 75% of these assets, no more than
government or any of its agencies or would be invested in securities of 5% can be invested in any one
instrumentalities) if, as a result, any one issuer or more than 10% issuer (other than U.S. government
(a) more than 5% of its total assets of the outstanding securities of securities), and no more than 10%
would be invested in the securities any one issuer would be owned by of the outstanding voting
of that issuer, or (b) the Fund the Trust and held by the Fund. securities of any issuer can be
would hold more than 10% of the held by a fund.
outstanding voting securities of
that issuer.
- ---------------------------------------------------------------------------------------------------------------
Real estate:
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase or sell The Fund may not:
real estate, except that it is
purchase or sell real estate unless permissible to purchase securities purchase or sell real estate
acquired as a result of ownership of secured by real estate or real unless acquired as a result of
securities or other instruments (but estate interests or issued by direct ownership of securities or
this shall not prevent the Fund from companies that invest in real other instruments. This
investing in securities or other estate or real estate interests. restriction shall not prevent the
instruments backed by real estate or Fund from investing in securities
securities of companies engaged in or other instruments backed by
the real estate business). real estate or securities of
Investments by the Fund in companies engaged in the real
securities backed by mortgages on estate business, including real
real estate or in marketable estate investment trusts. This
securities of companies engaged in restriction does not preclude the
such activities are not hereby Fund from buying securities backed
precluded. by mortgages on real estate or
securities of companies engaged in
such activities. This restriction
shall not prevent a Fund from
investing in real estate operating
companies and shares of companies
engaged in other real estate
related businesses.
- ---------------------------------------------------------------------------------------------------------------
7
<PAGE>
Pledging:
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not mortgage, pledge No fundamental restriction.
or hypothecate securities, except
in connection with a permissible This restriction is being
borrowing and then only in amounts eliminated as unnecessary. The
not exceeding 10% of the value of restriction was based on state law
its assets (taken at the lower of requirements that are no longer
acquisition cost or market value). applicable.
- ---------------------------------------------------------------------------------------------------------------
Short sales and purchasing on margin:
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not make short sales No fundamental restriction.
of securities, or purchase
As a matter of non-fundamental securities on margin, except for This restriction is being
policy, the Fund may not: short-term credit as is necessary eliminated as unnecessary.
for the clearance of transactions. Eliminating this restriction will
make short sales of securities, not change the Established Value
other than short sales "against the Fund's present investment
box," or purchase securities on practices.
margin except for short-term credits
necessary for clearance of portfolio
transactions, provided that this
restriction will not be applied to
limit the use of options, futures
contracts and related options, in
the manner otherwise permitted by
the investment restrictions,
policies and investment program of
the Fund.
- ---------------------------------------------------------------------------------------------------------------
Investing for control
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not invest in No fundamental restriction.
companies for the purpose of
exercising control or management. This restriction was based on state
law requirements that are no longer
applicable. Because the Established
Value Fund invests in securities
with a market capitalization of $1
billion, this restriction is
unnecessary.
- --------------------------------------------------------------------------------------------------------------
8
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Restricted securities
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Established Value Fund will not No fundamental restriction.
purchase securities subject to
As a matter of non-fundamental restrictions on disposition under The amount of restricted
policy, the Fund may not: the Securities Act. securities that the Fund could
acquire would be limited by its
invest more than 15% of its net ability to acquired illiquid
assets in illiquid securities, which securities, up to 5% of the value
may include restricted securities of its portfolio.
- ---------------------------------------------------------------------------------------------------------------
Illiquid securities
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase No fundamental restriction.
securities for which no readily
As a matter of non-fundamental available market quotation exists, This restriction is no longer
policy, the Fund may not: if at the time of acquisition more required by state law or the 1940
Invest more than 15% of its net than 5% of its total assets would Act. Removing this restriction
assets in illiquid securities. be invested in such securities gives the Trustees greater
Illiquid securities are securities (repurchase agreements maturing flexibility to respond to developing
that are not readily marketable or in more than seven days are markets for restricted, but liquid,
cannot be disposed of promptly included within this restriction). securities and regulatory changes
within seven days and in the concerning the permitted levels of
usual course of business at investment in securities in such
approximately the price at which
the Fund has valued them. Such
securities include, but are not
limited to, time deposits and
repurchase agreements with
maturities longer than seven
days. Securities that may be
resold under Rule 144A, securities
offered pursuant to Section 4(2)
of, or securities otherwise
subject to restrictions or
limitations on resale under the
Securities Act ("Restricted
Securities") shall not be deemed
illiquid solely by reason of being
unregistered. The Adviser determines
whether a particular security is
deemed to be liquid based on the
trading markets for the specific
security and other factors.
- ---------------------------------------------------------------------------------------------------------------
Options
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not write, purchase No change is proposed.
or sell puts, calls or combinations
thereof.
- ---------------------------------------------------------------------------------------------------------------
9
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Other investment companies
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase the None. Instead, the Established
securities of other investment Value Fund will adopt the Victory
As a matter of non-fundamental companies, except in connection Portfolios' standard
policy, the Fund may: with a merger, consolidation, non-fundamental investment
reorganization or acquisition of restriction:
invest up to 5% of its total assets assets, and except by purchase in
in the securities of any one the open market of securities of The Fund may:
investment company, but may not own closed-end investment companies
more than 3% of the securities of involving only customary broker's invest up to 5% of its total
any one investment company or invest commissions, and then only if assets in the securities of any
more than 10% of its total assets in immediately after such purchase, no one investment company, but may
the securities of other investment more than 10% of the value of the not own more than 3% of the
companies. Pursuant to an exemptive total assets of the Fund would be securities of any one investment
order received by the Trust from the invested in such securities. company or invest more than 10% of
SEC, the Fund may invest in the its total assets in the securities
other money market funds of the of other investment companies.
Trust. Each Fund will waive the Pursuant to an exemptive order
portion of its fee attributable to received by the Trust from the
the assets of each Fund invested in SEC, the Fund may invest in the
such money market funds to the other money market funds of the
extent required by the laws of any Trust. Each Fund will waive the
jurisdiction in which shares of the portion of its fee attributable to
Funds are registered for sale. the assets of each Fund invested
However, the Fund may not purchase in such money market funds to the
the securities of any registered extent required by the laws of any
open-end investment company or jurisdiction in which shares of
registered unit investment trust in the Funds are registered for sale.
reliance on Section 12(d)(1)(G) or In addition, the Fund may not:
Section 12(d)(1)(F) of the 1940 Act, Purchase the securities of any
which permits operation as a "fund registered open-end investment
of funds." company or registered unit
investment trust in reliance on
Section 12(d)(1)(G) or Section
12(d)(1)(F) of the 1940 Act, which
permits operation as a "fund of
funds."
- ---------------------------------------------------------------------------------------------------------------
Commodities
- ---------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase or sell No change is proposed.
commodities, commodity contracts,
purchase or sell physical or interests in oil, gas or other
commodities unless acquired as a mineral exploration or development
result of ownership of securities or programs, except that it is
other instruments (but this shall permissible to purchase securities
not prevent the Fund from purchasing issued by companies that hold
or selling options and futures interests in oil, gas or other
contracts or from investing in mineral exploration or development
securities or other instruments programs.
backed by physical commodities).
- ---------------------------------------------------------------------------------------------------------------
10
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Investment in issuers whose stock is owned by Victory's Trustees or Officers
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase or No fundamental restriction.
retain the securities of any issuer
if any Trustee or officer of the
Trust is or becomes a director or
officer of such issuer and owns
beneficially more than 1/2 of 1% of
the securities of such issuer, or
if those directors, trustees and
officers of the Trust and its investment
adviser who are directors or officers of
such issuer together own or acquire more
than 5% of the securities of such
issuer.
- ---------------------------------------------------------------------------------------------------------------
Investment in unseasoned issuers
- ---------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase any No fundamental restriction.
securities of companies which have
(with their predecessors) a record of less
than three years of continuous operation,
if at the time of acquisition more than 5%
of its total assets would be invested in
such securities.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Assets and Liabilities
October 31, 1999
(Amounts in thousands, except per share amounts)
(Unaudited) Victory Victory
Government Fund for Combined
Mortgage Fund Income Adjustments Pro Forma Totals
------------- ------ ----------- ----------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (Cost $99,860 & $235,810) $ 98,709 $ 230,775 $ -- $ 329,484
Cash 51 -- -- 51
Interest receivable 624 2,129 -- 2,753
Receivable for capital shares issued -- 2 -- 2
Receivable from brokers for investments sold 13 -- -- 13
Receivabli from affiliates -- 9 -- 9
Prepaid expenses and other assets 7 26 -- 33
--------- --------- ------------- ---------
Total Assets 99,404 232,941 -- 332,345
--------- --------- ------------- ---------
LIABILITIES:
Dividends payable -- -- -- --
Payable to brokers for investments purchased -- -- -- --
Payable for capital shares redeemed -- 13 -- 13
Accrued expenses and other payables:
Investment advisory fees 42 85 -- 127
Administration fees 2 2 -- 4
Custodian fees 7 14 -- 21
Accounting fees 2 -- -- 2
Transfer agent fees 3 26 -- 29
Shareholder service fees - Class A 20 23 -- 43
Shareholder service fees - Class G -- 49 -- 49
Other 2 37 -- 39
--------- --------- ------------- ---------
Total Liabilities 78 249 -- 327
--------- --------- ------------- ---------
NET ASSETS:
Capital 103,722 245,144 -- 348,866
Undistributed (distributions in excess) net investment income 107 192 -- 299
Net unrealized appreciation/depreciation from investments (1,151) (5,035) -- (6,186)
Accumulated undistributed net realized -- --
losses from investment transactions (3,352) (7,609) (10,961)
--------- --------- ------------- ---------
Net Assets $ 99,326 $ 232,692 $ -- $ 332,018
========= ========= ============= =========
Net Assets
Class A $ 99,326 $ 40,270 $ -- $ 139,596
Class G -- 192,422 -- 192,422
--------- --------- ------------- ---------
Total $ 99,326 $ 232,692 $ -- $ 332,018
========= ========= ============= =========
Outstanding units of beneficial interest (shares)
Class A 9,364 -- (9,364)
Class A -- 3,149 7,765 10,914
Class G -- 15,052 -- 15,052
--------- --------- ------------- ---------
Total 9,364 18,201 (1,599) 25,966
========= ========= ============= =========
Net asset value
Redemption price per share - Class A $ 10.61 -- $ 2.18
Redemption price per share - Class A -- $ 12.79 -- $ 12.79
========= ========= ============= =========
Redemption price per share - Class G $ -- $ 12.78 $ -- $ 12.78
========= ========= ============= =========
Maximum sales charge - Class A 5.75% 2.00% -- 2.00%
========= ========= ============= =========
Maximum offering price per share (100%/(100%-maximum sales charge) of
net asset value adjusted to nearest cent) - Class A $ 11.26 $ 13.05 -- $ 13.05
========= ========= ============= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Operations
For the Ten Months Ended October 31, 1999
Victory Victory
Government Fund for
Mortgage Fund Income Adjustments Combined Pro Forma Tot
------------- ------ ----------- ----------------------
For the Ten For the Ten For the Ten For the Ten
Months Ended Months Ended Months Ended Months Ended
October 31, October 31, October 31, October 31,
1999 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 5,730 $ 11,622 $ -- $ 17,352
-------- -------- -------- --------
Total Income 5,730 11,622 -- 17,352
-------- -------- -------- --------
Expenses:
Investment advisory fees 428 827 -- 1,255
Administration fees 128 206 -- 334
Shareholder service fees - Class A 210 56 -- 266
Shareholder service fees and 12b-1 fees - Class G -- 363 -- 363
Accounting fees 67 68 -- 135
Custodian fees 63 52 -- 115
Legal and audit fees 6 47 -- 53
Trustees' fees and expenses 2 7 -- 9
Transfer agent fees 10 83 -- 93
Registration and filing fees 11 16 -- 27
Printing fees 2 23 -- 25
Other 6 13 -- 19
-------- -------- -------- --------
Total Expenses 933 1,761 -- 2,694
-------- -------- -------- --------
Expenses voluntarily reduced (76) (264) (2)(a) (342)
-------- -------- -------- --------
Expenses before reimbursement from distributor 857 1,497 (2) 2,352
Expenses reimbursed by the distributor -- (16) -- (16)
-------- -------- -------- --------
Net Expenses 857 1,481 (2) 2,336
-------- -------- -------- --------
Net Investment Income 4,873 10,141 2 15,016
-------- -------- -------- --------
Realized/Unrealized Gains (losses) from Investments:
Net realized gains (losses) from investment transactions (2,731) (1,816) -- (4,547)
Change in unrealized appreciation/depreciation from invest(1,662) (1,662) (7,522) -- (9,184)
-------- -------- -------- --------
Net realized/unrealized gains (losses) from investments (4,393) (9,338) -- (13,731)
-------- -------- -------- --------
Change in net assets
resulting from operations $ 480 $ 803 $ 2 $ 1,283
======== ======== ======== ========
</TABLE>
(a) The adviser has agreed to waive its management fee and to reimburse expenses
as allowed by law, to the extent necessary to maintain our net operating
expenses of the Fund for Income Class G Shares at a maximum of 0.8% until at
least April 1, 2001, the adviser has also agreed to waive its management fee for
Class A Shares to the same extent the fee is waived for Class G Shares until at
least April 1, 2001. During the period ended October 31, 1999, the net expense
ratio applicable to fund for income Class A Shares totaled 1.00%, this
adjustment reflects the impact of that contractual fee limitation.
<PAGE>
<TABLE>
<CAPTION>
Merger Victory Government Mortgage Fund and Victory Fund for Income
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares) Shares or
(Unaudited) Principal Amount Market Value
Gov't Fund for Gov't Fund for
Mortgage Income Combined Mortgage Income Combined
<S> <C> <C> <C> <C> <C>
Collateralized Mortgage Obligations (17.8%)
Federal National Mortgage Assoc., Series 1988-4, Class Z,$9.25%, $ 321 $ 321 $ 329 $ 329
3/25/18, CMO
Federal National Mortgage Assoc., Series 1999-28, Class ZA, 517 517 438 438
6.00%, 8/25/27, CMO
Federal Home Loan Mortgage Corp., Series 2152, Class AC, 1,817 1,817 1,834 1,834
7.50%, 1/15/26, CMO
Federal Home Loan Mortgage Corp., Series 2116, Class D, 1,659 1,659 1,450 1,450
6.00%, 7/15/26, CMO
Federal National Mortgage Assoc., Series 1997-49, Class B 1,065 1,065 1,161 1,161
10.00%, 6/17/27, CMO
Federal National Mortgage Assoc., Series 1999-15, Class LA 1,299 1,299 1,274 1,274
6.50%, 4/25/29, CMO
Government National Mortgage Assoc., Series 1998-16, Class $ 3,000 3,000 $ 2,951 2,951
VB, 6.75%, 10/20/07
Government National Mortgage Assoc., Series 1996-21, Class J, 2,147 2,147 2,090 2,090
7.00%, 7/16/13
Government National Mortgage Assoc., Series 1999-22, Class 3,000 3,000 2,940 2,940
VB, 7.00%, 11/20/14
Government National Mortgage Assoc., Series 1998-19, Class 1,904 1,904 1,916 1,916
DB, 8.50%, 6/20/16
Government National Mortgage Assoc., Series 1994-4, Class PG, 3,000 3,000 3,021 3,021
7.50%, 8/16/19
Government National Mortgage Assoc., Series 1997-20, Class B, 1,277 1,277 1,306 1,306
9.50%, 8/20/21
Government National Mortgage Assoc., Series 1998-4, Class P, 1,581 1,581 1,652 1,652
9.00%, 3/20/22
Government National Mortgage Assoc., Series 1998-13, Class 1,352 1,352 1,433 1,433
DB, 9.00%, 4/20/22
Government National Mortgage Assoc., Series 1996-25, Class H, 5,301 5,301 5,358 5,358
7.50%, 7/16/22
Government National Mortgage Assoc., Series 1996-20, Class C, 2,000 2,000 2,021 2,021
7.50%, 5/16/23
Government National Mortgage Assoc., Series 1996-11, Class 3,500 3,500 3,502 3,502
PC, 7.00%, 5/20/23
Government National Mortgage Assoc., Series 1999-36, Class 3,000 3,000 2,967 2,967
HA, 7.50%, 6/20/23
Government National Mortgage Assoc., Series 1998-12, Class 2,200 2,200 2,262 2,262
GA, 9.00%, 12/20/23
Government National Mortgage Assoc., Series 1997-8, Class PL, 5,000 5,000 4,884 4,884
7.00%, 1/16/25
Government National Mortgage Assoc., Series 1995-7, Class CQ, 3,000 3,000 2,981 2,981
7.50%, 9/16/25
Government National Mortgage Assoc., Series 1996-9, Class PE, 3,261 3,261 3,193 3,193
7.00%, 10/20/25
Government National Mortgage Assoc., Series 1999-33, Class H, 2,000 2,000 1,991 1,991
7.50%, 1/20/26
Government National Mortgage Assoc., Series 1999-24, Class D, 2,480 2,480 2,414 2,414
7.00%, 7/20/26
Government National Mortgage Assoc., Series 1997-2, Class E, 735 735 721 721
7.50%, 2/20/27
Government National Mortgage Assoc., Series 1999-6, Class AB, 2,863 2,863 2,926 2,926
8.00%, 3/16/28
GovernmentNational Mortgage Assoc., Series 1995-8, Class B, 246 246 247 247
7.50%, 8/20/20
-----------------------------------------
Total Collateralized Mortgage Obligations (Cost $60,805) 6,486 52,776 59,262
Investment Companies (0.0%)
Federated U.S. Treasury Cash Reserve Fund 178,270 178,270 178 178
-----------------------------------------
Total Investment Companies (Cost $178) 178 178
U.S. Government Agencies (1.8%)
Federal Farm Credit Bank (1.0%)
5.16%, 11/1/99 3,359 3,359 3,358 3,358
Federal Home Loan Bank (0.8%)
5.68%, 12/3/07 2,575 2,575 2,546 2,546
-----------------------------------------
Total U.S. Government Agencies (Cost $5,932) 5,904 - 5,904
U.S. Government Mortgage Backed (69.3%)
Federal Home Loan Mortgage Corp. (7.8%)
6.00%, 4/1/26-2/1/29 5,608 5,608 5,258 5,258
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Victory Government Mortgage Fund and Victory Fund for Income
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares) Shares or
(Unaudited) Principal Amount Market Value
Gov't Fund for Gov't Fund for
Mortgage Income Combined Mortgage Income Combined
<S> <C> <C> <C> <C> <C> <C>
6.50%, 5/1/26-4/1/29 8,266 8,266 7,940 7,940
7.00%, 7/1/28-7/1/29 5,979 5,979 5,879 5,879
7.50%, 9/1/17-3/1/29 4,866 4,866 4,883 4,883
8.00%, 10/1/28-1/1/29 333 333 340 340
8.50%, 1/1/29-5/1/29 1,491 1,491 1,543 1,543
9.50%, 8/1/19-8/1/21 130 130 137 137
12.00%, 10/1/10 4 4 4 4
25,984 - 25,984
Federal National Mortgage Assoc. (12.4%)
6.00%, 12/1/28-7/1/29 2,879 2,879 2,686 2,686
6.50%, 11/1/13-7/1/29 17,871 17,871 17,245 17,245
7.00%, 10/1/26-7/1/29 5,721 5,721 5,612 5,612
7.50%, 4/1/29/5/1/29 1,584 1,584 1,587 1,587
8.00%, 5/1/17-9/1/29 3,191 3,191 3,251 3,251
8.50%, 8/1/14-8/1/19 8,392 8,392 8,692 8,692
9.00%, 8/1/14 948 948 989 989
9.50%, 1/1/19 6 6 6 6
10.00%, 5/1/13 4 4 4 4
10.50%, 1/1/09 989 989 1,046 1,046
12.00%, 8/1/13 3 3 4 4
13.00%, 12/1/12 32 32 36 36
------------ -------------
41,158 - 41,158
Government National Mortgage Assoc. (49.0%)
6.50%, 1/15/13-1/15/29 4,607 26,697 31,304 4,438 25,681 30,119
6.63%, 1/15/27 2,964 2,964 2,870 2,870
7.00%, 2/15/17-7/20/29 10,521 30,979 41,500 10,370 30,379 40,749
7.50%, 9/15/10-7/15/31 2,671 34,577 37,248 2,679 34,658 37,337
7.75%, 8/15/29-11/15/38 6,417 6,417 6,577 6,577
8.00%, 9/15/06-10/20/29 661 19,707 20,368 675 20,133 20,808
8.13%, 7/15/38 3,479 3,479 3,675 3,675
8.25%, 11/15/26-9/15/29 3,451 3,451 3,558 3,558
8.50%, 3/15/05-7/15/29 891 7,135 8,026 924 7,418 8,342
8.75%, 3/20/17-4/15/22 2,891 2,891 3,096 3,096
9.00%, 10/15/09-8/15/25 1,846 1,846 1,940 1,940
9.50%, 10/15/02-6/15/21 85 1,886 1,971 91 2,015 2,106
10.00%, 6/15/17-8/15/25 1,469 1,469 1,595 1,595
10.25%, 6/15/19 12 12 13 13
10.50%, 2/15/16 13 13 14 14
-------------------------------------
19,177 143,622 162,799
Total U.S. Government Mortgage Backed (Cost $233,082) 86,319 143,622 229,941
U.S. Treasury Obligations (10.3%)
U.S. Treasury Bills (0.4%)
11/26/99 1,305 1,305 1,301 1,301
U.S. Treasury Bonds (6.7%)
7.63%, 2/15/07 11,000 11,000 11,339 11,339
8.75%, 11/15/08 10,000 10,000 10,892 10,892
------------------------ ------------
- 22,231 22,231
U.S. Treasury Notes (3.2%)
7.75%, 2/15/01 2,000 2,000 2,050 2,050
7.88%, 11/15/04 8,000 8,000 8,617 8,617
------------------------ ------------
- 10,667 10,667
Total U.S. Treasury Obligations (Cost $34,867) - 34,199 34,199
Total Investments (Cost $335,670) (a) - 99.2% $ 98,709 $ 230,775 $ 329,484
Other assets in excess of liabilities - 0.8% 2,534
------------
============
TOTAL NET ASSETS - 100.0% $ 332,018
============
- ------------
</TABLE>
<PAGE>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Assets and Liabilities
October 31, 1999
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Victory Victory
Ohio Regional Established Combined
Stock Fund Value Fund Adjustments Pro Forma Totals
---------- ---------- ----------- ----------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (Cost $13,652 & $302,859) $ 24,403 $ 468,942 $ - $ 493,345
Cash - - - -
Interest and dividends receivable 33 219 - 252
Receivable from affiliates 1 - - 1
Receivable for capital shares issued - 32 - 32
Receivable from brokers for investments sold 7 754 - 761
Prepaid expenses and other assets 6 25 - 31
------------ ---------- --------- -------------
Total Assets 24,450 469,972 - 494,422
------------ ---------- --------- -------------
LIABILITIES:
Payable to Custodian 150 - -
Payable for capital shares redeemed - 183 - 183
Payable to brokers for investments purchased - - - -
Accrued expenses and other payables:
Investment advisory fees 14 157 - 171
Administration fees - 3 - 3
Custodian fees 2 15 - 17
Accounting fees 1 2 - 3
Transfer agent fees 11 69 - 80
Shareholder service fees - Class A 5 - - 5
Shareholder service and 12b-1fees - Class B 1 - - 1
12b-1 fees - Class G - 222 - 222
Other 3 33 - 36
------------ ---------- --------- -------------
Total Liabilities 187 684 - 721
------------ ---------- --------- -------------
NET ASSETS:
Capital 5,025 247,619 - 252,644
Undistributed net investment income 11 - - 11
Net unrealized appreciation/depreciation from
investments 10,751 166,083 - 176,834
Accumulated undistributed net realized gains
(losses) from investment transactions 8,476 55,586 - 64,062
------------ ---------- --------- -------------
Net Assets $ 24,263 $ 469,288 $ - $ 493,551
============ ========== ========= =============
Net Assets
Class A $ 23,529 $ - $ 734 $ 24,263
Class B 734 - (734) -
Class G - 469,288 - 469,288
------------ ---------- --------- -------------
Total $ 24,263 $ 469,288 $ - $ 493,551
============ ========== ========= =============
Outstanding units of beneficial interest (shares)
Class A 1,384 - (677) 707
Class B 44 - (44) -
Class G - 13,678 13,678
------------ ---------- --------- -------------
Total 1,428 13,678 (721) 14,385
============ ========== ========= =============
Net asset value
Redemption price per share - Class A $ 17.00 $ - $ 17.31 $ 34.31
Offering and redemption price per share - Class B* 16.60 - (16.60) -
============ ========== ========= =============
Redemption price per share - Class G $ - $ 34.31 $ - $ 34.31
============ ========== ========= =============
Maximum sales charge - Class A 5.75% - - 5.75%
============ ========== ========= =============
<PAGE>
Maximum offering price per share (100%/(100%-
maximum sales charge) of net asset value adjusted
to nearest cent) - Class A $ 18.04 $ - $ - $ 36.40
============ ========== ========= =============
* Redemption price per Class B Share varies based on length of time held.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Operations
For the Seven Months Ended October 31, 1999
(Amounts in thousands, except per share amounts)
Victory Victory
Ohio Regional Established Combined Pro
Stock Fund Value Fund Adjustments Forma Totals
---------- ---------- ----------- ------------
For the Seven For the Seven For the Seven For the Seven
Months Ended Months Ended Months Ended Months Ended
October 31, October 31, October 31, October 31,
1999 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 2 $ 378 $ -- $ 380
Dividend income 395 2,868 -- 3,263
Securities Lending 4 -- 4
-------- -------- -------- ---------
Total Income 401 3,246 -- 3,647
-------- -------- -------- ---------
Expenses:
Investment advisory fees 133 1,471 (18)(a) 1,586
Administration fees 27 391 -- 418
Shareholder service fees - Class A 42 -- -- 42
Shareholder service fees and 12b-1 fees - Class B 5 -- (5)(b) --
Shareholder service fees and 12b-1 fees - Class G -- 1,439 -- 1,439
Accounting fees 26 54 -- 80
Custodian fees 11 60 -- 71
Legal and audit fees 2 47 -- 49
Trustees' fees and expenses -- 3 -- 3
Transfer agent fees 22 115 -- 137
Registration and filing fees 7 5 -- 12
Printing fees -- 56 -- 56
Other 2 6 -- 8
-------- -------- -------- ---------
Total Expenses 277 3,647 (23) 3,901
-------- -------- -------- ---------
Expenses voluntarily reduced (12) (419) (103)(c) (534)
Expenses before reimbursement from distributor 265 3,228 (126) 3,367
Expenses reimbursed by the distributor (5) (65) -- (70)
-------- -------- -------- ---------
Net Expenses 260 3,163 (126) 3,297
-------- -------- -------- ---------
Net Investment Income 141 83 126 350
-------- -------- -------- ---------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions 3,582 30,682 -- 34,264
Change in unrealized appreciation/depreciation from
investments (3,528) 14,949 -- 11,421
-------- -------- -------- ---------
Net realized/unrealized gains (losses) from investments 54 45,631 -- 45,685
Change in net assets
-------- -------- -------- ---------
resulting from operations $ 195 $ 45,714 $ 126 $ 45,932
======== ======== ======== =========
(a) Adjustments to reflect the Established Value Fund contractual fee
structure for investment advisory fees (see notes to Pro Forma
Financial Statements)
(b) Adjustment to reflect the dissolution of the Class B Shares upon
reorganization date.
(c) The adviser has agreed to waive its management fee or reimburse
expenses as allowed by law, to the extent necessary to maintain the net
operating expenses of the Established Value Fund Class A Shares at a
maximum of 0.88% until at least February 28, 2001. This adjustment
reflects the impact of that contractual fee limitation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper (1.8%)
General Electric Capital Corp., 5.33%, 11/1/99 $ 9,116 $ 9,116 $ 9,116 $ 9,116
-------------------------------
Total Commercial Paper (Cost $9,116) 9,116 9,116
Common Stocks (98.1%)
Aerospace/Defense (3.2%)
B.F. Goodrich Co. 180,000 180,000 4,264 4,264
Boeing Co. 140,000 140,000 6,449 6,449
Litton Industries, Inc. (b) 105,000 105,000 4,928 4,928
-------------------------------
15,641 15,641
Agriculture & Livestock (0.0%)
Andersons, Inc. 20,000 20,000 159 159
-------------------------------
Airlines (1.1%)
Comair Holdings, Inc. 16,000 16,000 369 369
Southwest Airlines Co. 300,000 300,000 5,044 5,044
-------------------------------
369 5,044 5,413
Amusement & Recreation Services (0.1%)
Cedar Fair L.P. 20,000 20,000 399 399
-------------------------------
Automotive Parts (0.1%)
Dana Corp. 17,000 17,000 503 503
-------------------------------
Banks (0.7%)
BancFirst Ohio Corp. 14,000 14,000 310 310
Charter One Financial, Inc. 18,165 18,165 446 446
First Merit Corp. 16,000 16,000 423 423
Huntington Bancshares, Inc. 11,000 11,000 326 326
National City Corp. 20,000 20,000 590 590
Park National Corp. 5,000 5,000 495 495
Provident Financial Group 17,500 17,500 751 751
Second Bancorp 4,470 4,470 114 114
United Community Financial Corp. 1,000 1,000 10 10
-------------------------------
3,465 3,465
Beverages (2.0%)
Adolph Coors Co. 175,000 175,000 9,713 9,713
-------------------------------
Brokerage Services (2.9%)
Morgan Stanley Dean Witter 70,000 70,000 7,722 7,722
Paine Webber Group, Inc. 160,000 160,000 6,520 6,520
-------------------------------
14,242 14,242
Building Materials (2.5%)
Armstrong World Industries, Inc. 100,000 100,000 3,738 3,738
Centex Corp. 160,000 160,000 4,290 4,290
Owens Corning Fiberglas Corp. 15,000 15,000 308 308
Pulte Corp. 200,000 200,000 4,025 4,025
-------------------------------
308 12,053 12,361
Chemicals (1.9%)
Air Products & Chemicals, Inc. 180,000 180,000 4,950 4,950
Englehard Corp. 255,000 255,000 4,494 4,494
-------------------------------
9,444 9,444
Chemicals-General (0.3%)
A. Schulman, Inc. 17,500 17,500 272 272
Ferro Corp. 10,000 10,000 204 204
OM Group, Inc. 15,000 15,000 563 563
RPM, Inc. 25,000 25,000 298 298
-------------------------------
1,337 1,337
Commercial Services (0.1%)
Convergys Corp. (b) 30,000 30,000 587 587
-------------------------------
Computers & Peripherals (7.7%)
Computer Sciences Corp. (b) 115,000 115,000 7,899 7,899
Diebold, Inc. 25,000 25,000 656 656
Sun Microsystems, Inc. (b) 275,000 275,000 29,099 29,099
-------------------------------
656 36,998 37,654
Conglomerates (3.0%)
Crane Co. 210,000 210,000 4,292 4,292
Lancaster Colony Corp. 21,000 21,000 734 734
Myers Industries Inc. 18,000 18,000 253 253
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Textron, Inc. 125,000 125,000 9,648 9,648
-------------------------------
987 13,940 14,927
Consumer Products (1.7%)
American Greetings Corp. 11,000 11,000 285 285
Fortune Brands, Inc. 220,000 220,000 7,796 7,796
Gibson Greetings, Inc. (b) 21,000 21,000 102 102
-------------------------------
387 7,796 8,183
Electronic & Electrical-General (3.8%)
Honeywell, Inc. 90,000 90,000 9,489 9,489
Johnson Controls, Inc. 148,000 148,000 8,991 8,991
Pioneer-Standard Electronics, Inc. 15,000 15,000 196 196
-------------------------------
196 18,480 18,676
Electronics (0.3%)
Keithley Instruments, Inc. 35,000 35,000 556 556
Parker Hannifin Corp. 19,400 19,400 888 888
-------------------------------
1,444 1,444
Engineering, Industrial Construction (0.0%)
Corrpro Cos., Inc. (b) 12,500 12,500 86 86
-------------------------------
Entertainment (0.9%)
Brunswick Corp. 190,000 190,000 4,299 4,299
-------------------------------
Financial & Insurance (2.5%)
AMBAC Financial Group, Inc. 110,000 110,000 6,573 6,573
MBIA, Inc. 100,000 100,000 5,706 5,706
-------------------------------
12,279 12,279
Financial Services (13.5%)
Citigroup, Inc. 337,500 337,500 18,267 18,267
Countrywide Credit Industries, Inc. 150,000 150,000 5,091 5,091
Fannie Mae 95,000 95,000 6,721 6,721
Household International, Inc. 450,000 450,000 20,081 20,081
Providian Financial Corp. 150,000 150,000 16,350 16,350
-------------------------------
66,510 66,510
Food Distributors, Supermarkets
& Wholesalers (2.4%)
Albertsons, Inc. 201,600 201,600 7,321 7,321
Kroger Co. (b) 15,000 15,000 312 312
SUPERVALU, Inc. 200,000 200,000 4,200 4,200
-------------------------------
312 11,521 11,833
Food Processing & Packaging (0.0%)
J.M. Smucker Co., Class A 5,000 5,000 99 99
-------------------------------
Food Products (0.8%)
Earthgrains Co. 180,000 180,000 4,106 4,106
-------------------------------
Forest Products-Lumber & Paper (1.1%)
Georgia Pacific Corp. 130,000 130,000 5,159 5,159
Mead Corp. 10,000 10,000 360 360
-------------------------------
360 5,159 5,519
Health Care (1.1%)
Gliatech, Inc. (b) 10,500 10,500 86 86
Invacare Corp. 25,000 25,000 521 521
Omnicare, Inc. 16,000 16,000 148 148
Steris Corp. (b) 2,000 2,000 27 27
WellPoint Health Networks (b) 80,000 80,000 4,640 4,640
-------------------------------
782 4,640 5,422
Heavy Machinery (1.7%)
Ingersoll Rand Co. 165,000 165,000 8,621 8,621
-------------------------------
Household Goods-Appliances,
Furnishings & Electronics (3.7%)
Premark International, Inc. 185,000 185,000 10,129 10,129
Whirlpool Corp. 115,000 115,000 8,014 8,014
-------------------------------
18,143 18,143
Insurance (0.2%)
Ohio Casualty Corp. 29,000 29,000 484 484
State Auto Financial Corp. 48,000 48,000 552 552
-------------------------------
1,036 1,036
Insurance-Multi-Line (4.3%)
Aegon NV 100,538 100,538 9,243 9,243
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
CIGNA Corp. 93,000 93,000 6,952 6,952
Cincinnati Financial Corp. 9,450 9,450 338 338
Hartford Financial Services Group, Inc. 84,000 84,000 4,352 4,352
Progressive Corp. 6,000 6,000 556 556
-------------------------------
894 20,547 21,441
Insurance-Property, Casualty, Health (0.7%)
UnumProvident Corp. 109,500 109,500 3,607 3,607
-------------------------------
Leisure-Recreation, Gaming (2.2%)
Royal Caribbean Cruises Ltd. 200,000 200,000 10,613 10,613
-------------------------------
Machine Tools (0.8%)
Genesis Worldwide, Inc. 5,000 5,000 28 28
Lincoln Electric Holdings 24,000 24,000 537 537
Milacron, Inc. 17,000 178,500 195,500 279 2,934 3,213
-------------------------------
844 2,934 3,778
Manufacturing - Capital Goods (0.3%)
Commercial Intertech Corp. 16,000 16,000 203 203
Gorman-Rupp Co. 25,000 25,000 378 378
Robbins & Myers, Inc. 14,000 14,000 227 227
Thor Industries, Inc. 21,000 21,000 530 530
-------------------------------
1,338 1,338
Manufacturing-Miscellaneous (2.0%)
Cooper Industries, Inc. 118,000 118,000 5,081 5,081
Eaton Corp. 2,000 2,000 151 151
Trinity Industries 160,000 160,000 4,770 4,770
-------------------------------
151 9,851 10,002
Media (0.1%)
Scripps (E.W.) Co., Class A 15,000 15,000 693 693
-------------------------------
Metals-Fabrication (0.1%)
Brush Wellman, Inc. 4,000 4,000 53 53
RTI International Metals (b) 10,000 10,000 73 73
Timken Co. 12,000 12,000 215 215
Worthington Industries, Inc. 8,000 8,000 133 133
-------------------------------
474 474
Mining (0.1%)
Cleveland Cliffs, Inc. 5,500 5,500 164 164
Oglebay Norton Co. 10,000 10,000 195 195
-------------------------------
359 359
Newspapers (1.5%)
Gannett Co., Inc. 97,000 97,000 7,481 7,481
-------------------------------
Oil & Gas Exploration, Production
& Services (5.3%)
Coastal Corp. 290,000 290,000 12,217 12,217
El Paso Energy Corp. 200,000 200,000 8,200 8,200
Transocean Offshore, Inc. 210,000 210,000 5,709 5,709
-------------------------------
26,126 26,126
Oil-Integrated Companies (0.1%)
USX - Marathon Group, Inc. 22,000 22,000 641 641
-------------------------------
Paint, Varnishes, Enamels (1.1%)
Sherwin-Williams Co. 20,000 225,000 245,000 448 5,034 5,482
-------------------------------
Real Estate Investment Trusts (0.1%)
Developers Divers Realty 16,000 16,000 228 228
Health Care REIT, Inc. 14,000 14,000 250 250
-------------------------------
478 478
Restaurants (2.5%)
Bob Evans Farms, Inc. 9,000 9,000 124 124
Brinker International, Inc. (b) 250,000 250,000 5,828 5,828
Wendy's International, Inc. 12,000 254,000 266,000 286 6,064 6,350
-------------------------------
410 11,892 12,302
Retail (4.2%)
Dayton Hudson Corp. 250,000 250,000 16,156 16,156
KMart Corp. (b) 450,000 450,000 4,528 4,528
Too, Inc. (b) 2,000 2,000 32 32
-------------------------------
32 20,684 20,716
Retail-Department Stores (1.0%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Federated Department Stores (b) 110,000 110,000 4,696 4,696
-------------------------------
Retail-Specialty Stores (1.8%)
Jo-Ann Stores Inc., Class A (b) 8,000 8,000 112 112
Jo-Ann Stores Inc., Class B (b) 8,000 8,000 102 102
Limited, Inc. 14,000 14,000 575 575
Lowe's Cos., Inc. 140,000 140,000 7,700 7,700
OfficeMax, Inc. (b) 20,000 20,000 101 101
Value City Department Stores, Inc. (b) 10,000 10,000 154 154
-------------------------------
1,044 7,700 8,744
Rubber & Rubber Products (0.1%)
Cooper Tire & Rubber Co. 13,000 13,000 219 219
Goodyear Tire & Rubber Co. 9,000 9,000 371 371
-------------------------------
590 590
Software & Computer Services (0.1%)
Reynolds & Reynolds Co., Class A 33,000 33,000 600 600
-------------------------------
Staffing (0.7%)
Interim Services, Inc. (b) 218,000 218,000 3,583 3,583
-------------------------------
Steel (0.0%)
Shiloh Industries, Inc. 25,000 25,000 234 234
-------------------------------
Telecommunications (4.5%)
Qualcomm, Inc. (b) 100,000 100,000 22,275 22,275
-------------------------------
Tools & Hardware Manufacturing (1.1%)
Black & Decker Corp. 125,000 125,000 5,375 5,375
-------------------------------
Transportation (1.3%)
FDX Corp. (b) 145,000 145,000 6,244 6,244
-------------------------------
Utilities-Electric (1.4%)
CINergy Corp. 16,000 16,000 452 452
DPL, Inc. 36,000 36,000 729 729
Duke Energy Corp. 105,000 105,000 5,933 5,933
-------------------------------
1,181 5,933 7,114
Utilities-Telecommunications (1.4%)
Cincinnati Bell, Inc. (b) 25,000 25,000 520 520
SBC Communications, Inc. 130,000 130,000 6,622 6,622
-------------------------------
520 6,622 7,142
Total Common Stocks (Cost $307,395) 24,403 459,826 484,229
-------------------------------
Total Investments (Cost $316,511) (a) - 99.9% $ 24,403 $ 468,942 $ 493,345
Liabilities in excess of other assets - 0.1% 206
----------
==========
TOTAL NET ASSETS - 100.0% $ 493,551
==========
- ------------
</TABLE>
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements
October 31, 1999
(Unaudited)
1. Organization Prior to Proposed Reorganization
The Victory Government Mortgage Fund, the Victory Fund for Income, the
Victory Ohio Regional Stock Fund and the Victory Established Value Fund (the
Victory Funds), each are separate investment portfolios offered by The Victory
Portfolios (the "Trust").
The Trust is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
investment objective of the Victory Government Mortgage Fund is to seek a high
level of current income consistent with safety of principal. The investment
objective of the Victory Fund for Income is to provide a high level of current
income consistent with preservation of shareholders' capital. The investment
objective of the Victory Ohio Regional Stock Fund is to provide a capital
appreciation. The investment objective of the Victory Established Value Fund is
to provide long-term capital growth by investing primarily in common stocks
The Victory Government Mortgage Fund currently issues one class of
shares: Class A shares. The Victory Fund for Income issues two classes of
shares: Class A shares and Class G shares. The Victory Ohio Regional Stock Fund
issues two classes of shares: Class A shares and Class B shares. The Victory
Established Value Fund currently issues one class of shares: Class G shares. The
Victory Established Value Fund has filed an amendment to the Trust's
registration statement on Form N-1A to register Class A shares. The Trust
expects the Class A shares to become effective on January 21, 2000. Each class
of shares has substantially identical rights and privileges except with respect
to sales charges, fees paid under shareholder servicing or distribution plans,
expenses allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, and the exchange privilege of each class of
shares.
2. Basis of Combination:
The Agreement and Plan of Reorganization and Termination provides that
at the time the reorganization becomes effective (the "Effective Time of the
Reorganization"), all assets and liabilities will be transferred such that at
and after the Effective Time of Reorganization, the assets and liabilities of
the Victory Government Mortgage Fund will become the assets and liabilities of
the Victory Fund for Income, and the assets and liabilities of the Victory Ohio
Regional Stock Fund will become the assets and liabilities of the Victory
Established Value Fund
The unaudited Pro Forma combining Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of the Victory Government Mortgage Fund and Victory Fund for Income as
if the proposed reorganization occurred as of and for the ten months ended
October 31, 1999, and of the Victory Ohio Regional Stock Fund
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
and Victory Established Value Fund as if the proposed reorganization occurred as
of and for the seven months ended October 31, 1999. The accompanying statements
give effect to the proposed transfer described below and have been derived from
the books and records of the Funds utilized in calculating daily net asset value
at October 31, 1999.
For accounting purposes, the historical basis of assets and liabilities
of the Victory Fund for Income and the Victory Established Value Fund will
survive this reorganization. Those Victory Funds for which the basis of assets
and liabilities will survive the reorganization are hereafter referred to as the
"Survivor Funds," and the Survivor Funds will continue as separate investment
portfolios of the Trust. The Victory Government Mortgage Fund and the Victory
Ohio Regional Stock Fund are hereafter referred to as the "non-Survivor Funds".
The Survivor Funds, at the Effective Time of the Reorganization, will issue
additional Class A shares for the net assets of each non-Survivor Fund in
connection with the reorganization.
In exchange for the transfer of assets and liabilities, the Trust will
issue to the non-Survivor Funds full and fractional Class A shares of the
corresponding Survivor Funds, and the non-Survivor Funds will make a liquidating
distribution of such Class A shares to its shareholders. The number of Class A
shares of the Survivor Funds so issued will be equal in value to the full and
fractional shares of the non-Survivor Funds that are outstanding immediately
prior to the Effective Time of the Reorganization. At and after the Effective
Time of the Reorganization, all debts, liabilities and obligations of the
non-Survivor Funds will attach to the Survivor Funds and may thereafter be
enforced against the Survivor Funds to the same extent as if they had been
incurred by it.
Under generally accepted accounting principles, the Survivor Funds'
basis, for purposes of determining net asset value, of the assets and
liabilities of the non-Survivor Funds will be the fair market value of such
assets and liabilities on the closing date of the transaction. The Trust and,
accordingly, the Survivor Funds, will recognize no gain or loss for federal tax
purposes on its issuance of Class A shares in the reorganization.
The accompanying pro forma financial statements represent the Survivor
Funds, and reflect the combined results of operations of the four Victory Funds.
However, should such reorganization be effected, the statements of operations of
the Survivor Funds will not be restated for pre-combination period results of
the corresponding non-Survivor Funds. The Pro Forma combining Statements of
Assets and Liabilities, Statements of Operations, and Schedules of Portfolio
Investments should be read in conjunction with the historical financial
statements of the Victory Funds.
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
Expenses:
Key Asset Management Inc. ("KAM"), a subsidiary of KeyCorp, serves as
the investment adviser to the Trust. Affiliates of KAM and other financial
institutions serve as shareholder servicing agents for the Trust. BISYS Fund
Services Ohio, Inc. ("BISYS") and BISYS Fund Services Limited Partnership, each
an indirect, wholly-owned subsidiary of The BISYS Group, Inc., serve as the
administrator and distributor, respectively, for the Trust. BISYS also serves as
mutual fund accountant for the Trust.
Under the terms of the investment advisory agreement, KAM is entitled to
receive fees computed at the annual rate of 0.50%, 0.50% and 0.75% of average
net assets of the Victory Government Mortgage Fund, the Victory Fund for Income
and the Victory Ohio Regional Stock Fund, respectively. For the Victory
Established Value Fund, KAM is entitled to receive fees computed at the annual
rate of 0.65% of average net assets up to $100 million, 0.55% of average net
assets between $100 million and $200 million and 0.45% of average net assets
over $200 million. Such fees, net of voluntary fee waivers as applicable, are
accrued daily and paid monthly. For the periods ended October 31, 1999, total
KAM investment advisory fees incurred by the Victory Funds, and advisory fees
waived, were as follows:
Total Fees Waiver
---------- ------
Victory Government Mortgage Fund $ 428,000 $ 76,000
Victory Fund for Income 827,000 264,000
Victory Ohio Regional Stock Fund 133,000 12,000
Victory Established Value Fund 1,471,000 419,000
Under the terms of the administration agreement, BISYS' fees are
computed at the annual rate of 0.15% of each Victory Funds' average daily net
assets of $300 million and less, 0.12% of each Victory Funds' average daily net
assets between $300 million and $600 million and 0.10% of each Victory Funds'
average daily net assets greater than $600 million. For the periods ended
October 31, 1999, BISYS' fees, and amounts waived, were as follows:
Total Fees
----------
Victory Government Mortgage Fund $ 128,000
Victory Fund for Income 206,000
Victory Ohio Regional Stock Fund 27,000
Victory Established Value Fund 391,000
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
Pro Forma Adjustments and Pro Forma Combined Columns
The pro forma adjustments and pro forma combined columns of the
statements of operations reflect the adjustments necessary to show expenses at
the contractual rates that would have been in effect if the non-Survivor Funds
were included in the Survivor Funds for the periods ended October 31, 1999. The
investment advisory fees and, for Class A shares, the shareholder service fees,
and for Class G shares, the 12b-1 fees, as applicable, disclosed in the pro
forma combined column are calculated at the rates in effect for the Survivor
Funds based upon the combined net assets of the Victory Funds.
The pro forma schedules of portfolio investments give effect to the
proposed transfer of such assets as if the reorganization had occurred at
October 31, 1999.
The pro forma combined accumulated undistributed net realized gains
(losses) from investment transactions in the accompanying statements of assets
and liabilities may include amounts identified as capital loss carryforwards as
of each Funds' most recent fiscal year end date prior to the Effective Date of
the Reorganization. The following Funds have capital loss carryforwards for
Federal income tax purposes as of October 31, 1999 of approximately (amounts in
thousands):
Amount Expires
------ -------
Fund for Income $ 585 2001
Fund for Income 5,491 2002
Fund for Income 864 2003
Fund for Income 62 2004
Fund for Income 606 2007
Government Mortgage Fund 698 2002
Government Mortgage Fund 109 2005
Government Mortgage Fund 2,523 2007
Utilization of capital loss carryforwards of the Victory Government Mortgage
Fund subsequent to the Effective Date of the Reorganization may be limited under
the provisions of the Internal Revenue Code of 1986, as amended.
3. Portfolio Valuation, Securities Transactions and Related Income:
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal and foreign government bonds, U.S. government securities and
securities of U.S. government agencies are valued at their market values
determined on the basis of the latest
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
available bid prices in the principal market (closing sales prices if the
principal market is an exchange) in which such securities are normally traded on
or the basis of valuation procedures approved by the Board of Trustees of the
Trust. Investments in investment companies are valued at their respective net
asset values as reported by such companies. The differences between the cost and
market values of investments are reflected as either unrealized appreciation or
depreciation.
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium or
accretion of discount. Dividend income is recorded on the ex-dividend date, net
of foreign taxes withheld. Gains or losses realized from sales of securities are
determined by comparing the identified cost of the security lot sold with the
net sales proceeds.
4. Capital Shares:
In connection with the reorganization, the Survivor Funds, each a
separate investment portfolio of the Trust, will each issue additional Class A
shares.
The pro forma net asset values per share assume the impact of any
required corporate actions relating to shares of the Trust that would have
occurred at October 31, 1999 in connection with the proposed reorganization of
the non-Survivor Funds into the Survivor Funds as described above. The pro forma
number of shares outstanding consists of the following:
Additional
Shares Shares Issued Pro forma
Outstanding at in the Shares at
October 31, 1999 Reorganization October 31, 1999
(000) (000) (000)
----- ----- -----
Victory Fund for Income 18,201 7,765 25,966
Victory Established Value
Fund 13,678 707 14,385
