As filed, via EDGAR, with the Securities and Exchange Commission on December 19,
1998
File No.: 33-8982
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[_]Pre-Effective Amendment No. __
[_]Post-Effective Amendment No. __
(check appropriate box or boxes)
-------------------
THE VICTORY PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
1-800-539-3863
(Area Code and Telephone Number)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Offices)
-------------------
George O. Martinez
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
(Name and address of agent for service)
Copies to:
William J. Blake
Key Asset Management Inc.
127 Public Square
Cleveland, Ohio 44114
John T. Ferguson, Jr.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
-------------------
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Section 24(f) of the Investment Company Act of 1940,
as amended.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
THE VICTORY PORTFOLIOS
Cross Reference Sheet
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
N-14
Item No. Item Caption Prospectus Caption
<S> <C> <C>
1. Beginning of Registration Statement Cross Reference Sheet;
and Outside Front Cover Page of Front Cover Page.
Prospectus
2. Beginning and Outside Back Cover
Page of Prospectus Table of Contents.
3. Fee Table, Synopsis Synopsis; Comparison of the Funds'
Information and Risk Factors Investment Objectives, Policies, and
Risks; Comparison of Fees and
Expenses.
4. Information About the Transaction Reasons for the Transaction;
Information about the Transaction.
5. Information About the Registrant Comparison of the Funds' Investment
Objectives, Policies, and Risks;
Information about the Funds;
Additional Information.
6. Information About the Company Comparison of the Funds'
Being Acquired Investment Objectives, Policies, and
Risks ; Information about the
Funds; Additional Information.
7. Voting Information Information Relating to Voting
Matters.
8. Interest of Certain Persons and Information About the Funds.
Experts
9. Additional Information Required Inapplicable.
for Reoffering by Persons Deemed
to be Underwriters
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
N-14 Statement of Additional
Item No. Item Caption Information Caption
<S> <C> <C>
10. Cover Page Cover Page.
11. Table of Contents Cover Page.
12. Additional Information About
the Registrant Statement of Additional Information
of The Victory Portfolios dated
March 1, 1998.
13. Additional Information About
the Company Being Acquired Inapplicable.
14. Financial Statements Audited annual financial statements
of The Victory Portfolios as of
October 31, 1997; Audited annual
financial statements of Key Mutual
Funds as of November 30, 1996;
Unaudited semi-annual financial
statements of Key Mutual Funds as
of May 31, 1997; Pro-forma
combined financial statements of the
Victory Stock Index Fund, Victory
Special Growth Fund, Victory
Diversified Stock Fund, Key Stock
Index Fund, SBSF Capital Growth
Fund, and SBSF Fund, as of
October 31, 1997.
PART C
N-14
Item No. Item Caption Part C Caption
15. Indemnification Indemnification.
16. Exhibits Exhibits.
17. Undertakings Undertakings.
</TABLE>
<PAGE>
IMPORTANT
Proxy Materials
PLEASE CAST YOUR VOTE NOW!
Dear Key Mutual Fund Shareholder:
On February 27, 1998, a special shareholder meeting
will be held. You are not required to attend the
meeting, however, be sure to exercise your right to
vote by Proxy.
The matters to be discussed are important, and
directly affect your investment. As a shareholder,
you cast one vote for each share and fractional votes
for fractional shares that you own. YOU MAY THINK
YOUR VOTE IS INSIGNIFICANT, BUT EVERY VOTE IS
EXTREMELY IMPORTANT. We must continue sending
requests to vote until a majority of the shares are
voted prior to the meeting. Additional mailings are
expensive, and these costs are charged directly to
the fund.
The enclosed Proxy Statement details the proposal
under consideration. In addition, we have attached a
Q&A to assist you in understanding the proposal that
requires your vote. After you have read the material,
please cast your vote promptly by signing and
returning the enclosed proxy card. It is important
that you sign your proxy card exactly as your name
appears in the registration of the proxy card. A
postage-paid envelope has been provided for your
convenience. You may also register your vote by
telephone or fax (see enclosed instructions for
details). Your time will be well spent, and you will
help save the cost of additional mailings.
These proposals have been carefully considered by
both of the Boards of the KeyFunds(R) and Victory
Portfolios, which are responsible for protecting your
interests as a shareholder. Both Boards believe that
this proposal is fair and reasonable, and recommends
that you approve the proposal. If you have any
questions about the proposal, please do not hesitate
to contact your investment professional, or call the
Funds at 800-KEY-FUND(R) (800-539-3863).
Remember this is your opportunity to voice your
opinion on matters affecting your fund. YOUR
PARTICIPATION IS EXTREMELY IMPORTANT NO MATTER HOW
MANY OR HOW FEW SHARES YOU OWN.
Thank you. We appreciate your prompt attention.
Sincerely,
Leigh A. Wilson
President of the KeyFunds
<PAGE>
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSALS ON WHICH YOU ARE
BEING ASKED TO VOTE.
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 PROPOSAL PLEASE CALL YOUR INVESTMENT
PROFESSIONAL OR 800-KEY-FUND(R) (800-539-3863). WE
APPRECIATE YOU PLACING YOUR CONFIDENCE IN THE VICTORY
PORTFOLIOS AND THE KEY MUTUAL FUNDS AND LOOK FORWARD
TO HELPING YOU ACHIEVE YOUR FINANCIAL GOALS.
WHAT PROPOSALS AM I BEING ASKED TO VOTE ON?
You are being asked to vote on the following
proposal:
To approve an Agreement and Plan providing for
the transfer of assets of each Key Fund into a
fund of The Victory Portfolios.
KEY FUNDS MERGING INTO EXISTING VICTORY FUNDS
Old KeyFund Portfolio Victory Fund Portfolio
Stock Index Fund Stock Index Fund-Class A
SBSF Fund Diversified Stock Fund-Class A
SBSF Capital Growth Fund Special Growth Fund-Class A
KEY FUNDS REORGANIZING INTO NEW VICTORY FUNDS
Old KeyFund Portfolio New Victory Fund Portfolio
Key Money Market Mutual Fund Federal Money Market Fund (Investor)
SBSF Convertible Securities Convertible Securities Fund-Class A
KeyChoice Income and Growth Fund LifeChoice Conservative Investor
Fund-Class A
KeyChoice Moderate Growth Fund LifeChoice Moderate Investor
Fund-Class A
KeyChoice Growth Fund LifeChoice Growth Investor
Fund-Class A
HAS MY FUND'S BOARD OF DIRECTORS APPROVED THE REORGANIZATION?
Yes. The Boards of the Key and Victory Funds have
unanimously approved the reorganization, and
recommend that you vote to approve the
reorganization.
WHY IS THE REORGANIZATION BEING RECOMMENDED?
To eliminate investor confusion and duplicate
marketing and operational costs associated with
operating two separate entities.
The Boards of both the KeyFunds(R) and the Victory
Portfolios recognized that several of the Key and
Victory Funds are managed in a substantially
identical fashion, and all are managed by the same
investment adviser, and use the same distributor,
administrator and shareholder servicing agents. There
is currently a duplication of effort and expense in
operating the fund groups separately. It was
recognized that the two fund groups could be combined
in marketing materials and could be marketed under
the same name.
ARE THERE OTHER POTENTIAL BENEFITS OF THE REORGANIZATION?
Yes. The reorganization would increase the assets of
certain Victory Portfolios. A larger pool of assets
will allow the investment adviser to increase
portfolio diversification. In addition, a larger fund
group can more easily attract additional investments
than a smaller fund group and invest at lower
transaction costs.
<PAGE>
WHO WILL ADVISE MY FUND ONCE THE MERGER IS COMPLETED?
The current portfolio managers of the KeyFunds will
continue to manage the fund after the reorganization.
WILL THE FEES AND EXPENSES OF MY FUNDS INCREASE?
No. KeyFunds' shareholders will exchange their shares
for a Victory fund with expenses that are lower or at
least no higher than current Key fund expenses.
WILL I, OR MY FUNDS HAVE TO PAY TAXES AS A RESULT OF THE REORGANIZATION?
Neither the KeyFunds' shareholders nor the Victory or
KeyFunds will have any tax consequences as a result
of the share exchange. Neither the Victory nor Key
Funds and their shareholders will have a loss or gain
for Federal income tax purposes as a result of the
reorganization.
WILL ANY SALES LOAD, SALES COMMISSION OR OTHER FEE BE IMPOSED ON MY SHARES IN
CONNECTION WITH THE REORGANIZATION?
No.
AFTER THE REORGANIZATION, WILL I BE ABLE TO EXCHANGE MY INVESTMENT INTO OTHER
FUNDS OF THE VICTORY PORTFOLIOS?
Yes. Shareholders will be able to exchange variable
fund shares received for other Victory variable funds
without a sales charge anytime after the
reorganization.
WHAT HAPPENS IF I DO NOT WISH TO PARTICIPATE IN THE REORGANIZATION OF THE KEY
FUND IN WHICH I OWN SHARES, OR WHAT IF I DO NOT WISH TO OWN SHARES OF THE
VICTORY FUND?
You may redeem your shares any time before the close
of business on March 6, 1998 (the business day prior
to the closing date of the Reorganization).
WHEN WILL THE REORGANIZATION OCCUR?
A Shareholder Meeting will be held on February 27,
1998. Two-thirds of shareholders of each Key Fund
must approve the reorganization. We expect the merger
to be completed by March 9, 1998.
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 yur
shares by phone at 800-733-8481 ext. 431 or by fax at
800-733-1885. If you need assistance, or have any
questions regarding the proposal or how to vote your
shares, please call the Funds at 800-KEY-FUND
(800-539-3863).
<PAGE>
KEY MUTUAL FUNDS
KEYCHOICE GROWTH FUND
KEYCHOICE INCOME AND GROWTH FUND
KEYCHOICE MODERATE GROWTH FUND
KEY MONEY MARKET MUTUAL FUND
KEY STOCK INDEX FUND
SBSF CAPITAL GROWTH FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF FUND
800-KEY-FUND(R)
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
A special meeting of the shareholders (the "Meeting") of the KeyChoice
Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund,
Key Money Market Mutual Fund, Key Stock Index Fund, SBSF Capital Growth Fund,
SBSF Convertible Securities Fund, and SBSF Fund (each a "Key Fund," and
collectively the "Key Funds"), each a series of SBSF Funds, Inc. (d/b/a Key
Mutual Funds), will be held at the offices of Key Mutual Funds, 3435 Stelzer
Road, Columbus, Ohio 43219-3035, on February 27, 1998 at 8:30 a.m., Eastern
time, for the following purposes, which are more fully described in the
accompanying Combined Prospectus/Proxy Statement dated _______, 1998:
The following item applies to, and will be voted on separately by, the
shareholders of each Key Fund:
1. To approve an Agreement and Plan of Reorganization and
Liquidation and the transactions contemplated thereby, including
(a) the transfer of the assets of each Key Fund to a
corresponding series of The Victory Portfolios ("Victory") in
exchange for shares of beneficial interest ("shares") of the
corresponding series of Victory, or shares of a comparable class
of the corresponding series of Victory; (b) the distribution of
such shares to shareholders of the Key Funds in complete
liquidation of the Key Funds; and (c) the dissolution of Key
Mutual Funds and the cancellation of the outstanding shares of
capital stock ("shares") of each Key Fund (collectively, the
"Reorganization").
In addition, shareholders of each of the Key Funds will be asked to
transact such other business as may properly come before the Meeting or any
adjournment thereof.
The remaining proposals apply only to the Key Funds indicated in
italics:
With respect to the KeyChoice Growth Fund, KeyChoice Income and Growth
Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF
Convertible Securities Fund:
2. To approve or disapprove an amendment to each Fund's fundamental
investment restriction concerning borrowing.
With respect to the SBSF Convertible Securities Fund:
3. To approve or disapprove an amendment and reclassification of the
Fund's fundamental investment restriction regarding investments
in restricted and illiquid securities.
On the day of the Reorganization, your shares will be exchanged,
without the imposition of a sales charge and on a tax-free basis, for shares of
the Victory Funds with a total net asset value equal to the total net asset
value of the shares of the Key Funds you previously owned. THE BOARD OF
DIRECTORS OF KEY MUTUAL FUNDS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE
KEY FUNDS VOTE TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION AND
LIQUIDATION.
The enclosed proxy is being solicited on behalf of the Board of
Directors of Key Mutual Funds. Shareholders of record as of the close of
business on December 26, 1997 are entitled to notice of, and to vote at, the
Meeting or any adjournment(s) thereof.
PLEASE MARK, DATE, SIGN, AND PROMPTLY RETURN, IN THE ENCLOSED ENVELOPE,
EACH ACCOMPANYING PROXY CARD. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE
MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY
SUBMITTING TO KEY MUTUAL FUNDS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY
EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
By order of the Board of Directors,
George O. Martinez
Secretary
Dated: _______, 1998
<PAGE>
KEY MUTUAL FUNDS
THE VICTORY PORTFOLIOS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
800-KEY-FUND
COMBINED PROSPECTUS/PROXY STATEMENT
DATED ______, 1998
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
FEBRUARY 27, 1998
GENERAL INFORMATION
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Directors (the "Board") of SBSF
Funds, Inc. (d/b/a Key Mutual Funds) on behalf of the KeyChoice Growth Fund,
KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money
Market Mutual Fund, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF
Convertible Securities Fund, and SBSF Fund (each a "Key Fund," and collectively
the "Key Funds") in connection with a special meeting of shareholders (the
"Meeting") to be held at the offices of Key Mutual Funds, 3435 Stelzer Road,
Columbus, Ohio 43219-3035, on February 27, 1998, at 8:30 a.m., Eastern time, at
which shareholders of each Key Fund will be asked to consider the following:
1. Shareholders of each of the Key Funds will be asked to approve or
disapprove an Agreement and Plan of Reorganization and
Liquidation (the "Plan") and the transactions contemplated
thereby, including (a) the transfer of the assets of each Key
Fund to a corresponding series of The Victory Portfolios
("Victory") in exchange for shares of beneficial interest
("shares") of the corresponding series of Victory, or shares of a
comparable class of the corresponding series of Victory; (b) the
distribution of such shares to shareholders of the Key Funds in
liquidation of the Key Funds; and (c) the dissolution of Key
Mutual Funds and the cancellation of the outstanding shares of
capital stock ("shares") of each Key Fund (collectively, the
"Reorganization);
2. Shareholders of the KeyChoice Growth Fund, KeyChoice Income and
Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market
Mutual Fund, and SBSF Convertible Securities Fund will be asked
to approve or disapprove an amendment to each Fund's fundamental
investment restriction concerning borrowing; and
3. Shareholders of the SBSF Convertible Securities Fund will be
asked to approve or disapprove an amendment and reclassification
of the Fund's fundamental investment restriction regarding
investments in restricted and illiquid securities.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------- ----------------------------------------------------
PROPOSAL NUMBER
- --------------------------------------------------------- ----------------- ----------------- ----------------
NAME OF FUND ONE TWO THREE
- --------------------------------------------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
KeyChoice Growth Fund / /
- --------------------------------------------------------- ----------------- ----------------- ----------------
KeyChoice Income and Growth Fund / /
- --------------------------------------------------------- ----------------- ----------------- ----------------
KeyChoice Moderate Growth Fund / /
- --------------------------------------------------------- ----------------- ----------------- ----------------
Key Money Market Mutual Fund / /
- --------------------------------------------------------- ----------------- ----------------- ----------------
Key Stock Index Fund /
- --------------------------------------------------------- ----------------- ----------------- ----------------
SBSF Capital Growth Fund /
- --------------------------------------------------------- ----------------- ----------------- ----------------
SBSF Convertible Securities Fund / / /
- --------------------------------------------------------- ----------------- ----------------- ----------------
SBSF Fund /
- --------------------------------------------------------- ----------------- ----------------- ----------------
</TABLE>
In addition, shareholders of each of the Key Funds will be asked to
transact such other business as may properly come before the Meeting or any
adjournment(s) thereof.
Key Mutual Funds and Victory are both registered open-end investment
companies that offer their shares in separate series, each series with its own
investment objective and policies. As a result of the Reorganization,
shareholders of the Key Funds will become shareholders of Victory. The following
table shows each Key Fund and each corresponding series (or class of the
corresponding series) of Victory:
<TABLE>
<CAPTION>
KEY FUNDS VICTORY FUNDS
<S> <C>
KeyChoice Growth Fund Victory LifeChoice Growth Investor Fund-Class A*
KeyChoice Income and Growth Fund Victory LifeChoice Conservative Investor Fund-Class A*
KeyChoice Moderate Growth Fund Victory LifeChoice Moderate Investor Fund- Class A*
Key Money Market Mutual Fund Victory Federal Money Market Fund-Investor Class*
Key Stock Index Fund Victory Stock Index Fund-Class A
SBSF Capital Growth Fund Victory Special Growth Fund-Class A
SBSF Convertible Securities Fund Victory Convertible Securities Fund-Class A*
SBSF Fund Victory Diversified Stock Fund-Class A
</TABLE>
* New Victory Fund established to continue the operations of corresponding
Key Fund.
(The Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative
Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory Federal Money
Market Fund, Victory Stock Index Fund, Victory Special Growth Fund, Victory
Convertible Securities Fund, and Victory Diversified Stock Fund, each a series
of Victory, are sometimes individually referred to as a "Victory Fund" and
collectively referred to as the "Victory Funds.")
The investment adviser to the Key Funds and Victory Funds is Key Asset
Management Inc. ("KAM"), 127 Public Square, Cleveland, Ohio 44114, with offices
at 45 Rockefeller Plaza, New York, NY 10111. BISYS Fund Services, Inc.
("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219 serves as distributor and
administrator for the Key Funds and Victory Funds.
This Combined Prospectus/Proxy Statement, which you should keep for
future reference, sets forth concisely the information about the Victory Funds
that a prospective investor should know before voting. FOR SHAREHOLDERS OF THE
KEY FUNDS THAT WILL BE REORGANIZED INTO THE VICTORY STOCK INDEX FUND, VICTORY
SPECIAL GROWTH FUND, AND VICTORY DIVERSIFIED STOCK FUND (THE "OPERATING VICTORY
FUNDS"), THIS COMBINED PROSPECTUS/PROXY STATEMENT IS ACCOMPANIED BY THE CURRENT
PROSPECTUS OF THE OPERATING VICTORY FUNDS DATED MARCH 1, 1997, AS SUPPLEMENTED,
WHICH IS INCORPORATED BY
<PAGE>
REFERENCE. THE ANNUAL REPORT OF THE OPERATING VICTORY FUNDS DATED OCTOBER 31,
1997, THE ANNUAL REPORT OF THE KEY FUNDS DATED NOVEMBER 30, 1996, AND THE
SEMI-ANNUAL REPORT OF THE KEY FUNDS DATED MAY 31, 1997 ACCOMPANY THIS COMBINED
PROSPECTUS/PROXY STATEMENT AND ARE INCORPORATED BY REFERENCE IN THEIR ENTIRETY.
The annual reports and prospectuses of the Victory LifeChoice Growth Investor
Fund, Victory LifeChoice Conservative Investor Fund, Victory LifeChoice Moderate
Investor Fund, Victory Federal Money Market Fund, and Victory Convertible
Securities Fund, each a series of Victory (the "New Victory Funds"), are not
enclosed because the New Victory Funds have no current operations and are being
created to continue the current operations of their corresponding Key Funds.
A Statement of Additional Information dated _____, 1998 relating to
this Combined Prospectus/Proxy Statement (the "Related Statement of Additional
Information") has been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated by reference into this Combined
Prospectus/Proxy Statement. Information about the Key Funds is incorporated by
reference to the prospectus of the KeyChoice Growth Fund, KeyChoice Income and
Growth Fund, and KeyChoice Moderate Growth Fund dated December 16, 1996, as
supplemented; the prospectus for the Key Money Market Mutual Fund dated April 1,
1997, as supplemented; the prospectus of the Key Stock Index Fund dated April 1,
1997, as supplemented; and the prospectus for the SBSF Capital Growth Fund, SBSF
Convertible Securities Fund, and SBSF Fund dated April 1, 1997, as supplemented,
which have each been filed with the Commission. A Statement of Additional
Information for the Victory Funds dated March 1, 1997, as supplemented, has been
filed with the Commission and is incorporated into the Related Statement of
Additional Information. Copies of the Related Statement of Additional
Information and the current prospectuses and statements of additional
information of the Key Funds may be obtained without charge by writing Key
Mutual Funds, at P.O. Box 8527, Boston, Massachusetts 02266-8527, or by calling
800-KEY-FUND.
This Combined Prospectus/Proxy Statement is Key Mutual Funds' proxy
statement for the Meeting and Victory's prospectus for the shares of the
Operating Victory Funds that have been registered with the Commission and are to
be issued in connection with the Reorganization. THIS COMBINED PROSPECTUS/PROXY
STATEMENT IS NOT A PROSPECTUS FOR SHARES OF THE NEW VICTORY FUNDS THAT WILL BE
ISSUED IN CONNECTION WITH THE REORGANIZATION. Shares of the New Victory Funds
are offered only through the prospectuses of the New Victory Funds. Because this
is a "Combined" Prospectus/Proxy Statement, reference to certain Key Funds, and
the New Victory Funds into which they will be reorganized, appears in various
places throughout this document. These references, however, relate only to the
proxy statement portion of this document and not the prospectus portion. This
Combined Prospectus/Proxy Statement is not offering for sale shares in any of
the New Victory Funds.
This Combined Prospectus/Proxy Statement is expected to be first sent
to shareholders on or about January 21, 1998.
<PAGE>
- --------------------------------------------------------------------------------
THE SECURITIES OF THE VICTORY FUNDS OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY FUNDS OR THE KEY FUNDS.
THE VICTORY FEDERAL MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF
$1.00 PER SHARE. AN INVESTMENT IN THE VICTORY FEDERAL MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT THE VICTORY FEDERAL MONEY MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE KEY FUNDS AND VICTORY FUNDS ARE:
o NOT INSURED BY THE FDIC;
o NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYBANK,
ANY OF ITS AFFILIATES, OR ANY OTHER BANK; AND
o SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PROPOSAL ONE
SYNOPSIS........................................................................
Agreement and Plan of Reorganization and Liquidation.......................
Tax Consequences...........................................................
Investment Objectives and Policies.........................................
Share Classes..............................................................
Investment Adviser.........................................................
Fees and Expenses..........................................................
Distribution and Purchase Procedures.......................................
Exchange Rights............................................................
Redemption Procedures......................................................
Application for Exemptive Relief...........................................
Other Considerations.......................................................
COMPARISON OF THE FUNDS' INVESTMENT OBJECTIVES, POLICIES, AND RISKS.............
New Victory Funds and Corresponding Key Funds..............................
Operating Victory Funds and Corresponding Key Funds........................
THE NEW VICTORY FUNDS...........................................................
COMPARISON OF FEES AND EXPENSES.................................................
INFORMATION ABOUT THE TRANSACTION...............................................
Plan of Reorganization and Liquidation.....................................
Description of Shares of the Victory Funds.................................
Sales Charges and Shareholder Service Fees.................................
Expenses...................................................................
Shareholder Approval.......................................................
Federal Income Tax Consequences............................................
Capitalization.............................................................
Application for Exemptive Relief...........................................
REASONS FOR THE TRANSACTION.....................................................
INFORMATION ABOUT THE FUNDS.....................................................
Investment Advisory Agreements.............................................
Distribution Plan..........................................................
Shareholder Services Plan..................................................
Administrator and Distributor..............................................
Sub-Administrator..........................................................
Dividends and Distributions................................................
Purchase Procedures........................................................
Exchange Rights............................................................
Redemption Procedures......................................................
General....................................................................
PROPOSALS TWO AND THREE
ADDITIONAL INFORMATION..........................................................
INFORMATION RELATING TO VOTING MATTERS..........................................
MISCELLANEOUS...................................................................
<PAGE>
PROPOSAL ONE
SYNOPSIS
This Synopsis provides a concise summary of the information contained
in this Combined Prospectus/Proxy Statement under Proposal One.
AGREEMENT AND PLAN OF Under the Plan, each Key Fund will transfer its assets
REORGANIZATION AND to a corresponding Victory Fund in exchange for shares
LIQUIDATION of the corresponding Victory Fund (or shares of a
comparable class of the corresponding Victory Fund), and
the corresponding Victory Fund will assume all of the
liabilities of the Key Fund. After the transaction, you
will receive shares of the corresponding Victory Fund
with a total value equal to the net asset value of the
shares of the Key Fund previously owned, as determined
at the close of business on the date of the exchange.
Key Fund shareholders will not be charged a sales charge
for this transaction. See "Reasons for the Transaction,"
"Information About the Transaction," and the copy of the
form of the Plan, which is attached as Exhibit A.
TAX CONSEQUENCES Each Fund will receive an opinion of counsel
substantially to the effect that no gain or loss will be
recognized by the Key Funds, the Victory Funds, or the
shareholders of the Key Funds as a result of the
Reorganization. See "Information About the Transaction."
Some of the Key Funds are expected to distribute
realized capital gains prior to the Reorganization. Any
such distribution will be taxable.
INVESTMENT OBJECTIVES The investment objectives, policies, and restrictions of
AND POLICIES the New Victory Funds are identical in all material
respects to those of the corresponding Key Funds. The
investment objectives, policies, and restrictions of the
Operating Victory Funds are substantially similar to
those of the corresponding Key Funds. The following
paragraphs state the investment objectives and summarize
the policies of the Operating Victory Funds and the
corresponding Key Funds.
KEY AND VICTORY STOCK INDEX FUNDS. Key Stock Index Fund.
The investment objective of the Key Stock Index Fund is
to seek long-term capital appreciation by attempting to
match the investment performance of the Standard &
Poor's 500 Composite Stock Index (the "S&P 500 Index").1
Under normal market conditions, the Key Stock Index Fund
will attempt to duplicate the capital performance and
dividend income of the S&P 500 Index by investing
primarily in the stocks which comprise the S&P 500 Index
and secondarily in stock index futures, while minimizing
transaction costs.
Victory Stock Index Fund. The investment objective of
the Victory Stock Index Fund is to seek long-term
capital appreciation by attempting to
- -------------------------
1 "Standard & Poor's 500" is a registered service mark of Standard and
Poor's, which does not sponsor and is in no way affliated with Victory, Key
Mutual Funds, the Victory Stock Index Fund, or the Key Stock Index Fund.
<PAGE>
match the investment performance of the S&P 500 Index.
The Victory Stock Index Fund pursues its investment
objective by attempting to duplicate the capital
performance and dividend income of the S&P 500 Index.
The Victory Stock Index Fund invests primarily in many
of the equity securities that are in the S&P 500 Index
and secondarily in related futures and options
contracts. The Victory Stock Index Fund, unlike the Key
Stock Index Fund, may invest in American Depository
Receipts.
SBSF CAPITAL GROWTH FUND AND VICTORY SPECIAL GROWTH
FUND. SBSF Capital Growth Fund. The investment objective
of the SBSF Capital Growth Fund is to seek capital
appreciation. The SBSF Capital Growth Fund seeks to
achieve its objective by investing in equity securities
of companies which KAM believes are likely to have rapid
growth in earnings and cash flow. The SBSF Capital
Growth Fund invests primarily in small to medium
capitalization companies, i.e., issuers having a market
capitalization of $200 million to $1.5 billion, and may
invest in companies of any size and may take advantage
of any investment opportunity with attractive long-term
growth prospects, including preferred stocks,
convertible securities, and bonds.
Victory Special Growth Fund. The Victory Special Growth
Fund's investment objective is to seek capital
appreciation. The Victory Special Growth Fund pursues
its investment objective by investing primarily in
equity securities of companies with market
capitalizations of $750 million or less. In making
investment decisions, KAM looks for above average growth
rates, high return on equity, issuers that reinvest
their earnings in their business, and strong balance
sheets.
SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND. SBSF Fund.
The investment objective of the SBSF Fund is to seek a
high total return over the long term consistent with
reasonable risk. In seeking its objective, the SBSF Fund
will invest primarily in common stocks which in the
opinion of KAM have the potential for capital
appreciation in excess of market averages during periods
of market strength while attempting to preserve capital
during periods of market weakness.
Victory Diversified Stock Fund. The investment objective
of the Victory Diversified Stock Fund is to seek
long-term growth of capital. The Victory Diversified
Stock Fund pursues its investment objective by investing
primarily in equity securities and securities
convertible into common stock issued by established
domestic and foreign companies.
Each Fund has additional investment policies which are
discussed in "Comparison of the Funds' Investment
Objectives, Policies, and Risks."
SHARE CLASSES The Key Funds. The Key Money Market Mutual Fund, Key
Stock Index Fund, SBSF Capital Growth Fund, SBSF
Convertible Securities Fund, and SBSF Fund each offer
one class of shares, which has no sales charges or
redemption fees. The KeyChoice Growth Fund, KeyChoice
Income and Growth Fund, and KeyChoice Moderate Growth
Fund each offer only one class of shares, which is
subject to a maximum initial sales charge of
<PAGE>
5.75%.
The Victory Funds. The Victory LifeChoice Growth
Investor Fund, Victory LifeChoice Conservative Investor
Fund, Victory LifeChoice Moderate Investor Fund, Victory
Convertible Securities Fund, Victory Special Growth
Fund, and Victory Stock Index Fund each offer only Class
A Shares. The Victory Diversified Stock Fund offers
Class A Shares and Class B Shares. The Victory Federal
Money Market Fund offers Investor Class Shares and
Select Class Shares.
After the Reorganization, you will receive Class A
Shares of the Victory Fund corresponding to the Key Fund
you now own. If, however, you own shares of the Key
Money Market Mutual Fund, you will receive Investor
Class Shares of the Victory Federal Money Market Fund.
Class A Shares of the Victory Funds are subject to an
initial sales charge on purchases under $1 million and
are not subject to an asset-based sales charge. Investor
Class Shares have no initial sales charge or asset-based
sales charge. See "Information About the Transaction"
and "Information About the Funds."
INVESTMENT ADVISER KAM is the investment adviser for the Key Funds and the
Victory Funds. See "Information About the Funds."
FEES AND EXPENSES Key Funds. KAM is entitled to received an advisory fee
equivalent to a percentage of the value of the average
daily net assets of each Key Fund, at the following
rates:
KeyChoice Growth Fund 0.20%
KeyChoice Income and Growth Fund 0.20%
KeyChoice Moderate Growth Fund 0.20%
Key Money Market Mutual Fund 0.25%
Key Stock Index Fund 0.10%
SBSF Capital Growth Fund 0.75%
SBSF Convertible Securities Fund 0.75%
SBSF Fund 0.75%
For the fiscal year ended November 30, 1997, the total
net operating expenses, gross operating expenses before
voluntary fee waivers, and amount of fee waivers and
reimbursements of each Key Fund were as follows:
<TABLE>
<CAPTION>
Gross Expense
Net Before Reimburse-ment
Expenses Waivers $102,806
<S> <C> <C> <C>
KeyChoice Growth Fund $9,255 $112,061 106,180
KeyChoice Income and Growth Fund 6,388 112,568 112,940
KeyChoice Moderate Growth Fund 10,359 123,299 417,395
Key Money Market Mutual Fund 584,155 1,001,550 339,440
Key Stock Index Fund 0 339,440 0
SBSF Capital Growth Fund 555,145 555,145 0
SBSF Convertible Securities Fund 1,064,519 1,064,519 3,732
SBSF Fund 1,270,577 1,274,309
</TABLE>
Victory Funds. The New Victory Funds have no current
operations and have been
<PAGE>
created to continue the operations of the corresponding
Key Funds. The New Victory Funds will not be subject to
higher contractual investment advisory fees and
operating expenses than the corresponding Key Funds.
KAM is entitled to received an advisory fee equivalent
to a percentage of the value of the average daily net
assets of each Operating Victory Fund, at the following
rates:
Victory Diversified Stock Fund 0.65%
Victory Special Growth Fund 1.00%
Victory Stock Index Fund 0.60%
For the fiscal year ended October 31, 1997, the total
operating expenses, and operating expenses before
voluntary fee waivers, of each Victory Fund were as
follows:
<TABLE>
<CAPTION>
Gross Expense
Net Before Reimburse-
Expenses Waivers ment
<S> <C> <C> <C>
Victory Diversified Stock Fund $7,455 $7,455 $ 0
Victory Special Growth Fund 1,275 1,275 0
Victory Stock Index Fund 2,138 3,280 1,142
</TABLE>
KAM has advised Key Mutual Funds that it no longer
intends to waive or reimburse the fees and expenses of
the Key Funds. As a result of the Reorganization,
shareholders of the Key Stock Index Fund, SBSF Capital
Growth Fund, and SBSF Fund will not be subject to higher
total expenses. See "Comparison of Fees and Expenses."
DISTRIBUTION, PURCHASE, Key Funds. The Key Money Market Mutual Fund, Key Stock
AND REDEMPTION Index Fund, SBSF Capital Growth Fund, SBSF Convertible
PROCEDURES Securities Fund, and SBSF Fund are sold at net asset
value with no initial sales charge, contingent deferred
sales charge ("CDSC"), or asset-based sales charges.
Purchases of shares of the KeyChoice Growth Fund,
KeyChoice Income and Growth Fund, and KeyChoice Moderate
Growth Fund are subject to an initial sales charge on
investments up to $1 million.
Victory Funds. Class A Shares of the Victory Funds are
subject to an initial sales charge on investments up to
$1 million. Investor Class Shares of the Victory Federal
Money Market Fund are sold without an initial sales
charge or asset-based sales charge and are available to
certain financial institutions or individuals that meet
minimum investment requirements. See "Information About
the Funds."
Key Funds and Victory Funds. The redemption procedures
of the Key Funds and the Victory Funds are similar. See
"Information About the Funds."
You will not pay a sales charge as a result of the
Reorganization, but may pay a sales charge if you invest
in additional shares of the Victory Funds (other than
the Victory Federal Money Market Fund) after the
Reorganization.
<PAGE>
EXCHANGE RIGHTS Key Funds. Shares of the Key Funds may be exchanged for
shares of any series of Key Mutual Funds and series of
Victory that are not subject to either an initial sales
charge or a CDSC, without incurring a sales charge.
Victory Funds. Shares of the Victory Funds may be
exchanged for shares of the same class of any other
series of Victory without incurring a sales charge. See
"Information About the Funds."
APPLICATION FOR Key Mutual Funds, Victory, and KAM have applied for an
EXEMPTIVE RELIEF order from the Commission that would permit the Funds to
carry out the Reorganization, despite certain provisions
of the federal securities laws which may be deemed to
prohibit the transactions involved in the
Reorganization.
OTHER CONSIDERATIONS In the event that the shareholders of the Key Funds do
not approve the Reorganization, the Board will consider
possible alternatives to the proposed Reorganization.
Shareholders have no right of appraisal, but they may
continue to redeem their shares in accordance with the
normal policies of Key Mutual Funds.
This Synopsis is qualified by reference to the more complete
information contained elsewhere in this Combined Prospectus/Proxy Statement,
including information incorporated by reference from the accompanying prospectus
of the Operating Victory Funds, and in the Plan attached to this Combined
Prospectus/Proxy Statement as Exhibit A.
COMPARISON OF THE FUNDS' INVESTMENT
OBJECTIVES, POLICIES, AND RISKS
NEW VICTORY FUNDS AND CORRESPONDING KEY FUNDS
The Plan provides for the reorganization of the KeyChoice Growth Fund,
KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money
Market Mutual Fund, and SBSF Convertible Securities Fund into the New Victory
Funds. The New Victory Funds do not currently have any assets; they have been
created for the sole purpose of receiving the assets of the corresponding Key
Funds. Each New Victory Fund has an investment objective which is identical to
the investment objective of its corresponding Key Fund.
As is the case with respect to the Key Funds, there is no assurance
that the Victory Funds will achieve their respective investment objectives. The
Victory Funds will seek to achieve their investment objectives by following
substantially the same investment policies as the Key Funds. However, as
described below in Proposals Two and Three, certain fundamental investment
limitations of certain Key Funds may be amended at the Meeting. These changes
are not expected to have an immediate effect on the actual investment techniques
used in managing the assets of the Funds.
<PAGE>
OPERATING VICTORY FUNDS AND CORRESPONDING KEY FUNDS
The current investment objectives, policies, and restrictions of the
Operating Victory Funds are, in general, similar to those of the corresponding
Key Funds. There are, however, some differences which are described below.
VICTORY STOCK INDEX FUND AND KEY STOCK INDEX FUND. The investment
objective of both the Victory Stock Index Fund and Key Stock Index Fund is to
seek long-term capital appreciation by attempting to match the performance of
the S&P 500 Index.
Investment Policies. The following paragraphs summarize the investment
policies of the Victory Stock Index Fund and Key Stock Index Fund.
o The Key and Victory Stock Index Funds invest primarily in the equity
securities that are in the S&P 500 Index, and secondarily in related
futures and options contracts. The Victory Stock Index Fund, unlike the
Key Stock Index Fund, may invest in American Depository Receipts. The
S&P 500 Index is composed of 500 common stocks chosen on the basis of
market value and industry diversification.
o The Key and Victory Stock Index Funds may, however, hold only a
representative portion of the stocks in the S&P 500 Index due to the
illiquidity of some stocks or other factors, such as diversification of
the Key or Victory Stock Index Fund and bankruptcy or insolvency of the
issuer. The Key and Victory Stock Index Funds may compensate for the
omission of certain stocks by purchasing stocks not included in the S&P
500 Index that are similar to those omitted if KAM believes those
purchases will reduce "tracking error" (the difference between the Key
or Victory Stock Index Funds' investment results (before expenses) and
that of the S&P 500 Index).
o The Key and Victory Stock Index Funds may invest in preferred stocks,
investment-grade corporate debt securities, short-term debt
obligations, and U.S. government obligations.
Risk Factors. The risks of investing in the Victory Stock Index Fund,
which are described below, are similar to the risks of investing in the Key
Stock Index Fund. The Victory Stock Index Fund is subject to market risk (the
chance that stock prices in general will decline, sometimes suddenly and
sharply) and objective risk (the chance that the S&P 500 Index will suffer
losses).
o Objective Risk. Because of the Victory Stock Index Fund's objective,
securities may be purchased, retained, and sold by the Victory Stock
Index Fund when such transactions would not be consistent with
traditional investment criteria. For example, adverse performance will
ordinarily not result in the elimination of a stock from the Victory
Stock Index Fund's portfolio. The Victory Stock Index Fund will
generally remain fully invested in common stocks even when stock prices
are generally declining.
o Market Risk. The share price of the Victory Stock Index Fund may
fluctuate within a wide range, so an investor could lose money over
short or extended periods. The share price of the Victory Stock Index
Fund is expected to be volatile, so investors should be able to sustain
sudden and sometimes substantial fluctuations in the value of their
investment.
o Additional Considerations. In addition, brokerage costs, fees,
operating expenses, and tracking errors may cause the Victory Stock
Index Fund's total return to be lower than that of the S&P 500 Index.
<PAGE>
VICTORY SPECIAL GROWTH FUND AND SBSF CAPITAL GROWTH FUND. The
investment objective of both the Victory Special Growth Fund and SBSF Capital
Growth Fund is to seek capital appreciation. The following table summarizes the
investment policies of the Victory Special Growth Fund and SBSF Capital Growth
Fund.
<TABLE>
<CAPTION>
Investment Policies of the Victory Special Growth Investment Policies of the SBSF Capital Growth
Fund Fund
<S> <C>
o The Victory Special Growth Fund pursues o The SBSF Capital Growth Fund invests
its investment objective by investing primarily in small to medium
primarily in equity securities of capitalization companies, i.e., issuers
companies that have market having a market capitalization of $200
capitalizations of $750 million or less million to $1.5 billion, but may invest
at the time of purchase. in companies of any size and may take
advantage of any investment opportunity
o Under normal circumstances, at least 65% with attractive long-term growth
of the Victory Special Growth Fund's prospects, including preferred stocks,
total assets will be invested in equity convertible securities, and bonds.
securities of companies with market
capitalization of $750 million or less. o The SBSF Capital Growth Fund seeks to
These equity investments include: achieve its objective by investing in
o Common stock; equity securities of companies which KAM
o Preferred stock; believes are likely to have rapid growth
o Convertible preferred stock; in earnings or cash flow.
o Debt convertible or exchangeable into
equity securities; and o The SBSF Capital Growth Fund seeks to
o Securities convertible into common stock. invest in growth oriented common stocks
of domestic corporations and, to a
o The Victory Special Growth Fund may limited extent, foreign corporations
invest up to 35% of its total assets in listed on any national securities
equity securities of companies with exchange or traded in the
market capitalizations of $750 million over-the-counter market.
or more at the time of purchase.
o The SBSF Capital Growth Fund is not
o The Victory Special Growth Fund may restricted to investments in specific
invest up to 35% of its total assets in market sectors and may invest in any
investment-grade debt securities. market sector.
o The Victory Special Growth Fund may also
invest up to 5% of its total assets in
lower-rated debt securities, commonly
referred to as "junk bonds."
</TABLE>
Risk Factors. The following paragraphs describe the additional risks
involved in investing in the Victory Special Growth Fund, in comparison to the
SBSF Capital Growth Fund.
o Small Capitalization Companies. Because of the Victory Special Growth
Fund's undertaking to concentrate its investments in small
capitalization companies, the Victory Special Growth Fund may have a
larger portion of its assets invested in small capitalization companies
than the SBSF Capital Growth Fund. The securities of small
capitalization companies have historically experienced a greater degree
of volatility than their large capitalization counterparts. Smaller
capitalization companies may have limited product lines, markets, or
financial resources, which may make them more susceptible to market and
interest rate changes. Therefore, the securities of smaller
capitalization companies may be subject to more abrupt or erratic price
movements than
<PAGE>
securities of larger companies. In addition, small capitalization stocks
as a group may not respond to general market rallies or downturns as
much as other types of equity securities.
o Junk Bonds. The Victory Special Growth Fund may invest up to 5% of its
total assets in lower-rated debt securities, or "junk bonds," that have
poor protection against default in the payment of principal and interest
or which may be in default. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to
changes in the issuer's capacity to pay. The market prices of
lower-rated debt securities may fluctuate more than those of
higher-rated debt securities, and they may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates. The SBSF Capital Growth Fund does not invest in
these types of securities and accordingly investment in the SBSF Capital
Growth Fund is not subject to this risk.
VICTORY DIVERSIFIED STOCK FUND AND SBSF FUND. The investment objectives
of the Victory Diversified Stock Fund and SBSF Fund are similar: the Victory
Diversified Stock Fund seeks long-term growth of capital; the SBSF Fund seeks a
high total return over the long term consistent with reasonable risk. The
following table summarizes the investment policies of the Victory Diversified
Stock Fund the SBSF Fund.
<TABLE>
<CAPTION>
Investment Policies of the Victory Diversified Stock Investment Policies of the SBSF Fund
Fund
<S> <C>
o The Victory Diversified Stock Fund o The SBSF Fund invests primarily in
pursues its objective by investing common stocks, but also may invest in
primarily in common stocks and preferred stocks, securities convertible
securities convertible into common into common stocks, and fixed-income
stocks issued by established domestic securities.
and foreign companies.
o The SBSF Fund invests in securities
o KAM seeks to invest in securities issued which in the opinion of KAM have the
by companies that KAM believes either potential for capital appreciation in
represent investment value because their excess of market averages during periods
market prices do not reflect their of market strength while attempting to
earnings performance, or are selling preserve capital during periods of
below historical price relationships market weakness.
and/or underlying asset values.
Investments are based on analysis by KAM o The SBSF Fund may invest in the
of cash flow, book value, dividend yield securities of companies that possess
and growth potential, quality of valuable fixed assets, or are
management, adequacy of revenues, undervalued in the marketplace in
earnings and capitalization, and future relation to such factors as the issuer's
relative earnings growth. KAM will assets, earnings, or growth potential.
attempt to choose investments which, in
the aggregate, provide above average o The SBSF Fund is not restricted to
dividend yield and potential for investments in any specific market
appreciation. sector or industry group.
</TABLE>
o Under normal conditions, the Victory
Diversified Stock Fund invests at least
80% of the value of its total assets in
common stocks and securities convertible
into common stocks.
o Under normal conditions, the Victory
Diversified Stock Fund may invest up to
20% of its total assets in:
Investment-grade corporate debt
securities
<PAGE>
o Short-term debt obligations; and
o U.S. Government obligations.
Risk Factors. The risks of investing in the SBSF Fund are similar to
the risks of investing in the Victory Diversified Stock Fund.
o Market and Objective Risk. The Victory Diversified Stock Fund is subject
to market risk (the chance that stock prices in general will decline,
sometimes suddenly and sharply) and objective risk (the possibility that
pursuit of the investment objective will not yield substantial returns).
o Manager Risk. Because investments are based on KAM's evaluations of the
value of companies relative to various factors, the performance of the
Victory Diversified Stock Fund is directly dependent on the Victory
Diversified Stock Fund's investment strategies and KAM's skill and
proficiency in utilizing the strategies to target investment
opportunities (`manager risk"). If KAM errs in its categorization of
securities as undervalued, the Victory Diversified Stock Fund may not
achieve its investment objective.
It should be noted, however, that market risk, objective risk, and
manager risk are common to all mutual funds, although the extent of such risks
may vary between mutual funds or types of mutual funds.
THE NEW VICTORY FUNDS
The New Victory Funds are being created for the purpose of effecting
the Reorganization of the corresponding Key Funds and continuing their
operations as series of Victory. After the Reorganization, the contractual
investment advisory fees and total operating expense ratios for the New Victory
Funds will be no higher than the current contractual investment advisory fees
and total operating expense ratios of the KeyChoice Growth Fund, KeyChoice
Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual
Fund, and SBSF Convertible Securities Fund.
The New Victory Funds, with the exception of the Victory Convertible
Securities Fund, will have purchase, exchange, and redemption procedures that
are substantially similar to the purchase, exchange, and redemption procedures
of the corresponding Key Funds. The Victory Convertible Securities Fund, unlike
the SBSF Convertible Securities Fund, will charge an initial sales charge on
certain purchases. See "Information About the Funds."
Because the New Victory Funds are a continuation of the corresponding
Key Funds, the New Victory Funds will be substantially identical in most
material respects to the corresponding Key Funds. Two significant differences,
however, are (1) that each New Victory Fund is a series of Victory, which is a
Delaware business trust, whereas Key Mutual Funds is a Maryland corporation, and
(2) with the exception of two persons who serve on the Boards of both Victory
and Key Mutual Funds, the Board of Trustees of Victory is composed of different
persons than the Board of Directors of Key Mutual Funds.
In the event the Reorganization is not approved by shareholders of a
Key Fund, the Board of Directors of Key Mutual Funds will consider what other
course of action, if any, should be taken with respect to such Fund, which could
include the adoption of a plan to liquidate such Fund or the resolicitation of
shareholder proxies.
<PAGE>
COMPARISON OF FEES AND EXPENSES
The following tables summarize and compare the fees and expenses of the
Key Funds and the corresponding class of the Victory Funds. These tables are
intended to assist shareholders in comparing the various costs and expenses that
shareholders indirectly bear with respect to an investment in the Key Funds and
those that they can expect to bear indirectly as shareholders of the Victory
Funds.
<TABLE>
<CAPTION>
Victory Victory
KeyChoice Victory KeyChoice LifeChoice KeyChoice LifeChoice
Growth LifeChoice Moderate Moderate Income and Income and
Fund Growth Fund Growth Fund Growth Fund Growth Growth Fund
---- ----------- ----------- ----------- ------ -----------
Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
(as a percentage of offering price)
Sales Charge Imposed on Reinvested None None None None None None
Dividends
Deferred Sales Charge None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Rule 12b-1 Distribution Fees 0.00% 0.00% ).00% 0.00% 0.00% 0.00%
Other Expenses 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses 0.30% 0.30% 0.30% 0.30% 0.30% 0.30%
</TABLE>
<TABLE>
<CAPTION>
Key Money Victory Federal Money
Market Mutual Market Fund Key Stock Victory Stock
Fund Investor Class Index Fund Index Fund
---- -------------- ---------- ----------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases None None None 5.75%
(as a percentage of offering price)
Sales Charge Imposed on Reinvested Dividends None None None None
Deferred Sales Charge None None None None
Redemption Fees None None None None
Exchange Fees None None None None
ANNUAL FUNDS OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees 0.00% 0.00% 0.00% 0.45%
Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.27% 0.27% 0.56% 0.11%
----- ----- ----- -----
Total Fund Operating Expenses 0.27% 0.27% 0.56% 0.56%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBSF Victory Victory
Convertible Convertible Diversified
SBSF Capital Victory Special Securities Securities SBSF Stock Fund
Growth Fund Growth Fund Fund Fund Fund Class A
----------- ----------- ---- ---- ---- -------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on None 5.75% None 5.75% None 5.75%
Purchases
(as a percentage of offering price)
Sales Charge Imposed on Reinvested None None None None None None
Dividends
Deferred Sales Charge None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees 0.75% 1.00% 0.75% 0.75% 0.75% 0.65%
Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.67% 0.40% 0.56% 0.50% 0.52% 0.40%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses 1.42% 1.40% 1.31% 1.25% 1.27% 1.05%
</TABLE>
EXAMPLE
Using the above expenses, you would pay the following expenses on a
$1,000 investment, assuming (1) five percent annual return and (2) full
redemption at the end of each period:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KeyChoice Growth Fund $60 $67 $73 $93
Victory LifeChoice Growth Investor Fund $60 $67 $73 $93
- ----------------------------------------------------------------------------------------------------------
Key Choice Moderate Growth Fund $60 $67 $73 $93
Victory LifeChoice Moderate Investor Fund $60 $67 $73 $93
- ----------------------------------------------------------------------------------------------------------
KeyChoice Income and Growth Fund $60 $67 $73 $93
Victory LifeChoice Conservative Investor Fund $60 $67 $73 $93
- ----------------------------------------------------------------------------------------------------------
Key Money Market Mutual Fund $3 $9 $15 $34
Victory Federal Money Market Fund - Investor $3 $9 $15 $34
- ----------------------------------------------------------------------------------------------------------
Key Stock Index Fund $5 $16 $29 $66
Victory Stock Index Fund $63 $74 $87 $124
- ----------------------------------------------------------------------------------------------------------
SBSF Capital Growth Fund $14 $45 $78 $170
Victory Special Growth Fund $71 $99 $130 $216
- ----------------------------------------------------------------------------------------------------------
SBSF Convertible Securities Fund $13 $42 $72 $158
Victory Convertible Securities Fund $70 $95 $122 $200
- ----------------------------------------------------------------------------------------------------------
SBSF Fund $13 $40 $70 $153
Victory Diversified Stock $68 $89 $112 $178
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in each Fund will bear directly or
indirectly. See "Information About the Funds" for a more complete discussion of
annual operating expenses of the Funds. THIS EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
<PAGE>
INFORMATION ABOUT THE TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The
Reorganization is subject to certain conditions described in the Plan. The Board
of Directors of Key Mutual Funds may terminate the Plan with regard to any Key
Fund at any time prior to the closing of the Reorganization without liability on
the part of any Fund. Assuming satisfaction of the conditions of the Plan, the
closing date for the Reorganization will be on March 9, 1998, or such other date
as is agreed to by the parties (the "Closing Date").
The Plan provides that on the Closing Date all of the assets of each
Key Fund will be transferred to the corresponding Victory Fund in exchange for
the issuance of full and fractional shares of the corresponding Victory Fund and
the assumption by the corresponding Victory Fund of the liabilities of the Key
Fund. Each Key Fund will distribute the shares so received to its shareholders,
whose shares of the Key Funds will become void. Thus, each shareholder of the
Key Funds at the time of the Reorganization will become a shareholder of the
Victory Funds and will receive the same dollar value in the Victory Fund shares
as the shareholder held in shares of the Key Funds.
For purposes of the Reorganization, the number of shares of each
Victory Fund to be issued to the corresponding Key Fund will have an aggregate
net asset value equal to the aggregate net asset value of the corresponding Key
Fund as of the close of business on the business day preceding the Closing Date
(the "Valuation Date"). Asset value determinations will be made in accordance
with the valuation procedures set forth in the then-current prospectuses and
statements of additional information of the Key and Victory Funds.
On, or as soon as practicable after, the Closing Date, each Key Fund
will liquidate and distribute pro rata the shares of the corresponding Victory
Fund received in the Reorganization to its shareholders of record. Shareholders
of record will be determined as of the close of business on the Valuation Date.
The liquidation and distribution will be accomplished by establishing accounts
on the share records of the Victory Funds in the name of the Key Fund
shareholders, each account reflecting ownership of the respective number of
shares of the Victory Funds due to each shareholder of the Key Funds. After the
distributions, the Key Funds will be terminated.
Shareholders of the KeyChoice Growth Fund, KeyChoice Income and Growth
Fund, KeyChoice Moderate Growth Fund, Key Stock Index Fund, SBSF Capital Growth
Fund, SBSF Convertible Securities Fund, and SBSF Fund will be issued Class A
Shares of the corresponding Victory Fund. Shareholders of the Key Money Market
Mutual Fund will be issued Investor Class Shares of the Victory Federal Money
Market Fund.
If the Reorganization is approved by shareholders, each Key Fund
reserves the right to sell portfolio securities and/or purchase other
securities, to the extent necessary so that the asset composition of the Key
Fund is consistent with the investment policies and restrictions of the
corresponding Victory Fund. Purchase and sale transactions would entail
transaction costs borne by the Key Fund and may also have tax consequences for
shareholders. As of the date of this Combined Prospectus/Proxy Statement,
however, Key Mutual Funds does not anticipate that any significant changes will
need to be made to the portfolios of the Key Funds for these purposes.
DESCRIPTION OF SHARES OF THE VICTORY FUNDS. Full and fractional shares
of the Victory Funds will be issued to the shareholders of the Key Funds in
accordance with the procedures under the Plan as
<PAGE>
described above. Each share will be fully paid and nonassessable by Victory when
issued, transferable without restriction, and will have no preemptive or
conversion rights.
SALES CHARGES AND SHAREHOLDER SERVICE FEES. The Victory LifeChoice
Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, Victory
LifeChoice Moderate Investor Fund, Victory Convertible Securities Fund, Victory
Special Growth Fund, and Victory Stock Index Fund offer only Class A Shares. The
Victory Diversified Stock Fund offers Class A Shares and Class B Shares. The
Victory Federal Money Market Fund offers Investor Class Shares and Select Class
Shares. Class A shares are offered at net asset value plus the applicable
initial sales charge (maximum of 5.75% of public offering price). Class A Shares
(except Class A Shares of the Victory Stock Index Fund) are subject to a
shareholder servicing fee of up to 0.25% of the average daily net assets of the
class. The Investor Class Shares of the Victory Federal Money Market Fund are
available to certain institutions or individuals that meet minimum investment
requirements, and are not subject to a shareholder servicing fee. See
"Information About the Funds."
The Key Money Market Mutual Fund, Key Stock Index Fund, SBSF Capital
Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund offer one class of
shares with no sales charges, redemption fees, or exchange fees. Shares of the
KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate
Growth Fund are offered at net asset value plus the applicable initial sales
charge (maximum of 5.75% of public offering price).
EXPENSES. The Reorganization will be effected for each Key Fund
shareholder at net asset value without the imposition of any sales charges.
Expenses otherwise incurred by the Funds in connection with the transactions
will be borne by each Fund. In accordance with the policies of the Victory
Funds, no new certificates for the Victory Fund shares will be issued.
SHAREHOLDER APPROVAL. Approval of the Plan with respect to each Key
Fund requires the affirmative vote of a "majority of outstanding voting shares."
This means the lesser of (i) sixty-seven percent or more of the voting
securities of the Key Fund present at the Meeting, if the holders of more than
fifty percent of the outstanding voting securities of the Key Fund are present
and represented by proxy, or (ii) more than fifty percent of the outstanding
voting securities of the Key Fund.
The Board may terminate the Plan at any time prior to the closing of
the transaction.
FEDERAL INCOME TAX CONSEQUENCES. It is a condition to the obligations
of Key Mutual Funds and Victory to consummate the Reorganization that they
receive an opinion from Kramer, Levin, Naftalis & Frankel, counsel to Victory,
in form and substance reasonably satisfactory to each of them, substantially to
the effect that, for federal income tax purposes, with respect to each Key Fund
and its corresponding Victory Fund: (1) the transfer by the Key Fund of
substantially all of its assets to the Victory Fund in exchange for shares of
the Victory Fund and the assumption by the Victory Fund of certain stated
liabilities of the Key Fund, and the subsequent liquidation of the Key Fund
pursuant to the Plan will constitute a reorganization within the meaning of
section 368(a)(l) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Key Fund and the corresponding Victory Fund will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code; (2) the Key
Fund will not recognized any gain or loss upon the transfer of its assets and
liabilities to the corresponding Victory Fund solely in exchange for shares of
the corresponding Victory Fund; (3) the Key Fund will not recognize any gain or
loss on the distribution to its shareholders of shares of the Victory Fund to be
received by the Key Fund in the Reorganization; (4) the Victory Fund will not
recognize any gain or loss on the receipt of the assets and the assumption of
liabilities of the Key Fund in exchange for shares of the corresponding
<PAGE>
Victory Fund; (5) the shareholders of the Key Fund will not recognize any gain
or loss on the exchange of their shares of the Key Fund for shares of the
Victory Fund in the Reorganization; (6) the aggregate tax basis of the shares of
the Victory Fund received by each shareholder of the Key Fund will be the same
as the aggregate tax basis of the shares of the Key Fund exchanged therefor; (7)
the Victory Fund's adjusted tax bases in the assets received from the Key Fund
in the Reorganization will be the same as the adjusted tax bases of such assets
in the hands of the Key Fund immediately prior to the Reorganization; (8) the
holding period of each former shareholder of the Key Fund in the shares of the
Victory Fund received in the Reorganization will include the period during which
such shareholder held the Key Fund shares exchanged therefor, if such shares
were held as a capital asset at the time of Reorganization; (9) the Victory
Fund's holding periods in the assets received from the Key Fund in the
Reorganization will include the holding periods of such assets in the hands of
the Key Fund immediately prior to the Reorganization; and (10) the Victory Fund
will succeed to and take into account the tax attributes described in section
381(c) of the Code of the corresponding Key Fund as of the Closing Date, subject
to the conditions and limitations specified in the Code. Such opinion will be
based upon facts existing at the closing of the Reorganization and upon
then-current law and, in rendering the opinion, counsel will rely upon various
assumptions and representations made by Key Mutual Funds, Victory, and KAM as of
such time.
Key Mutual Funds and Victory have not sought and will not seek a ruling
from the Internal Revenue Service ("IRS") with respect to the federal income tax
consequences of the Reorganization, but will act in reliance upon the opinion of
counsel discussed in the preceding paragraph. Such opinion is not binding on the
IRS or any court and does not preclude the IRS from adopting a contrary
position. If for any reason the Reorganization of any Key Fund did not qualify
as a tax-free reorganization for federal income tax purposes, then the
Reorganization would be treated as a taxable asset sale and purchase with
respect to such Key Fund and the corresponding Victory Fund. In such event, the
Key Fund would recognize gain or loss on the Reorganization equal to the
difference between the consideration received by the Key Fund (including
liabilities assumed by the corresponding Victory Fund) and the tax basis of the
Key Fund's assets; the tax basis of the assets received by the corresponding
Victory Fund would equal the purchase price plus the amount of any liabilities
assumed by the Victory Fund; and each shareholder of the Key Fund would
recognize gain or loss equal to the differences between the fair market value of
the Victory Fund shares received by such shareholder in the Reorganization and
such shareholder's basis in the Key Fund shares exchanged therefor. Shareholders
should consult their own advisers concerning the potential tax consequences of
the Reorganization to them, including any applicable state and local income tax
consequences.
CAPITALIZATION. Under the Plan, three of the Key Funds would be
reorganized into three Operating Victory Funds, and five of the Key Funds would
be reorganized into five New Victory Funds that are being created by Victory and
will have nominal assets and liabilities at the Closing. The following table
sets forth, as of October 31, 1997, (i) the capitalization of each of the three
Key Funds that would be reorganized into Operating Victory Funds; (ii) the
capitalization of each of the corresponding Operating Victory Funds involved;
and (iii) the pro forma capitalization of each of the Operating Victory Funds as
adjusted to give effect to the Reorganization of the foregoing Key Funds. The
capitalization of each Key Fund and Operating Victory Fund is likely to be
different at the Closing as a result of daily share purchase and redemption
activity in the Funds as well as the effects of the Funds' other ongoing
operations. Because the other five Key Funds are to be reorganized into the New
Victory Funds, which will have nominal assets and liabilities before the
Reorganization, information on the capitalization of these other Key Funds and
New Victory Funds is not presented.
<PAGE>
PRO FORMA CAPITALIZATION
(As of October 31, 1997)
1. The table below reflects current and pro forma capitalization information for
the combination of the Key Stock Index Fund with the Victory Stock Index Fund.
Total Net Assets Shares Outstanding
---------------- ------------------
Key Stock Index Fund $37,116 2,807
Victory Stock Index Fund 465,015 24,087
Pro Forma Combined 502,131 26,787
The table below reflects current and pro forma capitalization
information for the combination of the SBSF Capital Growth Fund and Victory
Special Growth Fund.
Total Net Assets Shares Outstanding
---------------- ------------------
SBSF Capital Growth Fund $42,674 3,650
Victory Special Growth Fund 104,565 6,420
Pro Forma Combined 147,239 9,040
The table below reflects current and pro forma capitalization
information for the combination of the SBSF Fund and Victory Diversified Stock
Fund.
Total Net Assets Shares Outstanding
---------------- ------------------
SBSF Fund $93,689 5,078
Victory Diversified Stock Fund 792,468 44,638
Pro Forma Combined 886,157 49,913
APPLICATION FOR EXEMPTIVE RELIEF. As of November 28, 1997, SNBOC and
Company, as record holder, owned 24,723,558.14 shares of the Victory Stock Index
Fund, which amounted to 98.08% of the total outstanding shares of the Victory
Stock Index Fund. Because SNBOC and Company owns in excess of twenty five
percent of the outstanding voting shares of the Victory Stock Index Fund--and
consequently is deemed to control the Victory Stock Index Fund- SNBOC and
Company is an "affiliated person" of the Victory Stock Index Fund. Because Key
Mutual Funds also may be deemed an affiliate of SNBOC and Company, the transfer
of assets contemplated by the Plan may be prohibited.
The Investment Company Act of 1940, as amended (the "1940 Act"),
provides, however, that the Commission may issue an order granting an exemption
from the affiliated transaction prohibitions if, among other requirements,
evidence establishes that (1) the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and do not
involve overreaching on the part of any person concerned; (2) the proposed
transaction is consistent with the investment policies of each Fund; and (3) the
proposed transaction is consistent with the general purposes of the 1940 Act.
Key Mutual Funds, Victory, and KAM have filed an application with the Commission
for such an order, and Key Mutual Funds and Victory believe that the applicants
meet the applicable standards for the receipt of the order. The Commission
published a notice of the application on _____, 1997 and, if no hearing is
requested, it is expected that the Commission will issue an order in ____, 1998.
However, there can be no assurance that the Commission will issue the order. Key
Mutual Funds and Victory do not intend to effect the Reorganization without
receiving such an order.
<PAGE>
REASONS FOR THE TRANSACTION
On December 2, 1997, the Board of Directors of Key Mutual Funds
unanimously approved the proposed Plan and the transactions contemplated
therein, subject to shareholder approval. The Board of Directors voted to
approve the Reorganization because the Board believed that the opportunity for
shareholders of the Key Funds to become shareholders of the Victory Funds would
provide them with substantial advantages. The Board of Directors of Key Mutual
Funds and the Board of Trustees of Victory, including a majority of the
directors and trustees on each Board who are not interested persons of Key
Mutual Funds or Victory, have determined that participation in the transaction
is in the best interests of the Key Funds and Victory Funds and that the
interests of the existing shareholders of the Key Funds and Victory Funds will
not be diluted as a result of effecting the Reorganization.
The Directors considered various factors in reaching their decision to
approve, and to recommend to the shareholders of the Key Funds that they
approve, the Reorganization and the Plan. The Directors considered the
efficiency of the present arrangement in which Key Mutual Funds and Victory
operate as separate entities within the same complex of mutual funds. The
Directors believe that the Reorganization could simplify the marketing of the
funds as a whole. Victory's ability to promote the Victory Funds to a large
marketing base, particularly through Victory's selected broker-dealer
distribution network, is expected to enhance the asset growth potential of the
current Key Funds. The Directors anticipate that such growth and the elimination
of certain redundancies in the administration and operation of the Funds will
result in economies of scale that will benefit the shareholders in the form of
lower expense ratios.
The Directors considered the terms and conditions of the Plan and that
the Reorganization will be accomplished by transferring the assets of the
KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate
Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund
to New Victory Funds with substantially identical investment policies and
objectives. The Directors considered that the investment objectives of the
Operating Victory Funds are similar to those of the Key Stock Index Fund, SBSF
Capital Growth Fund, and SBSF Fund in all material respects. The Directors
further considered that KAM will continue to provide investment advisory
services to the Funds, thereby affording shareholders continuity of management
with respect to the portfolios.
The Directors considered that there will be no sales charge imposed in
effecting the Reorganization. In addition, by keeping the Key Funds together
within the same complex of funds, shareholders will benefit from the ability to
make exchanges among the Funds without incurring sales charges, and to make
exchanges without incurring sales charges within a larger universe of related
mutual funds. Also considered was the fact that the Reorganization is intended
to qualify as a tax-free exchange.
The Directors considered KAM's intention to discontinue waiving some or
all fees and reimbursing expenses of the Key Funds and compared the actual
expense structures of the Funds for the most recent fiscal year, without
voluntary fee waivers and expense reimbursements, to anticipated expenses of the
Victory Funds. The Directors expect that the current shareholders of the Key
Funds, as shareholders of the Victory Funds, will be subject to expenses that
are no higher than the current expenses of the Key Funds, and that are no higher
than the Key Funds' expenses without waiver or reimbursement from KAM.
Among the other factors considered by the Directors were: (i) that
BISYS Fund Services, Inc. ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219,
will continue to serve as administrator and
<PAGE>
distributor of the Funds; and (ii) that Key Trust Company of Ohio, National
Association will continue to serve as custodian of the Funds.
INFORMATION ABOUT THE FUNDS
INVESTMENT ADVISORY AGREEMENTS. KAM serves as investment adviser to the
Key Funds under three separate investment advisory agreements: (i) an investment
advisory agreement dated April 5, 1995, on behalf of the Key Money Market Mutual
Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund,
between Key Mutual Funds and KAM; (ii) an investment advisory agreement dated
July 1, 1996, on behalf of the Key Stock Index Fund, between Key Mutual Funds
and KAM; and (iii) an investment advisory agreement dated December 16, 1996, on
behalf of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and
KeyChoice Moderate Growth Fund, between Key Mutual Funds and KAM. KAM serves as
investment adviser to the Victory Funds under an investment advisory agreement
dated _____, 199_ between KAM and Victory, on behalf of the Victory Funds.
The investment advisory agreement between KAM and Key Mutual Funds
relating to the Key Stock Index Fund contains terms that are materially the same
as those set forth in the investment advisory agreement between KAM and Victory
on behalf of the Victory Stock Index Fund.
The Victory LifeChoice Growth Investor Fund, Victory LifeChoice
Conservative Investor Fund, and Victory LifeChoice Moderate Investor Fund have
been created by Victory to carry on the operations of the corresponding Key
Funds. Each corresponding Key Fund has been constructed as a "fund of funds,"
which means that it pursues its investment objective primarily by allocating its
investments among other mutual funds (the "Underlying Portfolios"). The
investment advisory agreement between KAM and Victory relating to the Victory
LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund,
and Victory LifeChoice Moderate Investor Fund is identical in all material
respects to the investment advisory agreement between Key Mutual Funds and KAM
relating to the corresponding Key Funds. Both investment advisory agreements
allow KAM to invest in Underlying Portfolios and to otherwise operate each fund
as a "fund of funds."
The investment advisory agreement between KAM and Key Mutual Funds on
behalf of the Key Money Market Mutual Fund, SBSF Capital Growth Fund, SBSF
Convertible Securities Fund, and SBSF Fund contains terms that are similar to
those contained in the investment advisory agreement of the corresponding
Victory Funds. In general, there are two significant differences between the
investment advisory agreements. The investment advisory agreement between KAM
and Victory provides that KAM may delegate a portion of its responsibilities to
an investment sub-adviser affiliated with KAM. In addition, the investment
advisory agreement between KAM and Victory provides that KAM may render services
through its own employees or through the employees of one or more affiliated
companies that are qualified to act as investment adviser to the Victory Funds
and are under the common control of KAM as long as all such persons are
functioning as part of an organized group of persons that is managed by
authorized officers of KAM. In addition, the investment advisory agreement
between KAM and Victory recognizes that trades may be executed through an
affiliated broker-dealer, although such trades are also permitted under the
investment advisory agreement between KAM and Key Mutual Funds.
Under the investment advisory agreement between Victory and KAM, KAM is
entitled to receive a fee calculated as a percentage of the average daily net
assets of the Victory Funds, computed daily and paid monthly, at the following
annual rates:
<PAGE>
Victory LifeChoice Growth Investor Fund 0.20%
Victory LifeChoice Conservative Investor Fund 0.20%
Victory LifeChoice Moderate Investor Fund 0.20%
Victory Federal Money Market Fund 0.25%
Victory Special Growth Fund 1.00%
Victory Stock Index Fund 0.60%
Victory Convertible Securities Fund 0.75%
Victory Diversified Stock Fund 0.65%
Under the investment advisory agreements between KAM and Key Mutual
Funds, KAM is entitled to receive a fee calculated as a percentage of the
average daily net assets of the Key Funds, computed daily and paid monthly, at
the following annual rates:
KeyChoice Growth Fund 0.20%
KeyChoice Income and Growth Fund 0.20%
KeyChoice Moderate Growth Fund 0.20%
Key Money Market Mutual Fund 0.25%
Key Stock Index Fund 0.10%
SBSF Capital Growth Fund 0.75%
SBSF Convertible Securities Fund 0.75%
SBSF Fund 0.75%
[State the aggregate of KAM's fee from the Key Funds and the amount and
purpose of any other material payments by the Key Funds to KAM, or any
affiliated person of KAM, during the last fiscal year of the Key Funds. State
the amount the adviser would have received had the proposed fees been in effect.
State the difference between the two amounts. For the most recently completed
fiscal year, state: (i) the aggregate amount of commissions paid to any
affiliated broker; and (ii) the percentage of the Fund's aggregate brokerage
commissions paid to any such affiliated broker.]
The New Victory Funds are subject to the same level of investment
advisory fees as the corresponding Key Funds. Shareholders of the Key Stock
Index Fund and SBSF Capital Growth Fund will be subject to a higher level of
contractual investment advisory fees as shareholders of the Victory Stock Index
Fund and Victory Special Growth Fund, but shareholders of the SBSF Fund will be
subject to lower advisory fees as shareholders of the Victory Diversified Stock
Fund. By virtue of the higher contractual advisory fee earned on Victory Stock
Index Fund and Victory Special Growth assets, KAM may be deemed to have a
interest in the Reorganization that is materially adverse to the interest of
shareholders.
KAM is a New York corporation that is registered as an investment
adviser with the Commission. KAM is a wholly owned subsidiary of KeyBank,
National Association which is a wholly owned subsidiary of KeyCorp, one of the
largest financial services holding companies in the United States. KAM and its
affiliates managed approximately $57 billion as of September 30, 1997 for
numerous clients, including large corporate and public retirement plans,
Taft-Hartley plans, foundations and endowments, high net-worth individuals, and
mutual funds.
The following persons are directors and/or senior officers of KAM:
William G. Spears, Chairman Chief Operating Officer, and Senior Managing
Director; Richard J. Buoncore, Director, President, Chief Operating Officer, and
Senior Managing Director; Anthony Aveni, Director, Chief Investment Officer, and
Senior Managing Director; William J. Blake, Secretary; Vincent Farrell,
<PAGE>
Director, Chief Investment Officer, and Senior Managing Director; James D.
Kacic, Treasurer, Chief Financial Officer, and Managing Director. The business
address of each of the directors and officers is 127 Public Square, Cleveland,
Ohio 44114.
No directors or senior officers of Key Mutual Funds are affiliated with
KAM.
DISTRIBUTION PLANS. Key Mutual Funds has adopted a distribution plan
(the "Key Distribution Plan") for the Key Funds, except the Key Stock Index
Fund, pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"). No separate
payments are authorized to be made by the Key Funds under the Key Distribution
Plan. Rather, the Key Distribution Plan provides that to the extent any portion
of the fees payable under the shareholder servicing plan of the Key Funds or any
shareholder servicing agreement in connection with the Key Funds are deemed to
be for services primarily intended to result in the sale of Key Fund shares,
such fees are deemed approved and may be paid pursuant to the Key Distribution
Plan and in accordance with Rule 12b-1.
Victory has adopted a distribution and service plan (the "Victory
Distribution Plan"), similar to the Key Distribution Plan, for each of the New
Victory Funds. No separate payments are authorized to be made by the New Victory
Funds under the Victory Distribution Plan. Like the Key Distribution Plan, the
Victory Distribution Plan provides that to the extent any portion of the fees
payable under the shareholder servicing plan of the Victory Funds or any
shareholder servicing agreement in connection with the Victory Funds are deemed
to be for services primarily intended to result in the sale of Victory Fund
shares, such fees are deemed approved and may be paid pursuant to the Victory
Distribution Plan and in accordance with Rule 12b-1.
SHAREHOLDER SERVICES PLANS. Key Mutual Funds has adopted a shareholder
servicing plan for the Key Funds, except the Key Stock Index Fund, under which
each Key Fund may pay to BISYS, an affiliate of KAM, or financial institutions
that provide certain services to the Funds (and that have signed shareholder
service agreements), a shareholder services fee at an annual rate not to exceed
0.25% of the average daily net assets of the Fund attributable to BISYS or the
financial institution.
Victory has adopted a shareholder servicing plan for the Victory Funds,
with the exception of the Victory Stock Index Fund and the Investor Class of the
Victory Federal Money Market Fund. Shareholder servicing agents perform a number
of services for their customers who are shareholders of the Victory Funds. For
these services each Victory Fund pays a fee at an annual rate of up to 0.25% of
the average daily net assets of each class of its shares serviced by the agent.
The Victory Funds (except the Victory Stock Index Fund) have agreements with
various shareholder servicing agents, including KeyBank, National Association
and its affiliates, other financial institutions, and securities brokers.
ADMINISTRATOR AND DISTRIBUTOR. BISYS serves as the administrator,
distributor, and fund accountant for the Key Funds and Victory Funds pursuant to
administration, distribution, and accounting agreements with Key Mutual Funds
and Victory.
BISYS, as administrator of the Key Funds and Victory Funds, generally
assists in all aspects of each Fund's administration and operation. For expenses
incurred and services provided as administrator of the Key Funds, BISYS receives
an annual fee, computed daily and payable monthly, of 0.01% of the average daily
net assets of each of the KeyChoice Growth Fund, KeyChoice Income and Growth
Fund, and KeyChoice Moderate Growth Fund, and 0.25% of the average daily net
assets of each of the Key Money Market Mutual Fund, SBSF Capital Growth Fund,
SBSF Convertible Securities Fund, and SBSF Fund up to $50,000,000, and 0.15% of
such assets greater than $50,000,000.
<PAGE>
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 of $300 million and less;
0.12% for portfolio assets of $300 million through
$600 million; and
0.10% for portfolio assets greater than $600 million.
After the Reorganization, BISYS will continue to serve as administrator of the
Victory Funds. BISYS, as administrator, may periodically waive all or a portion
of its administration fees due from a Fund.
BISYS also serves as distributor of the Key Funds and Victory Funds.
BISYS does not charge the Funds a fee for its services as distributor. Under its
distribution agreements with Key Mutual Funds and Victory, BISYS may provide
sales support, including cash or other compensation to dealers for selling
shares of the Funds. Payments may be in the form of trips, tickets, and/or
merchandise offered through sales contests. BISYS does this at its own expense
and not at the expense of any Fund or its shareholders. BISYS will continue as
distributor of the Victory Funds after the Reorganization.
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.
DIVIDENDS AND DISTRIBUTIONS. The dividend and distribution policy of
each Key Fund is identical to the policy of the corresponding Victory Fund. Net
income earned on securities owned by the Victory Federal Money Market Fund and
Key Money Market Mutual Fund accrue daily, are declared daily, and are paid
monthly. All of the other Key and Victory Funds declare and pay dividends from
their net investment income quarterly. Any net capital gains realized by the Key
and Victory Funds are paid as dividends at least annually. The Victory Funds
declare and pay dividends separately for Class A, Class B, Investor Class, and
Select Class Shares of the Funds.
The Victory Funds and Key Funds provide investors five identical
dividend distribution options. If a shareholder does not choose an option on his
or her Account Application, his or her income and capital gain dividends, if
any, are automatically reinvested in additional Fund shares at the net asset
value of the Fund as of the day after the record date of the distribution.
The dividend distribution option elected by shareholders of the Key
Funds will carry over to their accounts as shareholders with the Victory Funds.
The election may be changed by writing Boston Financial Data Services, Inc.
("BFDS"), Two Heritage Drive, Quincy, Massachusetts 02171, or by calling
800-KEY-FUND (800-539-3863), and will become effective with regard to dividends
having record dates after receipt of the request by BFDS.
In accordance with the requirements imposed by the Code upon regulated
investment companies such as the Funds, it is each Fund's policy to distribute
to shareholders all of its investment income (net of expenses) and any capital
gains (net of capital losses). For federal income tax purposes, shareholders
will be treated in the same manner whether distributions are received in cash or
reinvested in additional shares of a Fund.
<PAGE>
PURCHASE PROCEDURES. Shares of the Key Funds and Victory Funds are sold
on a continuous basis at net asset value per share, plus any applicable initial
sales charge. The Key Money Market Mutual Fund, Key Stock Index Fund, SBSF
Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund each offer
one class of shares with no initial sales charge. Shares of the KeyChoice Growth
Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate Growth Fund are
offered at net asset value plus the applicable initial sales charge which varies
depending upon the amount purchased.
The Victory Funds offer different classes of shares, which have varying
purchase procedures, sales charges, and ongoing fees. Investor Class Shares and
Select Class Shares of the Victory Funds are not subject to an initial sales
charge or CDSC. Class A Shares of the Victory Funds are sold at net asset value
per share plus an initial sales charge which varies depending upon the amount
purchased.
The current initial sales charge rates of the KeyChoice Growth Fund,
KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, and Class A of
the Victory Funds are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Your Investment Sales Charge as a % of Sales Charge as a % of Dealer Reallowance as
Offering Price Your Investment a % of the Offering
Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 5.75% 6.10% 5.00%
- -------------------------------------------------------------------------------------------------------------------
$50,000 up to $100,000 4.50% 4.71% 4.00%
- -------------------------------------------------------------------------------------------------------------------
$100,000 up to $250,000 3.50% 3.63% 3.00%
- -------------------------------------------------------------------------------------------------------------------
$250,000 up to $500,000 2.50% 2.56% 2.00%
- -------------------------------------------------------------------------------------------------------------------
$500,000 up to $1,000,000 2.00% 2.04% 1.75%
- -------------------------------------------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00% *
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* There is no initial sales charge on purchases of $1 million or
more. A CDSC of up to 1.00% of the purchase price will be
charged to the shareholder if shares are redeemed in the first
year after purchase, or at 0.50% within two years of purchase.
This charge will be based on either the cost of the shares or
current net asset value per share at the time of redemption,
whichever is lower. There will be no CDSC on reinvested
dividends.
EXCHANGE RIGHTS. The exchange rights of both the Key Funds and Victory
Funds are similar. Shares of a Key Fund may be exchanged, without the imposition
of a sales charge, for shares of any other series of Key Mutual Funds and for
shares of any series of Victory that is not subject to either a front-end sales
charge or CDSC. Shares of a Victory Fund may be exchanged, without the
imposition of a sales charge, for shares of any other series of Victory that are
of the same class as the shares being exchanged.
REDEMPTION PROCEDURES. The Key Funds and Victory Funds offer identical
redemption features pursuant to which proceeds of a redemption are remitted to
shareholders.
GENERAL. Each Victory Fund differs from its corresponding Key Fund in
that each Victory Fund is a series of Victory, which is a Delaware business
trust, whereas Key Mutual Funds is a Maryland corporation. In addition, with the
exception of two persons who serve on the Boards of both Victory and Key Mutual
Funds, the Board of Trustees of Victory is composed of different persons than
the Board of Directors of Key Mutual Funds.
Each Victory Fund is a separate series of Victory and, as such, has
similar rights under the Trust Instrument of Victory and applicable Delaware
law. Shares of each class of the Victory Funds participate
<PAGE>
equally in dividends and distributions attributable to such class, including any
distributions in the event of a liquidation. Each share of a series of Victory
is entitled to one vote for all purposes. Shares of all series of Victory vote
for the election of Trustees and on any other matter that affects each series in
substantially the same manner, except as otherwise required by law. As to
matters that affect each series differently, such as approval of an investment
advisory agreement, shares of each series vote as a separate series. In
addition, on matters that affect the classes of a series differently, shares of
each class vote separately. Delaware law does not require registered investment
companies, such as Victory 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. Shareholders have available
certain procedures for the removal of Trustees. Victory indemnifies trustees and
officers to the fullest extent permitted under federal and Delaware law.
PROPOSALS TWO AND THREE
Proposals Two and Three concern proposed changes to the current
fundamental investment polices and restrictions ("Restrictions") of the Key
Funds. Each of these Proposals relate to Restrictions of a Key Fund that are
presently classified as "fundamental," which means that they can only be changed
by a vote of the relevant Key Fund's shareholders. Investment restrictions
classified as "non-fundamental" may be changed or eliminated by the Board of
Directors without shareholder approval.
In order to avoid an additional shareholders' meeting after the
Reorganization, shareholders of the Key Funds are being asked to amend certain
Restrictions of the Key Funds. If the proposed amendments to the Restrictions of
the Key Funds are not approved by shareholders, the corresponding Victory Funds,
after commencing operations, may hold a meeting of shareholders to approve the
proposed amendments.
KAM recommended to the Board of Directors of Key Mutual Funds that it
be authorized to analyze each Key Fund's current Restrictions and, where
practical and appropriate for each Key Fund's investment objective, recommend to
the Board whether, subject to shareholder approval, certain changes should be
adopted. Based on KAM's review and recommendations, the Directors believe that
certain changes should be implemented for several Key Funds. These changes fall
within one or both of the following categories:
o Modification. The Proposal involves a modification of a certain
Restriction, for the reasons outlined below.
o Reclassification. The Proposal involves a reclassification of a certain
Restriction as a non-fundamental restriction, which could thereafter be
changed with the approval of the Board of Key Mutual Funds, without a
shareholder vote.
Based on the recommendations of KAM, the Directors of Key Mutual Funds
have approved the proposed changes and believe that they are in the best
interests of the Key Funds and their shareholders for the following reasons:
o Standardization. Some of the Key Funds' Restrictions differ in form and
substance from similar restrictions of the Victory Funds. Increased
standardized restrictions among all Victory mutual funds will help promote
operational efficiencies and facilitate the monitoring of portfolio
compliance. The adoption of the new or revised restriction is not likely to
have any impact on the investment techniques employed by a Fund at this
time.
<PAGE>
o Modernization. The Key Funds' Restrictions have been in effect, without
changes, for many years. The Directors, acting on KAM's recommendation,
recommend that certain Key Funds should modernize their Restrictions, where
appropriate, to conform to current regulation and authorize the use of
currently available financial instruments and investment techniques.
The proposals regarding the Restrictions are presented in Proposals Two
and Three. These proposals relate only to the Key Funds that are being
reorganized into New Victory Funds. In each case, the current Restriction is set
forth in the left hand column under "Current" and, for the Fund(s) to which the
current Restriction applies, it is proposed that the Restriction be restated
and/or reclassified, or otherwise changed as indicated in the right hand column
under "Proposed." In each case, the reason for, and an explanation of, the
proposed change, is set forth below the comparison.
PROPOSAL TWO
AMENDMENT OF FUNDAMENTAL INVESTMENT
RESTRICTION CONCERNING BORROWING
<TABLE>
<CAPTION>
CURRENT: PROPOSED:
<S> <C>
For the KeyChoice Growth Fund, KeyChoice For the KeyChoice Growth Fund, KeyChoice
Moderate Growth Fund, and KeyChoice Moderate Growth Fund, KeyChoice Income
Income and Growth Fund: The Funds may and Growth Fund, SBSF Convertible
not borrow money, except that (a) a Fund Securities Fund, and Key Money Market
may invest in Underlying Portfolios that Mutual Fund: No fund may borrow money,
have the authority to borrow money to except that (a) each Fund may enter into
the extent permissible under applicable commitments to purchase securities in
regulations and interpretations of the accordance with its investment program,
1940 Act or an exemptive order; (b) a including delayed-delivery and
Fund may invest in Underlying Portfolios when-issued securities and reverse
that borrow money from banks for repurchase agreements, provided that the
temporary or emergency purposes, total amount of any such borrowing does
including meeting redemption requests, not exceed 33 1/3% of the Fund's total
in an amount not exceeding 5% of the assets; and (b) each Fund may borrow
lower of market value or the cost of its money for temporary or emergency
total assets at the time when the loan purposes in an amount not exceeding 5%
is made, in which case it may pledge, of the value of its total assets at the
mortgage, or hypothecate any of its time when the loan is made. Any
assets as security for such borrowing, borrowings representing more than 5% of
but not to an extent greater than 5% of a Fund's total assets must be repaid
the market value of its assets; and (c) before the Fund may make additional
a Fund may borrow money for temporary or investments.
emergency purposes in an amount not
exceeding 10% of the value of its total
assets at the time when the loan is
made. Any borrowings representing more
than 5% of a Fund's total assets must be
repaid before the Fund may make
additional investments.
For the SBSF Convertible Securities Fund
and Key Money Market Mutual Fund: Each
of the Funds will not ordinarily borrow
money, but each Fund reserves the right
to borrow from banks, on a temporary
basis, an aggregate
<PAGE>
amount of not more than 5% of the total
asset value of the respective Fund at
the time of borrowing. None of the Funds
has a policy of limiting the uses for
which borrowed funds may be used.
</TABLE>
EXPLANATION OF THE PROPOSED CHANGE. The proposed amendment clarifies
and modernizes the restriction on borrowing by treating borrowings for temporary
or emergency purposes separately from other borrowings. Borrowing for emergency
purposes may be necessary to address excessive or unanticipated liquidations of
Fund shares that exceed available cash. To increase flexibility, reverse
repurchase agreements would be allowable outside the context of borrowings
implemented for temporary purposes, and would be subject to a limitation of 33
1/3% (rather than 10%) of a Fund's assets. Leveraging by means of borrowing
would exaggerate the effect of any increase or decrease in the value of
portfolio securities on a Fund's net asset value; however, the Funds do not
presently intend to borrow for purposes of leverage. Money borrowed will be
subject to interest and other costs
SHAREHOLDER APPROVAL. Approval of Proposal Two requires the vote of a
"majority of the outstanding voting securities," within the meaning of the 1940
Act, of each Key Fund to which the proposal is applicable. The term "majority of
the outstanding voting securities" is defined under the 1940 Act to mean: (a)
67% or more of the outstanding shares present at the Meeting, if the holders of
more that 50% of the outstanding shares are present or represented by proxy, or
(b) more than 50% of the outstanding shares of a Fund, whichever is less.
PROPOSAL THREE
AMENDMENT AND RECLASSIFICATION OF SBSF CONVERTIBLE SECURITIES FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
INVESTMENTS IN RESTRICTED AND ILLIQUID SECURITIES
<TABLE>
<CAPTION>
CURRENT (FUNDAMENTAL PROPOSED (NON-FUNDAMENTAL
RESTRICTION): RESTRICTION):
<S> <C>
For the SBSF Convertible Securities For the SBSF Convertible Securities Fund
Fund: The Fund will not invest more than the following restriction would be
10% of its total assets in (i) non-fundamental: The Fund will not
securities restricted as to disposition invest more than 15% of its net assets
under the Federal securities laws, (ii) in illiquid securities.
securities as to which there are no
readily available market quotations, or
(iii) repurchase agreements with a
maturity in excess of seven days.
</TABLE>
EXPLANATION OF THE PROPOSED CHANGE. Illiquid securities are securities
that are not readily marketable or cannot be disposed of promptly within seven
days and in the usual course of business at approximately the price at which the
Fund has valued them. Such securities include, but are not limited to, time
deposits and repurchase agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, shall not be deemed illiquid solely
by reason of being unregistered. KAM determines whether a particular security is
deemed to be liquid based on the trading markets for the specific security and
other factors.
<PAGE>
The proposed change would standardize, among all Victory Funds within
the same category (i.e., all money market funds and all non-money market funds),
the applicable investment restriction. In addition, the proposed
reclassification of this Restriction as non-fundamental would give the SBSF
Convertible Securities Fund additional flexibility, because the Board may amend
the restriction to meet the changing needs of the SBSF Convertible Securities
Fund or changes in applicable laws.
SHAREHOLDER APPROVAL. Approval of Proposal Three requires the vote of a
"majority of the outstanding voting securities" the SBSF Convertible Securities
Fund, within the meaning of the 1940 Act. The term "majority of the outstanding
voting securities" is defined under the 1940 Act to mean: (a) 67% or more of the
outstanding shares present at the Meeting, if the holders of more that 50% of
the outstanding shares are present or represented by proxy, or (b) more than 50%
of the outstanding shares of the SBSF Convertible Securities Fund, whichever is
less.
ADDITIONAL INFORMATION
This Combined Prospectus/Proxy Statement and the Related Statement of
Additional Information do not contain all of the information set forth in the
registration statement and the exhibits relating thereto filed by Victory with
the Commission under the Securities Act of 1933 and the 1940 Act, to which
reference is hereby made.
Information about the Operating Victory Funds is included in its
prospectuses dated March 1, 1997, as supplemented, and in the annual report of
the Victory Funds dated October 31, 1997, copies of which are included herewith
and incorporated by reference herein. Additional information about the Operating
Victory Funds is included in the Statement of Additional Information dated March
1, 1997, as supplemented, which has been filed as part of the Related Statement
of Additional Information of this Combined Prospectus/Proxy Statement, dated
_______, 1997 and is incorporated by reference.
The Victory and Key Funds are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith file proxy material, reports, and other information with
the Commission. These documents and other information can be inspected and
copied at the Public Reference Facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C. 20549
at prescribed rates.
<PAGE>
INFORMATION RELATING TO VOTING MATTERS
GENERAL INFORMATION. This Combined Prospectus/Proxy Statement is being
furnished in connection with the solicitation of proxies by the Board of
Directors of Key Mutual Funds for the Meeting. It is expected that the
solicitation of proxies will be primarily by mail. Representatives of KAM and
its affiliates, Key Mutual Funds and service contractors retained by Key Mutual
Funds, may contact shareholders directly to discuss the proposal set forth
herein, and may also solicit proxies by telephone, telegraph, or personal
interview. The estimated costs of solicitation of proxies are expected to be
approximately $75,000 in the aggregate for the Key Funds and will be borne by
KAM, BISYS, and the Key Funds. The expenses charged to the Key Funds will be
charge to each Key Fund in proportion to the number of shareholders of each Key
Fund. It is anticipated that banks, broker-dealers, KAM and other institutions
will be requested to forward proxy materials to beneficial owners and to obtain
authorization for the execution of proxies. Victory and Key Mutual Funds may,
upon request, reimburse banks, broker-dealers, and other institutions for their
expenses in forwarding proxy materials to beneficial owners.
Only shareholders of record of the Key Funds at the close of business
on December 26, 1997 (the "Record Date"), will be entitled to vote at the
Meeting. As of the Record Date, the Key Funds had the number of shares issued
and outstanding set forth below, each share entitled to one vote:
FUND TOTAL SHARES OUTSTANDING
---- ------------------------
As of November 28, 1997, the Directors and officers of Key Mutual
Funds, as a group, owned less than 1% of the outstanding shares of each Key
Fund. The following shareholders beneficially owned 5% or more of the
outstanding shares of the Key Funds and Operating Victory Funds as of November
28, 1997:
<TABLE>
<CAPTION>
======================================================================================================================
PERCENT OF CLASS OWNED PERCENT OF CLASS OWNED OF
FUND NAME AND ADDRESS OF RECORD RECORD AND BENEFICIALLY
======================================================================================================================
<S> <C> <C>
Key Money Market Mutual Fund Student Loan Funding Corp. 87.06% 87.06%
One West Fourth Street
Cincinnati, Ohio 45202
======================================================================================================================
</TABLE>
The KeyCorp Cash Balance Mutual Equity Fund may be deemed to control
the Victory Special Growth Fund because as of November 28, 1997 it beneficially
owned 35.6% of the Victory Special Growth Fund. For this purpose, "control"
means the beneficial ownership, either directly or through one or more
controlled companies, of more than 25 percent of the voting securities of
Victory Special Growth Fund. The KeyCorp Cash Balance Mutual Equity Fund's
control of the Victory Special Growth Fund has no effect on the voting rights of
other shareholders of the Victory Special Growth Fund.
Student Loan Funding Corporation may be deemed to control the Key Money
Market Mutual Fund because as of November 28, 1997 it owned 87.06% of the Key
Money Market Mutual Fund. Student Loan Funding Corporation's control of the Key
Money Market Mutual Fund has no effect on the voting rights of other
shareholders of the Key Money Market Mutual Fund.
<PAGE>
As of November 28, 1997, SNBOC and Company, 4900 Tiedeman Road,
Brooklyn, Ohio 44144-2338, an affiliate of Key Mutual Funds and Victory, was the
shareholder of record of 99.28% of the outstanding shares of the KeyChoice
Growth Fund, 98.08% of the outstanding shares of the KeyChoice Income and Growth
Fund, 98.69% of the outstanding shares of the KeyChoice Moderate Growth Fund,
94.45% of the outstanding shares of the Key Stock Index Fund, 83.76% of the
outstanding Class A Shares of the Victory Diversified Stock Fund, 98.35% of the
outstanding shares of the Victory Special Growth Fund, and 98.08% of the
outstanding shares of the Victory Stock Index Fund, but did not own such shares
beneficially. Key Trust, 4900 Tiedeman Road, Brooklyn, Ohio 44144-2338, an
affiliate of Key Mutual Funds and Victory, was the shareholder of record of
72.94% of the SBSF Capital Growth Fund and 6.95% of the outstanding shares of
the SBSF Convertible Securities Fund, but did not own such shares beneficially.
SNBOC and Company and Key Trust and their affiliates have advised Key Mutual
Funds that they intend to vote any shares over which they have voting power at
the Meeting (i) in the manner instructed by the customers for whom such shares
are held, or (ii) in the event that such instructions are not received, in the
same proportion as the votes cast by other shareholders (including customers of
SNBOC and Company and Key Trust and their affiliates who furnish voting
instructions).
Each whole share of each Key Fund shall be entitled to one vote on the
Reorganization, and each fractional share shall be entitled to a proportionate
fractional vote. If the accompanying proxy is executed and returned in time for
the Meeting, the shares covered thereby will be voted in accordance with the
instructions thereon. In the absence of any instructions, such proxy will be
voted to approve the Reorganization. Any shareholder giving a proxy may revoke
it at any time before the Meeting by submitting to Key Mutual Funds a written
notice of revocation or a subsequently executed proxy, or by attending the
Meeting and voting in person. However, attendance at the Meeting, itself, will
not serve to revoke a previously tendered proxy.
If a proxy represents a broker "non-vote" (that is, a proxy from a
broker or nominee indicating that such person has not received instructions from
the beneficial owner or other person entitled to vote shares on a particular
matter with respect to which the broker or nominee does not have discretionary
power) or marked with an abstention (collectively, "abstentions"), the shares
represented thereby will be considered to be present at the meeting for purposes
of determining the existence of a quorum for the transaction of business and
will have the effect of a vote against the proposal.
QUORUM AND ADJOURNMENTS. Shareholders holding one-third of the
outstanding shares of each Key Fund at the close of business on the Record Date
present in person or by proxy shall constitute a quorum for the transaction of
business with respect to such Key Fund at the Meeting. If a quorum is not
present at the Meeting, the holders of a majority of shares of each Key Fund may
adjourn the Meeting, without notice other than announcement at the Meeting,
until the requisite amount of shares entitled to vote at the Meeting are
present. An adjourned meeting may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
OTHER BUSINESS. The Board of Directors of Key Mutual Funds knows of no
other business to be brought before the Meeting. If any other matters come
before the Meeting, proxies that do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named as proxies.
FUTURE SHAREHOLDER PROPOSALS. Under the Articles of Incorporation and
By-Laws of Key Mutual Funds, annual meetings of shareholders are not required to
be held unless necessary under the 1940 Act. Therefore, the Key Funds do not
hold shareholder meetings on an annual basis. A shareholder proposal
<PAGE>
intended to be presented at any meeting hereafter called should be sent to Key
Mutual Funds at 3435 Stelzer Road, Columbus, Ohio 43219-3035, and must be
received by Key Mutual Funds within a reasonable time before solicitation
relating thereto is made in order to be included in the notice or proxy
statement relating to such meeting. The submission by a shareholder of a
proposal for inclusion in a proxy statement does not guarantee that it will be
included.
MISCELLANEOUS
FINANCIAL STATEMENTS. The financial statements of the Victory and Key
Funds included in the Related Statement of Additional Information and which
accompany this Combined Prospectus/Proxy Statement have been audited by Coopers
& Lybrand L.L.P., independent accountants to the Key and Victory Funds, for the
periods indicated in their report thereon.
Representatives of Coopers & Lybrand, L.L.P. are not expected to be
present at the Meeting but have been given the opportunity to make a statement
if they so desire, and will be available should any matter arise requiring their
participation.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AND LIQUIDATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION (this
"Agreement") is made as of the ___ day of __________, 1997, by and among SBSF
Funds, Inc. d/b/a Key Mutual Funds, a Maryland corporation (the "Company"), for
itself and on behalf of each of its existing investment portfolios set forth on
Schedule A hereto (individually, each such investment portfolio being an
"Acquired Portfolio" and collectively, the "Acquired Portfolios"), and The
Victory Portfolios, a Delaware business trust (the "Trust"), for itself and on
behalf of each of its existing investment portfolios set forth on Schedule A
hereto (individually, each such investment portfolio being an "Acquiring Fund"
and collectively the "Acquiring Funds").
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of each Acquired Portfolio
be transferred to the Acquiring Fund corresponding thereto, as indicated in the
table set forth in Schedule A hereto, in exchange for shares of specified
classes (as relevant) of such corresponding Acquiring Fund ("Acquiring Fund
Shares") and the assumption by such Acquiring Fund of the Liabilities (as
defined in paragraph 1.3) of such corresponding Acquired Portfolio, and that
such Acquiring Fund Shares be distributed pro rata by the Acquired Portfolio to
its shareholders of record in complete liquidation of the Acquired Portfolio
immediately following the "Closing" as defined in this Agreement and in complete
cancellation of its shares.
In consideration of the premises and of the covenants and agreements
herein contained, the parties hereto agree as follows:
1. REORGANIZATION OF EACH ACQUIRED PORTFOLIO AND SUBSEQUENT LIQUIDATION
1.1 Subject to the terms and conditions, and based on the
representations and warranties contained in this Agreement, on the Applicable
Closing Date, as described in paragraph 3.1, each Acquired Portfolio shall
assign, deliver and otherwise transfer its assets as described in paragraph 1.2
(the "Acquired Portfolio Assets") to its corresponding Acquiring Fund identified
in Schedule A, and such corresponding Acquiring Fund shall, as consideration
therefor, (i) deliver to such Acquired Portfolio such number of full and
fractional Acquiring Fund Shares as results from dividing (a) the value of such
Acquired Portfolio Assets, net of such Acquired Portfolio's Stated Liabilities,
computed in the manner and as of the time and date set forth in paragraph 2.1,
by (b) the net asset value of one share of beneficial interest of the
corresponding Acquiring Fund, computed in the manner and as of the time and date
set forth in paragraph 2.2, and (ii) assume all of such Acquired Portfolio's
Liabilities.
1.2 With respect to each Acquired Portfolio, the Acquired Portfolio
Assets shall consist of all property and assets of any nature whatsoever,
including, without limitation, all cash, cash equivalents, securities, claims
and receivables (including dividend and interest receivables) owned by the
Acquired Portfolio, and any deferred or prepaid expenses shown as an asset on
the Acquired Portfolio's books on the Applicable Closing Date, as defined in
paragraph 3.1.
At least fifteen (15) days prior to the Applicable Closing Date, each
Acquired Portfolio will provide the corresponding Acquiring Fund with (i) a list
of the Portfolio Assets and (ii) a list of the Acquired Portfolio's known
Liabilities, and such Acquiring Fund will provide such Acquired Portfolio
<PAGE>
with a copy of the investment objective, policies and restrictions applicable to
it. Each Acquired Portfolio reserves the right to sell any of the securities or
other assets shown on the list of the Portfolio's Assets prior to the Applicable
Closing Date.
1.3 Liabilities include all liabilities and obligations whether
absolute or contingent, known or unknown, accrued or unaccrued.
1.4 Upon an Acquired Portfolio's consummation of the transaction
described in paragraph 1.1, the Portfolio will distribute the Acquiring Fund
Shares it received pursuant to paragraph 1.1 to its shareholders of record
determined as of the close of business on the Applicable Valuation Date
("Participating Shareholders of Record"). The distribution will be made pro rata
based upon the ratio that the percentage of the outstanding Portfolio shares
owned by each Participating Shareholder of Record on the Applicable Valuation
Date bears to the total number of Acquiring Fund Shares received by the
Portfolio from the Acquiring Fund. Fractional shares will be carried to the
third decimal place. In exchange for Acquiring Fund Shares distributed, all
issued and outstanding shares of the Acquired Portfolio will be canceled
simultaneously therewith on such Acquired Portfolio's books; any outstanding
share certificates representing interests in the Acquired Fund thereafter will
represent the right to receive such number of Acquiring Fund Shares after the
Closing(s) as determined in accordance with paragraph 1.1.
1.5 The transactions described in paragraphs 1.1 and 1.4 above as they
relate to each separate Acquired Portfolio and its corresponding Acquiring Fund
are collectively referred to 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).
1.6 As soon as reasonably practicable after the Closing (as defined in
paragraph 3.1) of a Reorganization of any Acquired Portfolio, the Company will
take all necessary steps under its Charter and Maryland law to effect a
termination of that Acquired Portfolio and shall terminate the qualification,
classification and registration of such Acquired Fund at all appropriate federal
and state agencies. All reporting and other obligations of the Company shall
remain the exclusive responsibility of the Company up to and including the date
on which the particular Acquired Portfolio is terminated and deregistered,
subject to any reporting or other obligations described in paragraph 4.10.
1.7 The failure of any Acquired Portfolio and its corresponding
Acquiring Fund to consummate a Reorganization shall not affect the consummation
or validity of a Reorganization with respect to any other Acquired Portfolio and
its corresponding Acquiring Fund, and each provision of this Agreement shall be
construed to effect this intent, including, without limitation, as the context
requires, construing the terms "Acquiring Fund" and "Acquired Portfolio" as
meaning only those series of the Trust and the Company, respectively, which are
involved in a Reorganization as of an Applicable Closing Date.
2. VALUATION
2.1 With respect to each Acquired Portfolio, the value of the Portfolio
Assets shall be the value of such assets computed as of the close of business on
the business day immediately preceding the Applicable Closing (such time and
date being referred to as an "Applicable Valuation Date"), using the
<PAGE>
valuation procedures set forth in the Acquiring Fund's then-current Prospectus
and Statement of Additional Information.
2.2 The net asset value of each share of beneficial interest of an
Acquiring Fund shall be its net asset value per share computed on the Applicable
Valuation Date, using the valuation procedures set forth in the Acquiring Fund's
then-current Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be
made by the respective Acquiring Fund's fund accountant (BISYS). Each Acquiring
Fund shall cause its fund accountant to deliver a copy of its valuation report
to the Company and to the Trust at the Applicable Closing(s).
3. CLOSING(S) AND APPLICABLE CLOSING DATE
3.1 The closing for each Reorganization ("Closing" or "Applicable
Closing") shall occur on March 9, 1998, or on such other date as may be mutually
agreed upon in writing by the parties to such Reorganization (an "Applicable
Closing Date"). Each Closing shall be held at the offices of the Trust or at any
other location mutually agreeable to the parties hereto. All transactions taking
place at a Closing shall be deemed to take place simultaneously as of the close
of business, generally 4:00 p.m. Eastern time on the Applicable Closing Date
unless otherwise provided.
3.2 The custodian of each Acquiring Fund shall be given access to the
portfolio securities held by the corresponding Acquired Portfolio for the
purpose of examination no later than five (5) business days prior to the
Applicable Valuation Date. Such Acquired Portfolio's portfolio securities
(together with any cash or other assets) shall be delivered by the Acquired
Portfolio to such custodian for the account of the Acquiring Fund on the Closing
Date, in accordance with applicable custody provisions under the Investment
Company Act of 1940, as amended ("1940 Act"), and duly endorsed in proper form
for transfer in such condition as to constitute good delivery thereof. The
portfolio securities shall be accompanied by any necessary federal and state
stock transfer stamps or a check for the appropriate purchase price of such
stamps. The cash delivered shall be in any such form as is reasonably directed
by the Acquiring Fund.
3.3 Notwithstanding anything herein to the contrary, in the event that
on the Applicable Valuation Date (a) the New York Stock Exchange shall be closed
to trading or trading thereon shall be restricted or (b) trading or the
reporting of trading on such exchange or elsewhere shall be disrupted so that,
in the judgment of the Company or the Trust, accurate appraisal of the value of
the net assets of an Acquiring Fund or an Acquired Portfolio is impracticable,
the Applicable Valuation Date for the Reorganization to which such Acquiring
Fund is a party shall be postponed until the first business day after the day
when trading shall have been fully resumed without restriction or disruption and
reporting shall have been restored and the Applicable Closing Date shall be
postponed to the day after the Applicable Valuation Date as so postponed.
3.4 If requested by the Trust and to the extent reasonably necessary to
enable an Acquiring Fund and its transfer agent and shareholder servicing agents
to perform and provide all necessary and appropriate shareholder accounting,
communications and related services, the Company shall deliver at the Applicable
Closing: (a) a list, certified by its Secretary, of the names, addresses and
taxpayer identification numbers of all Participating Shareholders of Record and
the number and percentage ownership of outstanding shares of the Portfolio owned
by each such shareholder, all as of the Applicable Valuation Date, and (b) such
other documentation relating to such shareholders as is reasonably requested.
The corresponding Acquiring Fund shall issue and deliver to such Secretary a
<PAGE>
confirmation evidencing the Acquiring Fund Shares to be credited on the
Applicable Closing Date or shall provide evidence satisfactory to the Company
that such Acquiring Fund Shares have been credited to the Acquired Portfolio's
account on the books of the Acquiring Fund. At the Closings, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents of transfer, assignment or
conveyance as such other party or its counsel may reasonably request.
4. COVENANTS WITH RESPECT TO EACH OF THE ACQUIRING FUNDS AND THE ACQUIRED
PORTFOLIOS
4.1 The Company will call a special meeting of shareholders (the
"Meeting") for the purposes of (i) considering adoption of this Agreement by the
shareholders of each Acquired Portfolio; and (ii) considering such other
business as may properly come before such Meeting.
4.2 The Company, on behalf of each Acquired Portfolio, covenants that
the Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof, other than in connection with the
Reorganizations contemplated by this Agreement.
4.3 The Company, on behalf of each Acquired Portfolio, will assist each
corresponding Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of the shares of the
Acquired Portfolios.
4.4 Subject to the provisions hereof, the Trust, on its own behalf and
on behalf of each Acquiring Fund, and the Company, on its own behalf and on
behalf of each Acquired Portfolio, will take, or cause to be taken, all actions,
and do or cause to be done, all things reasonably necessary, proper or advisable
to consummate and make effective the transactions contemplated herein, including
the obtaining of any required regulatory approvals.
4.5 The Company, on behalf of each Acquired Portfolio, shall furnish to
each Acquired Portfolio's corresponding Acquiring Fund within 15 days after the
Applicable Closing Date, a final statement of the Acquired Portfolio's assets
and liabilities as of the Applicable Closing Date, which statement shall be
certified by the Company as being determined in accordance with generally
accepted accounting principles consistently applied or in accordance with
another mutually agreed upon standard.
4.6 The Trust has prepared and filed, or will prepare and file, with
the Securities and Exchange Commission (the "SEC") a registration statement on
Form N-14 under the Securities Act of 1933, as amended (the "1933 Act"),
relating to the Acquiring Fund Shares of Victory Diversified Stock Fund and
Victory Special Growth Fund (the "Existing Acquiring Funds"), which, without
limitation, shall include a proxy statement of the Company and the prospectuses
of the Existing Acquiring Funds relating to the transactions contemplated by
this Agreement (the "Registration Statement"). The Registration Statement shall
also contain a proxy statement of the Company with respect to the Acquired
Portfolios to be reorganized into the other newly created Acquiring Funds (the
"New Acquiring Funds"). The Company, on behalf of each Acquired Portfolio, has
provided or will provide the Trust with such information and documents relating
to each Acquired Portfolio as are requested by the Trust and as are reasonably
necessary for the preparation of the Prospectus/Proxy Statement set forth in the
Registration Statement, and information relating to the notice of meeting and
form of proxy, other information needed for the Registration Statement and any
other proxy solicitation materials to be used in connection with the Meeting
(collectively, the "Proxy Materials"). The Trust will use all reasonable efforts
to have the Registration Statement become effective under the 1933 Act
<PAGE>
as soon as practicable, and will take all actions, if any, required by law to
qualify the Existing Acquiring Fund Shares to be issued in the Reorganization
under the laws of the states in which such qualification is required.
4.7 The Company, on behalf of each Acquired Portfolio: (a) as soon
after the Applicable Closing Date as is reasonably practicable, shall prepare
and file all federal and other tax returns and reports of the Acquired Portfolio
as may be required by law to be filed with respect to all periods ending on or
before the Applicable Closing Date but not theretofore filed and (b) shall
submit for payment to the Acquiring Fund the amount of any federal and other
taxes, if any, shown as due thereon which were not paid on or before the
Applicable Closing Date and shall reflect on the unaudited statement of assets
and liabilities of the Acquired Portfolio referred to in paragraphs 1.3 and 4.5
all federal and other taxes, if any, that remain unpaid as of the Applicable
Closing Date.
4.8 With respect to each Acquiring Fund, the Trust agrees to use all
reasonable efforts to maintain in effect the approvals and authorizations
required by the 1933 Act, the 1940 Act and such of the state securities laws as
may be necessary and as it may deem appropriate in order to continue to conduct
its operations through the Applicable Closing Date and to consummate the
Reorganization, as contemplated herein. The Trust agrees to use all reasonable
efforts to operate each Acquiring Fund substantially in accordance with its then
current Prospectus and Statement of Additional Information, including qualifying
as a regulated investment company under Subchapter M of the Code"" through the
Applicable Closing Date and for at least one (1) year thereafter, although the
Acquiring Fund may merge or consolidate during such one-year period with an
investment company with investment objectives, policies and restrictions and
other characteristics comparable to those of the Acquiring Fund.
4.9 If each of the Acquired Portfolios consummates a Reorganization,
and all of the other investment portfolios of the Company have been reorganized
into the Trust or otherwise terminated, then the Company will file with the SEC
as soon as reasonably practicable thereafter an application for deregistration
under the 1940 Act and will seek to obtain an order declaring that the Company
has ceased to be an investment company under the 1940 Act, and will file any
final regulatory reports, including, but not limited to, any Form N-SAR and Rule
24f-2 filings, and also will take all other steps as are necessary and proper to
effect the termination of the Company in accordance with the laws of the State
of Maryland and other applicable requirements. If an Acquired Portfolio does not
consummate a Reorganization, then the Company shall file any required final
regulatory reports with respect to the other Acquired Portfolios as soon as
reasonably practicable after the Applicable Closing Date last to occur. Any
reporting or other responsibility of the Company is and shall remain the
responsibility of the Company up to and including the date on which the Company
is terminated and deregistered.
4.10 With respect to each Acquired Portfolio that consummates a
Reorganization, the Trust agrees to indemnify and hold harmless each trustee of
the Company at the time of execution of this Agreement, whether or not such
person is or becomes a trustee of the Trust subsequent to the Applicable Closing
Date of the Reorganization, against expenses, including 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 the Company,
provided that such indemnification shall be limited to the full extent of the
indemnification that is available to the trustees of the Trust pursuant to the
provisions of the Trust's Declaration of Trust and applicable law.
<PAGE>
4.11 For the period beginning at the Applicable Closing Date of the
last Reorganization to occur and ending not less than three years thereafter,
the Trust shall provide for a liability policy covering the actions of the
current directors of the Company for the period they served as such, which may
be accomplished by causing such persons to be added as insureds under the
liability policy of the Trust.
5. REPRESENTATIONS AND WARRANTIES
5.1 The Trust, on behalf of itself and each Acquiring Fund, represents
and warrants to the Company and to the respective corresponding Acquired
Portfolios whose assets will be transferred to each of the Acquiring Funds, as
follows:
(a) The Trust is a business trust validly existing under the laws
of the State of Delaware and is duly registered as an open-end,
management investment company under the 1940 Act, and each Acquiring
Fund is a validly existing series of shares of the Trust representing
interests in the Acquiring Fund under the laws of the State of
Delaware;
(b) The Trust is not in violation of, and the execution, delivery
and performance of this Agreement will not result in a violation of,
the Trust's Declaration of Trust or By-Laws, each as amended to date,
or result in a material breach or violation of, or constitute a
material default under, any agreement or other undertaking to which
the Trust or any of its Acquiring Funds is a party or by which any of
them or their assets is bound;
(c) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the Trust
and each Acquiring Fund, and assuming this Agreement is enforceable
against the Company, this Agreement is a valid and binding obligation
of the Trust and each Acquiring Fund enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights and to general equity principles;
(d) Except as disclosed in writing to and accepted by the
Company, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to
its knowledge threatened against the Trust or any Acquiring Fund or
any of their properties or assets, and the Trust knows of no facts
that might form the basis for the institution of any such proceedings
(other than routine inquiries and examinations), and neither the Trust
nor any Acquiring Fund is 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, or is reasonably likely to
materially and adversely affect, its business or its ability to
consummate the transactions contemplated herein;
(e) All of the Trust's issued and outstanding shares representing
interests in each Acquiring Fund are, and on the Applicable Closing
Date will be, duly authorized and validly issued and outstanding, and
fully paid and non-assessable and no shareholder has any preemptive
rights to purchase any such shares, and the Acquiring Funds do not
have outstanding any options, warrants or other rights to subscribe
for or purchase any of their shares (other than dividend reinvestment
plans of the Acquiring Funds or as set forth in this Agreement), nor
are there outstanding any securities convertible into any shares of
the Acquiring Funds (except pursuant to exchange privileges described
in the current Prospectus and Statement of Additional Information of
the Acquiring Funds);
<PAGE>
(f) The Acquiring Fund Shares to be issued and delivered by the
Trust to each corresponding Acquired Portfolio pursuant to the terms
hereof will have been duly authorized as of the Applicable Closing
Date and, when so issued and delivered, will be duly authorized and
validly issued, fully paid and non-assessable, and have been or will
be duly registered under the 1933 Act and qualified for sale under the
laws of such states where such qualification is required;
(g) All issued and outstanding shares of each Acquiring Fund have
been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and applicable
state securities laws;
(h) From the effective date of the Registration Statement through
the time of the Meeting and the Applicable Closing Date, the
Registration Statement (exclusive of those portions that are based
upon written information regarding the Company and the Acquired
Portfolios furnished by the Company which fully and fairly disclose
such information) (i) complies in all material respects with the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act, and the rules and regulations thereunder and (ii)
does not and will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and as of
such dates and times, any written information furnished by the Trust
to the Company for use in the Proxy Materials does not contain and
will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the information provided not
misleading;
(i) The Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each Acquiring
Fund as of and for that Acquiring Fund's most recent fiscal year,
certified by Coopers & Lybrand LLP, and the unaudited Statements of
Assets and Liabilities, Statements of Operations and Statements of
Changes in Net Assets for that Acquiring Fund's most current completed
six month period within the fiscal year, if any (copies of which have
been or will be furnished to the Company, if available) fairly
present, in all material respects, such Acquiring Fund's financial
condition as of such dates and its results of operations for such
periods in accordance with generally accepted accounting principles
consistently applied, and as of such dates there were no liabilities
of such Acquiring Fund (contingent or otherwise) known to the Trust
that were not disclosed therein but that would be required to be
disclosed therein in accordance with generally accepted accounting
principles;
(j) Since the date of the most recent audited financial
statements, there has not been any material adverse change in any
Acquiring Fund's financial condition, assets, liabilities or business,
other than changes occurring in the ordinary course of business,
except as otherwise disclosed in writing to and accepted by the Trust
prior to the Applicable Closing Date (for the purposes of this
subparagraph (j), neither a decline in an Acquiring Fund's net asset
value per share nor a decrease in an Acquiring Fund's size due to
redemptions shall be deemed to constitute a material adverse change);
(k) All federal and other tax returns and reports of the Trust
and the Acquiring Funds required by law to be filed on or before the
Applicable Closing Date, if any, shall have been filed, and all
federal and other taxes owed by the Trust or such Acquiring Funds
shall have been paid so far as due, and to the best of the Trust's
knowledge, no such return is as of the
<PAGE>
date hereof under audit and no material assessment has been asserted
with respect to any such return;
(l) For each full and partial taxable year from its inception
through the Applicable Closing Date, each Acquiring Fund has qualified
as a regulated investment company under Subchapter M of the Code; and
(m) The Trust will provide to the Company the Form N-1A
registration statement(s) concerning the Acquiring Funds, which will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make any
statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
5.2 The Company, on behalf of itself and each Acquired Portfolio,
represents and warrants to the Trust and to the respective Acquiring Funds that
will receive the assets of each of the corresponding Acquired Portfolios, as
follows:
(a) The Company is a company validly existing under the laws of
the State of Maryland, and is duly registered as an open-end,
management investment company under the 1940 Act, and each Acquired
Portfolio is a validly existing series of shares of the Company
representing interests in the Acquired Portfolio under the laws of the
State of Maryland;
(b) The Company is not in violation of, and the execution,
delivery and performance of this Agreement will not result in a
violation of, the Company's Charter or By-Laws each as amended to
date, or result in a material breach or violation of, or constitute a
material default under, any agreement or other undertaking to which
the Company or any of its Acquired Portfolios is a party or by which
any of them or their assets are bound;
(c) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary action on the part of the
Company and each Acquired Portfolio, and assuming this Agreement is
enforceable against the Trust, this Agreement is a valid and binding
obligation of the Company and each Acquired Portfolio, enforceable in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights and to general equity principles;
(d) Except as otherwise disclosed in writing to and accepted by
the Trust, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to
its knowledge threatened against the Company or any Acquired Portfolio
or any of their properties or assets, and the Company knows of no
facts that might form the basis for the institution of any such
proceedings (other than routine inquiries and examinations), and
neither the Company nor any Acquired Portfolio is 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, or
is reasonably likely to materially and adversely affect, its business
or its ability to consummate the transactions contemplated herein;
(e) All of each Acquired Portfolio's issued and outstanding
shares representing interests in the Portfolio are, and on the
Applicable Closing Date will be, duly authorized and validly issued
and outstanding, and fully paid and non-assessable and all such shares
will, at the time of the Applicable Closing, be held by the
Participating Shareholders of Record as set forth
<PAGE>
on the books and records of the Company's transfer agent (and in the
amounts set forth therein) and as set forth in any list of
Participating Shareholders of Record provided to the Trust pursuant to
paragraph 3.4, and no Participating Shareholders of Record will have
any preemptive rights to purchase any of such shares and the Acquired
Portfolios do not have outstanding any options, warrants or other
rights to subscribe for or purchase any of their shares (other than
dividend reinvestment plans of the Acquired Portfolios or as set forth
in this Agreement), nor are there outstanding any securities
convertible into any shares of the Acquired Portfolios (except
pursuant to exchange privileges described in the current Prospectus
and Statement of Additional Information of the Acquired Portfolio);
(f) All of each Acquired Portfolio's issued and outstanding
shares representing interests in each Acquired Portfolio have been
offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and applicable
state securities laws;
(g) From the effective date of the Registration Statement through
the time of the Meeting and the Applicable Closing Date, each Acquired
Portfolio's Proxy Materials (exclusive of any written information
furnished by the Trust for use in the Proxy Materials which fully and
fairly discloses such information) (i) comply in all material respects
with the applicable provisions of the 1934 Act and the 1940 Act and
the rules and regulations thereunder and (ii) do not and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and as of such dates and time, any
written information furnished by the Company to the Trust for use in
the Registration Statement does not and will not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the information provided not misleading;
(h) The Statements of Assets and Liabilities, Statements of
Operations and Statements of Changes in Net Assets of each Acquired
Portfolio as of and for that Acquired Portfolio's most recent fiscal
year, certified by Coopers and Lybrand LLP and the unaudited
Statements of Assets and Liabilities, Statements of Operations and
Statements of Changes in Net Assets for that Acquired Portfolio's most
recently completed six month semi-annual fiscal period (copies of
which have been or will be furnished to the Trust) fairly present, in
all material respects, such Acquired Portfolio's financial condition
as of such dates and its results of operations for such periods in
accordance with generally accepted accounting principles consistently
applied, and as of such dates there were no liabilities of such
Acquired Portfolio (contingent or otherwise) known to the Company that
were not disclosed therein but that would be required to be disclosed
therein in accordance with generally accepted accounting principles;
(i) Since the date of the most recent audited financial
statements, there has not been any material adverse change in any
Acquired Portfolio's financial condition, assets, liabilities or
business, other than changes occurring in the ordinary course of
business, except as otherwise disclosed in writing to and accepted by
the Trust prior to the Applicable Closing Date (for the purposes of
this subparagraph (i), neither a decline in an Acquired Portfolio's
net asset value per share nor a decrease in an Acquired Portfolio's
size due to redemptions shall be deemed to constitute a material
adverse change);
(j) All federal and other tax returns and reports of the Company
and each Acquired Portfolio required by law to be filed on or before
the Applicable Closing Date shall have been
<PAGE>
filed, and all federal and other taxes owed by the Company or any such
Acquired Portfolio shall have been paid so far as due, and to the best
of the Company's knowledge, no such return is as of the date hereof
under audit and no material assessment has been asserted with respect
to any such return;
(k) For each full and partial taxable year from its inception
through the Applicable Closing Date, each of the Acquired Portfolios
has qualified as a regulated investment company under Subchapter M of
the Code; and
(l) At the Applicable Closing Date, each Acquired Portfolio will
have good and marketable title, through its custodian, to its
Portfolio Assets and full right, power and authority to assign,
deliver and otherwise transfer such Portfolio Assets hereunder, and
upon delivery and payment for such Portfolio Assets as contemplated
herein, the corresponding Acquiring Fund will acquire good and
marketable title thereto, subject to no restrictions on the ownership
or transfer thereof other than such restrictions as might arise under
the 1933 Act.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to complete the Reorganization with
respect to an Acquired Portfolio shall be subject, at the Company's election
(subject to the limitations of paragraph 13), to the performance by the Trust
(and by the Acquiring Fund corresponding to such Acquired Portfolio), of all the
obligations to be performed by it hereunder on or before the Applicable Closing
Date, and in addition thereto, the satisfaction of the following conditions with
respect to the Trust (and the corresponding Acquiring Fund):
6.1 All representations and warranties of the Trust contained herein
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated herein, as of
the Applicable Closing Date, with the same force and effect as if made on and as
of the Applicable Closing Date.
6.2 The Trust shall have delivered to the Company at the Applicable
Closing a certificate executed by one of its officers, dated as of the
Applicable Closing Date, to the effect that the representations and warranties
of the Trust made herein are true and correct at and as of the Applicable
Closing Date, except as they may be affected by the transactions contemplated
herein, and as to such other matters as the Company shall reasonably request.
6.3 The Company shall have received at the Closing an opinion of legal
counsel to the Trust, dated as of the Applicable Closing Date, in form
(including reasonable and customary qualifications and assumptions) reasonably
satisfactory to the Company, substantially to the effect that:
(i) the Trust is a business trust validly existing under the laws
of the State of Delaware and is duly registered as an open-end,
management investment company under the 1940 Act, and each Acquiring
Fund is a validly existing series of shares of the Trust representing
interests in the Acquiring Fund under the laws of the State of
Delaware; (ii) the execution, delivery and performance of this
Agreement will not result in a violation of the Trust's Declaration of
Trust or By-Laws, each as amended to date; (iii) the execution,
delivery and performance of this Agreement have been duly authorized
by all necessary action on the part of the Trust and each Acquiring
Fund, and this Agreement has been duly executed and delivered by the
Trust and is a valid and binding obligation of the Trust and each
Acquiring Fund, enforceable in accordance
<PAGE>
with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights or remedies and to general equity principles (regardless of
whether considered at a proceeding in law or equity), equitable
defenses or waivers and the discretion of the court before which any
proceeding for specific performance, injunctive and other forms of
equitable relief may be brought; and (iv) the Acquiring Fund Shares to
be issued and delivered pursuant to the terms of this Agreement will
have been duly authorized as of the Applicable Closing Date and, when
so issued and delivered, will be validly issued, fully paid and
non-assessable (except as disclosed in the Acquiring Fund's then
current Prospectus and Statement of Additional Information).
In rendering such opinion, legal counsel to the Trust may rely on
an opinion of Delaware counsel (with respect to matters of Delaware
law) and on certificates of officers or trustees of the Trust, in each
case reasonably acceptable to the Company.
6.4 As of the Applicable Closing Date, there shall have been no
material change in the investment objective, policies and restrictions of an
Acquiring Fund nor any increase in the rate of permissible investment advisory
or other fees or charges payable by any Acquiring Fund or its shareholders to
the Acquiring Fund's investment adviser, distributor and/or administrator from
those fees and charges described in the current Prospectus of such Acquiring
Fund delivered to the Company, and there shall have been no change in any fee
waiver or expense reimbursement undertakings described in the Proxy Materials.
6.5 The Board of Trustees of the Trust, including a majority of its
trustees who are not "interested persons" of the Trust (as defined in the 1940
Act), shall have determined that this Agreement and the transactions
contemplated hereby are in the best interests of each Acquiring Fund and that
the interest of shareholders of each Acquiring Fund would not be diluted as a
result of such transactions.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST
The obligations of the Trust to complete the Reorganization with
respect to an Acquiring Fund shall be subject, at the Trust's election (subject
to the limitations of paragraph 13), to the performance by the Company (and the
Acquired Portfolio corresponding to such Acquiring Fund), of all the obligations
to be performed by it hereunder on or before the Applicable Closing Date and, in
addition thereto, the satisfaction of the following conditions with respect to
the Company (and the corresponding Acquired Portfolio):
7.1 All representations and warranties of the Company contained herein
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated herein, as of
the Applicable Closing Date, with the same force and effect as if made on and as
of the Applicable Closing Date.
7.2 The Company shall have delivered, in accordance with Article 1
hereof, to the Acquiring Fund a statement of Portfolio Assets and Stated
Liabilities of each Acquired Portfolio, together, if required by the
corresponding Acquiring Fund, with a list of such Acquired Portfolio's portfolio
securities and other assets showing the respective adjusted bases and holding
periods thereof for income tax purposes, as of the Applicable Closing Date,
certified by an appropriate officer of the Company.
<PAGE>
7.3 The Company shall have delivered to the Trust at the Applicable
Closing a certificate executed by one of its officers, and dated as of the
Applicable Closing Date, to the effect that the representations and warranties
of the Company made herein are true and correct at and as of the Applicable
Closing Date, except as they may be affected by the transactions contemplated
herein, and as to such other matters as the Trust shall reasonably request.
7.4 The Trust shall have received at the Closing an opinion of legal
counsel to the Company, dated as of the Applicable Closing Date, in form
(including reasonable and customary qualifications and assumptions) reasonably
satisfactory to the Trust, substantially to the effect that:
(i) the Company is a corporation duly incorporated and validly
existing under the laws of the State of Maryland and is duly
registered as an open-end, management investment company under the
1940 Act, and each Acquired Portfolio is a validly existing series of
shares of the Company representing interests in the Acquired Portfolio
under the laws of the State of Maryland; (ii) the execution, delivery
and performance of this Agreement will not result in a violation of
the Company's Charter or By-laws, each as amended to date; and (iii)
the execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Company and
each Acquired Portfolio, and this Agreement has been duly authorized
and delivered by the Company and is a valid and binding obligation of
the Company and each Acquired Portfolio, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights
or remedies and to general equity principles (regardless of whether
considered in a proceeding in law or equity), equitable defenses or
waivers and the discretion of the court before which any proceeding
for specific performance, injunctive and other forms of equitable
relief may be brought.
In rendering such opinion, legal counsel to the Company may
rely on an opinion of Maryland counsel (with respect to matters of Maryland law)
and on certificates of officers or directors of the Company, in each case
reasonably acceptable to the Trust.
7.5 On the Applicable Closing Date, the Portfolio Assets of each
Acquired Portfolio shall include no assets that the corresponding Acquiring
Fund, by reason of the Trust's Declaration of Trust, 1940 Act requirements or
otherwise, may not legally acquire.
7.6 The Board of Directors of the Company, including a majority of the
directors who are not "interested persons" of the Company (as defined by the
1940 Act) shall have determined that this Agreement and the transactions
contemplated hereby are in the best interests of each Acquired Portfolio and
that the interests of the shareholders in the Acquired Portfolio would not be
diluted as a result of such transactions, and the Company shall have delivered
to the Trust at the Applicable Closing, a certificate, executed by an officer,
to the effect that the condition described in this subparagraph has been
satisfied.
7.7 Prior to the Applicable Valuation Date, each Acquired Portfolio
shall have declared a dividend or dividends, with a record date and ex-dividend
date prior to the Applicable Valuation Date, which together will all previous
dividends, shall have the effect of distributing to its shareholders all of its
net investment company taxable income, if any, for the taxable periods or years
ending on or before the Applicable Closing (computed without regard to any
deduction for dividends paid), and all of its net capital gain, if any, realized
in taxable periods or years endind on or before the Applicable Closing.
<PAGE>
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE TRUST
The obligations herein of the Company, with respect to each Acquired
Portfolio, and of the Trust, with respect to each corresponding Acquiring Fund,
to effect the Reorganization are each subject to the further conditions that on
or before the Applicable Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the shareholders of the Acquired
Portfolio in accordance with the applicable provisions of the Company's Charter
and By-laws and the requirements of the 1940 Act, and evidence of such approval
shall have been delivered to the Trust.
8.2 No action, suit or other proceeding shall be pending or threatened
before any court or governmental agency in which it is sought to restrain or
prohibit, or obtain damages or other relief in connection with, this Agreement
as it relates to the Reorganization or any of the transactions related thereto.
8.3 All consents of other parties and all other consents, approvals and
permits of federal, state and local regulatory authorities (including, without
limitation, those of the SEC and of state securities authorities, including
"no-action" positions of or exemptive orders from such federal and state
authorities, and those of the Office of the Comptroller of the Currency ("OCC")
and the Department of Labor with respect to the Employee Retirement Income
Security Act of 1974 ("ERISA") or the Internal Revenue Service with respect to
the Code), deemed necessary by the Trust or the Company to permit consummation,
in all material respects, of the Reorganization and transactions related thereto
shall have been obtained, except where failure to obtain any such consent, order
or permit would not, in the reasonable opinion of the party asserting that the
condition to closing has not been satisfied, involve a risk of a material
adverse effect on the assets or properties of the Acquiring Fund or the Acquired
Portfolio involved in the Reorganization.
8.4 The Registration Statement and the Trust's registration
statement(s) on Form N-1A covering the continuous offering of shares of the
Acquiring Funds shall have become and shall be effective under the 1933 Act, no
stop orders suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the Company and the Trust, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
8.5 The Trust and the Company shall receive an opinion of legal counsel
of the Trust, dated the Applicable Closing Date of the Reorganization, with
respect to each Acquired Portfolio and its corresponding Acquiring Fund,
addressed to, and in form and substance satisfactory to, the Trust and the
Company, to the effect that: on the basis of facts, representations, and
assumptions set forth in such opinion, (a) the transfer by the Acquired
Portfolio of substantially all of its assets to the Acquiring Fund in exchange
for Acquiring Fund Shares and the assumption by the Acquiring Fund of certain
stated liabilities of the Acquired Portfolio, and the subsequent liquidation of
the Acquired Portfolio pursuant to the Agreement will constitute a
reorganization within the meaning of section 368(a)(1) of the Code, and the
Acquired Portfolio and the Acquiring Fund will each be a "party to a
reorganization" within the meaning of section 368(b) of the Code; (b) the
Acquired Portfolio will not recognize any gain or loss upon the transfer of its
assets and liabilities to the Acquiring Fund solely in exchange for Acquiring
Fund Shares; (c) the Acquired Portfolio will not recognize any gain or loss on
the distribution to its shareholders of Acquiring Fund Shares to be received by
the Acquired Portfolio; (d) the Acquiring Fund will not recognize any gain or
loss on the receipt of the assets and on the assumption of the liabilities of
the Acquired Portfolio in exchange for Acquiring Fund Shares; (e) the
<PAGE>
shareholders of the Acquired Portfolio will not recognize any gain or loss on
the exchange of their shares of the Acquired Portfolio for Acquiring Fund Shares
in the Reorganization; (f) the aggregate tax basis of the Acquiring Fund Shares
received by each shareholder of the Acquired Portfolio will be the same as the
aggregate tax basis of the shares of the Acquired Portfolio exchanged therefor;
(g) the Acquiring Fund's adjusted tax bases in the assets received from the
Acquired Portfolio in the Reorganization will be the same as the adjusted tax
bases of such assets in the hands of the Acquire Portfolio immediately prior to
the Reorganization; (h) the holding period of each former shareholder of the
Acquired Portfolio in the Acquiring Fund Shares received in the Reorganization
will include the period during which such shareholder held the Acquired
Portfolio shares exchanged therefor, if such shares were held as a capital asset
at the time of Reorganization; (i) the Acquiring Fund's holding periods in the
assets received from the Acquired Portfolio in the Reorganization will include
the holding periods of such assets in the hands of the Acquired Portfolio
immediately prior to the Reorganization; and (j) the Acquiring Fund will succeed
to and take into account the tax attributes described in section 381(c) of the
Code of the Acquired Portfolio as of the Applicable Closing Date, subject to the
conditions and limitations specified in the Code.
9. EXPENSES
The Trust and the Company confirm their understanding that each party
will be responsible for its own expenses in connection with each Reorganization.
10. ENTIRE AGREEMENT; SURVIVAL OF PROVISIONS OF THIS AGREEMENT
10.1 This Agreement together with the documents contemplated herein
constitute the entire agreement between the parties and supersede any prior or
contemporaneous understanding or arrangement with respect to the subject matter
hereof.
10.2 The representations and warranties contained in this Agreement or
in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated herein. The covenants
contained in this agreement shall not survive the consummation of such
transactions, except as otherwise provided herein.
11. TERMINATION
11.1 With respect to any Acquired Portfolio and its corresponding
Acquiring Fund, this Agreement may be terminated, and the Reorganization and any
related transactions involving such Acquired Portfolio and Acquiring Fund
contemplated hereby may be abandoned, at any time prior to the Applicable
Closing:
(a) by the mutual written consent of the Trust and the Company;
(b) by the Company by written notice to the Trust, without
liability to the Company on account of such termination (provided the
Company is not otherwise in material default or breach of this
Agreement) upon a finding by the Board of Directors of the Company
that in the judgment of such Board, proceeding with the Reorganization
would be inadvisable; or
(c) by either the Trust or the Company by written notice to the
other, without liability to the terminating party on account of such
termination (provided the terminating party is not otherwise in
material default or breach of this Agreement) if (i) the other party
shall fail to
<PAGE>
perform in any material respect its agreements contained herein
required to be performed prior to the Applicable Closing Date, (ii)
the other party materially breaches or shall have materially breached
any of its representations, warranties or covenants contained herein,
or (iii) any other condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it
reasonably appears that it will not or cannot be met.
11.2 Termination of this Agreement pursuant to paragraph 11.1(a) shall
terminate all obligations of the parties hereto with respect to the Acquired
Portfolio and Acquiring Fund affected by such termination and there shall be no
liability for damages on the part of the Trust (or any Acquiring Fund), the
Company (or any Acquired Portfolio), or any of their trustees, directors,
officers or employees, to any other party or its trustees, directors, officers
or employees.
12. AMENDMENTS AND WAIVERS
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Trust and the Company; provided, however, that following the approval of this
Agreement by shareholders with respect to a particular Acquired Portfolio, no
such amendment may have the effect of changing the provisions for determining
the number of Acquiring Fund Shares to be issued to Participating Shareholders
of Record, or otherwise materially and adversely affecting such Acquired
Portfolio, without further approval by shareholders of such Acquired Portfolio
in accordance with paragraph 8.1 hereof. The parties may not waive the opinion
described in paragraph 8.5, and no waiver may materially and adversely affect
the rights of the shareholders of any Portfolio without the approval by
shareholder of such a Portfolio in accordance with paragraph 8.1 hereof.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provision of this Agreement shall be in writing and shall be given by prepaid
certified mail or overnight express courier, addressed as follows:
a. if to the Company or an Acquired Portfolio:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Attention: George O. Martinez
with a copy to:
Key Asset Management Inc.
127 Public Square
Cleveland, Ohio 44114
Attention: Kathleen A. Dennis
and an additional copy to:
<PAGE>
Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Suite 5500
Washington, D.C. 20006
Attention: Robert M. Kurucza, Esq.
b. if to the Trust or an Acquiring Fund:
BISYS Fund Services, Inc.
3534 Stelzer Road
Columbus, Ohio 43219
Attention: George O. Martinez
with copies to:
Key Asset Management Inc.
127 Public Square
Cleveland, Ohio 44114
Attention: Kathleen A. Dennis
and to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Carl Frischling, Esq.
or to such other person or address as the Trust or the Company, respectively,
shall furnish to the other in writing.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
14.1 The headings of Articles contained herein are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All references herein to Articles, paragraphs, subparagraphs or
Schedules or Exhibits shall be construed as referring to the Articles,
paragraphs and subparagraphs hereof, or Schedules or Exhibits hereto,
respectively, except as is otherwise expressly provided. Whenever the terms
hereto, hereunder, herein or hereof are used in the Agreement, they shall be
construed as referring to this entire Agreement, rather than to any individual
paragraph, subparagraph or sentence.
14.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the law of the State of New York, without reference to the conflict of laws
provisions or principles of its laws.
<PAGE>
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
14.5 It is expressly agreed that the rights and obligations hereunder
of the Trust and each Acquiring Fund are separate from the rights and
obligations of each other Acquiring Fund, that the rights and obligations of
each Acquired Portfolio are separate from the rights and obligations of each
other Acquired Portfolio, and that neither the rights and obligations of the
Acquiring Funds nor of the Acquired Portfolios shall be construed to be joint
rights or obligations of two or more of the Acquiring Funds or two or more of
the Acquired Portfolios, respectively, notwithstanding the fact that each of the
Acquiring Funds and each of the Acquired Portfolios have entered into this
Agreement.
14.6 It is expressly agreed that the obligations of the Trust and the
Company hereunder shall not be binding upon any of the trustees, directors,
nominees, officers, agents or employees of the Trust or the Company, personally,
but shall bind only the assets and property of the Trust as provided in its
Declaration of Trust and the Company as provided in its Charter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above by their duly authorized
representatives.
The Company, for itself and on
behalf of the Acquired Portfolios
ATTEST: By: /s/Leigh A. Wilson
------------------------
Name: Leigh A. Wilson
By: /s/George O. Martinez Title: President
---------------------
Name: George O. Martinez
Title: Secretary
The Trust, for itself and on behalf of the Acquiring Funds
By: /s/Leigh A. Wilson
------------------------
Name: Leigh A. Wilson
Title: President
ATTEST:
By: /s/George O. Martinez
---------------------
Name: George O. Martinez
Title: Secretary
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
ACQUIRED PORTFOLIOS CORRESPONDING ACQUIRING FUNDS
<S> <C> <C> <C>
(1) SBSF Fund (1) Victory Diversified Stock Fund-Class A
(2) SBSF Capital Growth Fund (2) Victory Special Growth Fund-Class A
(3) SBSF Convertible Securities Fund (3) Victory Convertible Securities Fund-Class A
(4) Key Stock Index Fund (4) Victory Stock Index Fund-Class A
(5) Key Money Market Mutual Fund (5) Victory Federal Money Market Fund-Investor Class
(6) KeyChoice Growth Fund (6) Victory LifeChoice Growth Investor Fund-Class A
(7) KeyChoice Moderate Growth Fund (7) Victory LifeChoice Moderate Investor Fund-Class A
(8) KeyChoice Income and Growth (8) Victory LifeChoice Conservative Investor Fund-Class A
</TABLE>
<PAGE>
PART B
RELATED STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
3425 STELZER ROAD
COLUMBUS, OHIO 4321-3035
800-KEY-FUND
_______, 1998
This Related Statement of Additional Information is not a prospectus,
but should be read in conjunction with the Combined Prospectus/Proxy Statement
of The Victory Portfolios dated ______, 1998, which may be obtained by writing
The Victory Portfolios, at P.O. Box 8527, Boston, Massachusetts 02266-8527 or by
calling 800-579-3863. Further information about The Victory Portfolios is
contained in the Statement of Additional Information of The Victory Portfolios
dated March 1, 1997 and the audited financial statements of The Victory
Portfolios for the period ended October 31, 1997, which are both incorporated by
reference herein. The audited financial statements of the Key Stock Index Fund,
SBSF Capital Growth Fund, and SBSF Fund (the "Key Funds") for the period ended
November 30, 1996 and unaudited semi-annual report for the Key Funds dated May
31, 1997 are also incorporated by reference herein.
The pro forma combined statement of assets and liabilities reflects the
financial position of Victory Stock Index Fund, Victory Special Growth Fund, and
Victory Diversified Stock Fund (the "Victory Funds") at October 31, 1997 as
though the Reorganization occurred as of that date. The pro forma combined
statement of operations reflects the results of operations of the Victory Funds
and Key Funds for the period ended October 31, 1997 as though the Reorganization
occurred at the beginning of the period presented.
<PAGE>
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Assets and Liabilities
October 31, 1997
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Victory
Diversified Key
Stock SBSF Proforma Proforma
Fund Fund Adjustments Combined
----------- ----------- ----------- -----------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (Cost $645,984, $71,924, $717,908) $ 797,478 $ 94,068 $ -- $ 891,546
Interest and dividends receivable 733 -- -- 733
Receivable for capital shares issued 1,002 -- -- 1,002
Receivable from brokers for investments sold 2,810 37 -- 2,847
Prepaid expenses and other assets 5 8 -- 13
----------- ----------- ----------- -----------
Total Assets 802,028 94,113 -- 896,141
----------- ----------- ----------- -----------
LIABILITIES:
CALL OPTIONS WRITTEN, AT VALUE
(premium received $0, $418, $418) -- 268 -- 268
Payable for capital shares redeemed 39 -- -- 39
Payable to brokers for investments purchased 8,815 -- -- 8,815
Accrued expenses and other payables:
Investment advisory fees 459 63 -- 522
Administration fees 8 2 -- 10
Custodian fees 16 5 -- 21
Accounting fees 1 -- -- 1
Transfer agent fees 86 12 -- 98
Shareholder service fees -- 2 -- 2
Shareholder service fees-Class A 74 -- -- 74
Shareholder service and 12b-1 fees-Class B 26 -- -- 26
Other 36 72 -- 108
----------- ----------- ----------- -----------
Total Liabilities 9,560 424 -- 9,984
----------- ----------- ----------- -----------
NET ASSETS:
Capital 551,092 53,294 -- 604,386
Undistributed (distributions in excess of) net investment income 124 (63) -- 61
Net unrealized appreciation/depreciation from investments 151,494 22,294 -- 173,788
Accumulated undistributed net realized gains --
from investment transactions 89,758 18,164 -- 107,922
----------- ----------- ----------- -----------
Net Assets $ 792,468 $ 93,689 $ -- $ 886,157
=========== =========== =========== ===========
Net Assets
Class A $ 762,270 93,689 $ -- 855,959
Class B 30,198 -- -- 30,198
----------- ----------- ----------- -----------
Total $ 792,468 93,689 $ -- 886,157
=========== =========== =========== ===========
Outstanding units of beneficial interest (shares)
Class A 42,924 5,078 197 48,199
Class B 1,714 -- -- 1,714
----------- ----------- ----------- -----------
44,638 5,078 197 49,913
=========== =========== =========== ===========
Net asset value --
Redemption price per share $ 18.45
==========
Redemption price per share-Class A $ 17.76 $ -- $ 17.76
=========== =========== =========== ===========
Offering price per share-Class B* $ 17.62 $ -- $ 17.62
=========== =========== =========== ===========
Maximum sales charge 5.75% -- -- 5.75%
=========== =========== =========== ===========
Maximum offering price per share (100%/(100%-maximum sales
charge) of net asset value adjusted to
nearest cent) $ 18.45 $ --
=========== ===========
Maximum offering price per share (100%/(100%-maximum sales
Charge) of net asset value adjusted to
nearest cent)-Class A $ 18.84 $ -- $ 18.84
=========== =========== ===========
* Redemption price per Class B Share varies based on length
of time held.
<PAGE>
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Assets and Liabilities
October 31, 1997
(Amounts in thousands, except per share amounts)
Victory
Diversified Key
Stock SBSF Proforma Proforma
Fund Fund Adjustments Combined
----------- ----------- ----------- -----------
ASSETS:
Investments, at value (Cost $86,395, $35,531, $121,926) $ 103,171 $ 41,994 $ -- $ 145,165
Interest and dividends receivable 1 7 -- 8
Receivable for capital shares issued 6 -- -- 6
Receivable from brokers for investments sold 2,012 935 -- 2,947
Deferred organizational costs -- 6 6
Prepaid expenses and other assets 2 3 -- 5
----------- ----------- ----------- -----------
Total Assets 105,192 42,945 -- 148,137
----------- ----------- ----------- -----------
LIABILITIES:
Payable to brokers for investments purchased 501 200 -- 701
Accrued expenses and other payables:
Investment advisory fees 97 29 -- 126
Administration fees 1 1 -- 2
Custodian fees 6 4 -- 10
Accounting fees 4 -- -- 4
Transfer agent fees 3 5 -- 8
Shareholder service fees 8 -- -- 8
Other 7 32 -- 39
----------- ----------- ----------- -----------
Total Liabilities 627 271 -- 898
----------- ----------- ----------- -----------
NET ASSETS:
Capital 76,532 33,855 -- 110,387
Undistributed (distributions in excess of ) net investment income (2) (653) -- (655)
Net unrealized appreciation/depreciation from investments 16,776 6,463 -- 23,239
Accumulated undistributed net realized gains
from investment transactions 11,259 3,009 -- 14,268
----------- ----------- ----------- -----------
Net Assets 104,565 $ 42,674 $ -- $ 147,239
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Outstanding units of beneficial interest (shares) 6,420 3,650 (1,030) 9,040
=========== =========== =========== ===========
Net asset value $ 16.29 $ 11.69 $ -- $ 16.29
=========== =========== =========== ===========
Maximum sales charge 5.75% -- -- 5.75%
=========== =========== =========== ===========
Maximum offering price per share (100%/(100%-maximum sales
charge) of net asset value adjusted to
nearest cent) $ 17.28 $ 11.69 -- 17.28
=========== =========== =========== ===========
<PAGE>
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Assets and Liabilities
October 31, 1997
(Amounts in thousands, except per share amounts)
Victory
Diversified Key
Stock SBSF Proforma Proforma
Fund Fund Adjustments Combined
----------- ----------- ----------- -----------
ASSETS:
Investments, at value (Cost $346,871,$33,092, $379,963 ) $ 463,357 $ 36,918 $ -- $ 500,275
Interest and dividends receivable 480 35 -- 515
Receivable for capital shares issued 157 10 -- 167
Net variation margin on open futures contracts 1,359 177 -- 1,536
Deferred organization costs -- 24 24
Prepaid expenses and other assets 42 26 -- 68
----------- ----------- ----------- -----------
Total Assets 465,395 37,190 -- 502,585
----------- ----------- ----------- -----------
LIABILITIES:
Payable to brokers for investments purchased 141 10 -- 151
Payable for organization costs 30 30
Accrued expenses and other payables:
Investment advisory fees 184 -- -- 184
Administration fees -- -- -- --
Custodian fees 34 16 -- 50
Accounting fees -- -- -- --
Transfer agent fees 8 3 -- 11
Shareholder service fees -- -- -- --
Other 13 15 -- 28
----------- ----------- ----------- ------------
Total Liabilities 380 74 -- 454
----------- ----------- ----------- ------------
NET ASSETS:
Capital 320,738 31,502 -- 352,240
Undistributed (distributions in excess of) net investment income 682 87 -- 769
Net unrealized appreciation/depreciation from investments
and futures contracts 115,674 3,724 -- 119,398
Accumulated undistributed net realized gains --
from investment transactions 27,921 1,803 -- 29,724
----------- ----------- ----------- ------------
Net Assets $ 465,015 $ 37,116 $ -- $ 502,131
=========== =========== =========== ============
----------- ----------- ----------- ------------
Outstanding units of beneficial interest (shares) 24,807 2,807 (827) 26,787
=========== =========== =========== ============
Net asset value $ 18.75 $ 13.22 $ -- $ 18.75
=========== =========== =========== ============
Maximum sales charge 5.75% -- -- 5.75%
=========== =========== =========== ============
Maximum offering price per share (100%/(100%-maximum sales
charge) of net asset value adjusted to $ 19.89 $ 13.22 $ -- $ 19.89
=========== =========== =========== ============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS:
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Operations
For the Year Ended October 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Diversified Stock Fund Key SBSF Fund Adjustments Combined
Year ended Year ended Year ended Year ended
October 31 October 31 October 31 October 31
1997 1997 1997 1997
---- ---- ---- ----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest income $ 1,697 $ 173 $ -- $ 1,870
Dividend income 12,311 1,159 -- 13,470
Foreign tax withholding (7) (10) -- (17)
--------- -------- ----- ---------
Total Income 14,001 1,322 -- 15,323
--------- -------- ----- ---------
EXPENSES:
Investment advisory fees 4,561 775 (101) 5,235
Administration fees 1,035 205 (249) 991
Shareholder service fees -- 6 (6) --
Shareholder service fees-Class A 771 -- 800 1,571
Shareholder service fees and 12b-1 fees-Class B 200 -- -- 200
Accounting fees 120 12 (5) 127
Custodian fees 145 25 (8) 162
Legal and audit fees 91 186 (86) 191
Amortization of organization costs -- -- -- --
Trustees' fees and expenses 23 19 (13) 29
Transfer agent fees 383 62 (138) 307
Registration and filing fees 48 15 (20) 43
Printing fees 60 11 (22) 49
Other 18 21 (12) 27
Expenses voluntarily reduced -- (4) (882) (886)
--------- -------- ----- ---------
Expenses before reimbursement from distributor 7,455 1,333 (742) 8,046
Expenses reimbursed by distributor -- -- -- --
--------- -------- ----- ---------
Net Expenses 7,455 1,333 (742) 8,046
--------- -------- ----- ---------
Net Investment Income 6,546 (11) 742 7,277
--------- -------- ----- ---------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains from investment transactions 90,018 19,858 -- 109,876
Net realized losses from foreign currency transactions -- -- -- --
Net change in unrealized appreciation from investments 68,082 (1,138) -- 66,944
Change in unrealized depreciation from translation of
assets and liabilities in foreign currencies -- -- -- --
--------- -------- ----- ---------
Net realized/unrealized gains from investments
and foreign currencies 158,100 18,720 -- 176,820
--------- -------- ----- ---------
Change in net assets resulting from
operations $ 164,646 $ 18,709 $ 742 $ 184,097
========= ======== ===== =========
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS:
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Operations
For the Year Ended October 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Special Growth Key Capital Pro Forma Pro Forma
Fund Growth Fund Adjustments Combined
Year ended Year ended Year ended Year ended
October 31 October 31 October 31 October 31
1997 1997 1997 1997
---- ---- ---- ----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest income $ 207 $ 92 $ -- $ 299
Dividend income 209 67 -- 276
Foreign tax withholding -- -- -- --
-------- ------- ----- --------
Total Income 416 159 -- 575
-------- ------- ----- --------
EXPENSES:
Investment advisory fees 921 289 95 1,305
Administration fees 138 96 (38) 196
Shareholder service fees 92 14 176 282
Shareholder service fees-Class A
Shareholder service fees and 12b-1 fees-Class B
Accounting fees 39 4 (3) 40
Custodian fees 35 26 (25) 36
Legal and audit fees 13 71 (51) 33
Amortization of organization costs -- 6 (4) 2
Trustees' fees and expenses 4 6 (6) 4
Transfer agent fees 14 24 (23) 15
Registration and filing fees 15 23 (23) 15
Printing fees 2 4 (4) 2
Other 2 1 (2) 1
Expenses voluntarily reduced -- -- (170) (170)
-------- ------- ----- --------
Expenses before reimbursement from distributor 1,275 564 (78) 1,761
Expenses reimbursed by distributor -- -- -- --
-------- ------- ----- --------
Net Expenses 1,275 564 (78) 1,761
-------- ------- ----- --------
Net Investment Income (Loss) (859) (405) 78 (1,186)
-------- ------- ----- --------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains from investment transactions 12,119 3,302 -- 15,421
Net realized losses from foreign currency transactions -- -- -- --
Net change in unrealized appreciation
(depreciation) from investments 6,482 3,746 -- 10,228
Change in unrealized depreciation from translation of
assets and liabilities in foreign currencies -- -- -- --
-------- ------- ----- --------
Net realized/unrealized gains from investments and
foreign currencies 18,601 7,048 -- 25,649
-------- ------- ----- --------
Change in net assets resulting from operations $ 17,742 $ 6,643 $ 78 $ 24,463
======== ======= ===== ========
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS:
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Operation
For the Year Ended October 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Victory Key Pro Forma Pro Forma
Stock Index Fund Stock Index Fund Adjustments Combined
Year ended Year ended Year ended Year ended
October 31 October 31 October 31 October 31
1997 1997 1997 1997
---- ---- ---- ----
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest income $ 2,809 $ 380 $ -- $ 3,189
Dividend income 6,015 333 -- 6,348
Foreign tax withholding (42) (2) -- (44)
-------- ------- ----- ---------
Total Income 8,782 711 -- 9,493
-------- ------- ----- ---------
EXPENSES:
Investment advisory fees 2,290 26 127 2,443
Administration fees 568 38 (40) 566
Shareholder service fees -- -- -- --
Shareholder service fees-Class A -- -- -- --
Shareholder service fees and 12b-1 fees-Class B -- -- -- --
Accounting fees 121 79 (92) 108
Custodian fees 164 76 (85) 155
Legal and audit fees 48 64 (58) 54
Amortization of organization costs -- 5 (3) 2
Trustees' fees and expenses 11 4 (8) 7
Transfer agent fees 35 14 (25) 24
Registration and filing fees 32 27 (31) 28
Printing fees 2 4 (3) 3
Other 9 4 (7) 6
Expenses voluntarily reduced (1,142) (64) 53 (1,153)
-------- ------- ----- ---------
Expenses before reimbursement from distributor 2,138 277 (172) 2,243
Expenses reimbursed by distributor -- (277) 277 --
-------- ------- ----- ---------
Net Expenses 2,138 -- 105 2,243
-------- ------- ----- ---------
Net Investment Income 6,644 711 (105) 7,250
-------- ------- ----- ---------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains from investment transactions 31,506 1,940 -- 33,446
Net realized losses from foreign currency transactions -- -- -- --
Net change in unrealized appreciation from investments 57,624 3,301 -- 60,925
Change in unrealized depreciation from translation of -- --
assets and liabilities in foreign currencies -- -- -- --
-------- ------- ----- ---------
Net realized/unrealized gains from investments
and foreign currencies 89,130 5,241 -- 94,371
-------- ------- ----- ---------
Change in net assets resulting from
operations $ 95,774 $ 5,952 $(105) $ 101,621
======== ======= ===== =========
</TABLE>
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
<TABLE>
<CAPTION>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (12.8%)
Financial Services (11.3%)
General Electric Capital Corp., 56,682 56,682 7,441 7,441 64,123 64,123
5.79%, 11/3/97
Total Commercial Paper (Cost 56,682 7,441 64,123
$64,123)
COMMON STOCKS (86.3%)
Advertising (0.1%)
Interpublic Group of Cos., Inc. 7,092 337 505 24 7,597 361
Aerospace-Defense (1.5%)
AlliedSignal, Inc. 32,227 1,160 2,317 83 34,544 1,243
B.F. Goodrich Co. 3,079 137 220 10 3,299 147
Boeing Co. 57,010 2,730 4,098 196 61,109 2,926
General Dynamics Corp. 3,558 289 255 21 3,813 310
Lockheed Martin Corp. 11,043 1,050 790 75 11,833 1,125
Northrop Grumman Corp. 3,798 415 273 30 4,071 445
Raytheon Co. 13,457 730 964 52 14,421 782
United Technologies Corp. 13,406 938 965 68 14,371 1,006
7,449 535 7,984
Agriculture (0.1%)
Pioneer Hi-Bred International, 3,837 352 275 25 4,112 377
Inc.
Airlines (0.3%)
AMR Corp. Delaware(b) 5,235 610 373 44 5,608 654
Delta Air Lines, Inc. 4,184 422 301 30 4,485 452
Southwest Airlines Co. 8,314 271 594 19 8,908 290
U.S. Airways Group, Inc.(b) 4,893 229 353 17 5,246 246
1,532 110 1,641
Aluminum (0.3%)
Alcan Aluminum Ltd. 12,926 369 927 26 13,853 395
Aluminum Co. of America 9,904 723 709 52 10,613 775
Reynolds Metal Co. 4,198 256 299 18 4,497 274
1,348 96 1,444
Apparel (0.0%)
Reebok Internnational Ltd.(b) 3,204 118 231 9 3,435 127
Apparel-Footwear (0.3%)
Fruit of the Loom, Inc., Class 4,173 109 301 8 4,474 117
A(b)
Liz Claiborne, Inc. 3,984 202 288 15 4,272 217
Nike, Inc., Class B 16,441 772 1,179 55 17,620 827
VF Corp. 3,578 320 260 23 3,838 343
1,403 101 1,504
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Automobiles (1.5%)
Chrysler Corp. 38,405 1,354 2,762 97 41,167 1,451
Ford Motor Co. 68,008 2,971 4,889 214 72,897 3,185
General Motors Corp. 41,516 2,665 2,984 192 44,500 2,857
Navistar International Corp.(b) 4,158 96 300 7 4,458 103
PACCAR, Inc. 4,432 200 317 14 4,749 214
7,286 524 7,810
Automotive Parts (0.3%)
Cummins Engine Co., Inc. 2,179 133 156 10 2,335 143
Dana Corp. 5,944 278 422 20 6,366 298
Echlin, Inc. 3,590 118 255 8 3,845 126
Genuine Parts Co. 10,255 321 735 23 10,990 344
ITT Industries, Inc. 6,745 213 485 15 7,230 228
Meritor Automotive, Inc.(b) 223 5 0 0 223 5
TRW, Inc. 7,018 401 508 29 7,526 430
1,469 105 1,574
Banks (5.4%)
Banc One Corp. 33,185 1,730 2,386 124 35,571 1,854
Bank of New York Co. 21,609 1,017 1,554 73 23,163 1,090
BankAmerica Corp. 39,769 2,845 2,859 205 42,628 3,048
Bankers Trust New York Corp. 5,666 669 407 48 6,073 717
Barnett Banks, Inc. 11,321 781 811 56 12,132 837
Chase Manhattan Corp. 24,114 2,782 1,734 200 25,848 2,982
Comerica, Inc. 6,009 475 431 34 6,440 509
First Chicago NBD Corp. 16,835 1,225 1,211 88 18,046 1,313
First Union Corp. 31,966 1,568 2,299 113 34,265 1,681
Huntington Bancshares, Inc. 10,773 348 778 25 11,551 373
J.P. Morgan & Co., Inc. 10,188 1,118 733 80 10,921 1,198
KeyCorp 12,369 757 889 54 13,258 811
MBNA Corp. 28,539 751 2,046 54 30,585 805
Mellon Bank Corp. 14,327 739 1,030 53 15,357 792
National City Corp. 12,255 732 882 53 13,137 785
NationsBank Corp. 40,538 2,427 2,915 175 43,453 2,602
Norwest Corp. 42,684 1,369 3,066 98 45,750 1,467
PNC Bank Corp. 17,480 830 1,257 60 18,737 890
Republic New York Corp. 3,120 330 222 23 3,342 353
SunTrust Banks, Inc. 12,177 789 876 57 13,053 846
Wachovia Corp. 9,085 684 658 50 9,743 734
Wells Fargo & Co. 5,007 1,459 364 106 5,371 1,565
25,425 1,829 27,253
Banks-Money Centers Regional
(1.6%)
BankBoston Corp. 8,296 672 599 49 8,895 721
Citicorp 26,085 3,263 1,876 233 27,961 3,497
CoreStates Financial Corp. 11,526 839 829 60 12,355 899
Fleet Financial Group, Inc. 14,235 915 1,024 66 15,259 981
State Street Corp. 9,144 510 656 37 9,800 546
U.S. Bancorp 13,935 1,417 999 102 14,934 1,519
7,616 547 8,163
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Banks-Outside Money Center
(0.2%)
Fifth Third Bancorp 8,775 562 631 41 9,406 603
Providian Financial Corp. 5,340 198 383 14 5,723 212
760 55 815
Beverages (2.8%)
Anheuser-Busch Cos., Inc. 28,004 1,118 2,014 80 30,018 1,199
Brown-Forman Corp., Class B 3,929 193 281 14 4,210 207
Coca-Cola Co. 141,231 7,980 10,153 574 151,384 8,553
Coors (Adolph) Co. 2,111 75 153 5 2,264 80
PepsiCo, Inc. 87,150 3,208 6,265 231 93,415 3,439
Seagram Co. Ltd. 21,112 711 1,513 51 22,625 762
13,285 955 14,240
Broadcasting/Cable (0.1%)
Tele-Communications, Inc., 24,229 556 1,789 41 26,018 597
Class A(b)
Brokerage Services (0.8%)
Merrill Lynch & Co., Inc. 18,869 1,276 1,352 91 20,221 1,367
Morgan Stanley, Dean, Witter, 33,423 1,637 2,403 118 35,826 1,756
Discover & Co.
Salomon Brothers, Inc. 6,121 476 441 34 6,562 510
Schwab (Charles) Corp. 15,067 514 1,082 37 16,149 551
3,903 280 4,184
Building Materials (0.2%)
Armstrong World Industries, Inc. 2,321 154 167 11 2,488 166
Centex Corp. 1,658 97 118 7 1,776 104
Fleetwood Enterprises, Inc. 2,034 62 146 4 2,180 66
Kaufman & Broad Home Corp. 2,213 47 158 3 2,371 51
Masco Corp. 9,393 412 675 31 10,068 441
Pulte Corp. 1,198 45 85 3 1,283 48
817 59 876
Chemicals-General (2.2%)
Air Products & Chemicals, Inc. 6,242 474 448 34 6,690 508
Dow Chemical Co. 12,982 1,178 934 85 13,916 1,263
E.I. Du Pont de Nemours Co. 64,392 3,663 4,629 265 69,021 3,925
Eastman Chemical Co. 4,464 266 320 19 4,784 285
Englehard Corp. 8,219 143 589 10 8,808 153
FMC Corp.(b) 2,119 171 152 12 2,271 184
Great Lakes Chemical Corp. 3,409 160 244 11 3,653 172
Hercules, Inc. 5,641 259 409 19 6,050 278
Mallinckrodt, Inc. 4,178 157 300 11 4,478 168
Monsanto Co. 33,567 1,435 2,413 103 35,980 1,538
Nalco Chemical Co. 3,805 152 273 11 4,078 163
PPG Industries, Inc. 10,210 578 735 42 10,945 620
Praxair, Inc. 8,998 392 644 28 9,642 420
Rohm & Haas Co. 3,509 292 253 21 3,762 313
Sigma-Aldrich Corp. 5,709 201 409 14 6,118 215
Union Carbide Corp. 7,074 323 511 23 7,585 347
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
W.R. Grace & Co. 4,136 281 296 20 4,432 301
10,125 728 10,853
Chemicals-Specialty (0.1%)
Millipore Corp. 2,481 97 179 7 2,660 104
Morton International, Inc. 7,974 263 572 19 8,546 282
360 26 386
Commercial Services (0.5%)
Automatic Data Processing, Inc. 16,675 852 1,195 61 17,870 914
CUC International, Inc.(b) 23,322 688 1,676 49 24,998 737
Ecolab, Inc. 3,690 176 265 13 3,955 188
Federal Express Corp.(b) 6,542 437 467 31 7,009 468
2,153 154 2,307
Computers & Peripherals (4.5%)
3Com Corp.(b) 19,624 813 1,410 58 21,034 872
Apple Computer, Inc.(b) 7,250 123 517 9 7,767 132
Bay Networks, Inc.(b) 12,183 385 874 28 13,057 413
Cabletron Systems, Inc.(b) 8,978 260 645 19 9,623 279
Cisco Systems, Inc.(b) 38,099 3,125 2,739 225 40,838 3,350
Compaq Computer Corp.(b) 43,047 2,744 3,094 197 46,141 2,941
Computer Sciences Corp.(b) 4,392 312 313 22 4,705 334
Data General Corp.(b) 2,724 52 195 4 2,919 56
Dell Computer, Inc.(b) 18,836 1,509 1,354 108 20,190 1,618
Digital Equipment Corp.(b) 8,703 436 623 31 9,326 467
EMC Corp.(b) 14,049 787 1,005 56 15,054 843
Hewlett-Packard Co. 59,229 3,654 4,258 263 63,487 3,916
International Business Machines 55,931 5,486 4,021 394 59,952 5,879
Corp.
Seagate Technology, Inc.(b) 13,925 378 1,001 27 14,926 405
Silicon Graphics, Inc.(b) 10,080 148 722 11 10,802 159
Sun Microsystems, Inc.(b) 21,005 719 1,506 52 22,511 771
Unisys Corp.(b) 9,957 133 713 9 10,670 142
21,064 1,513 22,577
Conglomerates (1.1%)
Corning, Inc. 13,138 593 944 43 14,082 635
Crane Co. 2,615 109 188 8 2,803 117
Minnesota Mining & 23,658 2,164 1,699 155 25,357 2,320
Manufacturing Co.
National Service Industries, 2,568 114 184 8 2,752 122
Inc.
Tenneco, Inc. 9,694 436 698 31 10,392 467
Textron, Inc. 9,396 543 673 39 10,069 582
Westinghouse Electric Corp. 40,137 1,061 2,901 77 43,038 1,138
Whitman Corp. 5,784 152 415 11 6,199 163
5,172 372 5,544
Construction (0.1%)
Fluor Corp. 4,779 196 343 15 5,122 211
Foster Wheeler Corp. 2,315 76 165 5 2,480 81
272 20 292
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Consumer Products (1.6%)
American Greetings Corp., Class 4,287 149 306 11 4,593 159
A
Clorox Co. 5,886 412 422 30 6,308 442
Colgate-Palmolive Co. 16,852 1,091 1,211 78 18,063 1,170
Jostens, Inc. 2,219 52 158 4 2,377 55
Newell Co. 9,060 348 649 25 9,709 373
Procter & Gamble Co. 76,918 5,230 5,526 375 82,444 5,606
7,282 523 7,805
Containers (0.3%)
Ball Corp. 1,718 60 123 4 1,841 64
Bemis, Inc. 3,020 115 216 8 3,236 123
Crown Cork & Seal, Inc. 7,308 330 524 24 7,832 355
Owens Corning 3,038 104 217 7 3,255 111
Owens-Illinois, Inc.(b) 7,991 276 574 20 8,565 295
Rubbermaid, Inc. 8,537 205 613 15 9,150 220
Stone Container Corp. 5,657 68 405 5 6,062 73
Tupperware Corp. 3,488 87 251 6 3,739 94
1,245 89 1,335
Cosmetics & Related (0.8%)
Alberto Culver Co. 3,196 96 228 7 3,424 103
Avon Products, Inc. 7,539 494 540 35 8,079 529
Gillette Co. 31,875 2,839 2,291 204 34,166 3,043
International Flavor & 6,224 301 446 22 6,670 323
Fragance, Inc.
3,730 268 3,998
Diversified (0.2%)
Tyco International Ltd. 30,342 1,145 2,180 82 32,522 1,228
Electrical Equipment (3.0%)
Emerson Electric Co. 25,251 1,324 1,817 95 27,068 1,419
General Electric Co. 186,429 12,036 13,403 866 199,832 12,902
Johnson Controls, Inc. 4,770 214 342 15 5,112 229
Thomas & Betts Corp. 3,130 156 222 11 3,352 167
W.W. Grainger, Inc. 2,833 248 210 18 3,043 266
13,978 1,005 14,983
Electronic &
Electrical-General (1.4%)
Advanced Micro Devices, Inc.(b) 8,022 185 573 13 8,595 198
AMP, Inc. 12,507 563 896 40 13,403 603
Andrew Corp.(b) 5,137 119 371 9 5,508 128
EG&G, Inc. 2,606 54 187 4 2,793 58
General Signal Corp. 2,870 115 205 8 3,075 123
Harris Corp. 4,538 198 326 14 4,864 212
Honeywell, Inc. 7,261 494 519 35 7,780 530
KLA-Tencor Corp.(b) 4,766 209 342 15 5,108 224
Motorola, Inc. 33,899 2,092 2,436 152 36,335 2,242
National Semiconductor Corp.(b) 8,267 298 594 21 8,861 319
Rockwell International Corp. 11,891 583 856 42 12,747 625
Tandy Corp. 6,036 207 442 15 6,478 223
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Tektronix, Inc. 1,903 113 136 8 2,039 121
Texas Instruments, Inc. 10,917 1,165 781 83 11,698 1,248
6,395 459 6,854
Entertainment (1.1%)
Brunswick Corp. 5,656 191 405 14 6,061 205
Harrah's Entertainment, Inc.(b) 5,748 113 418 8 6,166 121
Hasbro, Inc. 7,231 210 520 15 7,751 225
King World Productions, Inc.(b) 2,094 99 152 7 2,246 106
Loews Corp. 6,549 731 469 52 7,018 784
Viacom, Inc., Class B(b) 20,095 608 1,439 44 21,534 651
Walt Disney Co. 38,443 3,162 2,763 227 41,206 3,389
5,114 367 5,481
Financial & Insurance (0.1%)
MBIA, Inc. 5,082 304 358 21 5,440 325
Financial Services (3.0%)
American Express Co. 26,694 2,082 1,919 150 28,613 2,232
American General Corp. 14,137 721 1,016 52 15,153 773
Beneficial Corp. 3,029 232 219 17 3,248 249
Countrywide Credit Industries, 6,101 209 438 15 6,539 224
Inc.
Equifax, Inc. 8,592 267 617 19 9,209 286
Federal Home Loan Mortgage Corp. 39,574 1,499 2,845 108 42,419 1,607
Federal National Mortgage Assoc. 60,414 2,927 4,343 210 64,757 3,136
First Data Corp. 25,265 734 1,817 53 27,082 787
Golden West Financial Corp., 3,231 280 234 20 3,465 301
Delaware
Green Tree Financial Corp. 7,735 326 554 23 8,289 349
H.F. Ahmanson & Co. 5,748 339 399 24 6,147 363
Household International, Inc. 6,081 689 435 49 6,516 738
TransAmerica Corp. 3,605 364 260 26 3,865 390
Travelers Group, Inc. 36,515 2,556 2,625 184 39,140 2,740
Washington Mutual, Inc. 14,262 976 1,025 70 15,287 1,046
14,201 1,020 15,221
Food Distributors (0.5%)
Albertsons, Inc. 13,994 516 1,006 35 15,000 554
American Stores Co. 15,505 398 1,115 29 16,620 427
Fleming Cos., Inc. 2,153 36 154 3 2,307 39
Giant Food, Inc., Class A 3,418 105 245 8 3,663 112
Great Atlantic & Pacific Tea, 2,179 67 156 5 2,335 72
Inc.
Kroger Co.(b) 14,485 473 1,037 34 15,522 506
SUPERVALU, Inc. 3,451 126 245 9 3,696 135
Sysco Corp. 9,932 397 712 28 10,644 426
Winn-Dixie Stores, Inc. 8,478 315 608 23 9,086 337
2,433 174 2,608
Food Processing & Packaging
(2.0%)
Archer-Daniels-Midland Co. 31,892 710 2,292 51 34,184 761
Campbell Soup Co. 26,190 1,350 1,883 97 28,073 1,448
ConAgra, Inc. 26,930 811 1,946 59 28,876 870
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
CPC International, Inc. 8,178 810 585 58 8,763 868
General Mills, Inc. 9,106 601 657 43 9,763 644
H.J. Heinz Co. 21,020 976 1,511 70 22,531 1,046
Hershey Foods Corp. 8,136 450 586 32 8,722 482
Kellogg Co. 23,500 1,012 1,694 73 25,194 1,085
Quaker Oats Co. 7,822 374 557 27 8,379 401
Ralston-Ralston Purina Group 6,069 545 435 39 6,504 584
Sara Lee Corp. 27,351 1,398 1,966 101 29,317 1,498
Wm. Wrigley Jr. Co. 6,618 479 474 34 7,092 513
9,516 684 10,200
Forest Products-Lumber & Paper
(1.2%)
Boise Cascade Corp. 3,167 110 227 8 3,394 118
Champion International Corp. 5,463 301 390 22 5,853 323
Fort James Corp. 10,759 427 773 31 11,532 458
Georgia Pacific Corp. 5,210 442 374 32 5,584 474
International Paper Co. 17,220 775 1,237 56 18,457 831
Kimberly-Clark Corp. 31,699 1,646 2,282 117 33,981 1,765
Louisiana Pacific Corp. 6,224 131 446 9 6,670 140
Mead Corp. 2,980 180 214 13 3,194 193
Potlatch Corp. 1,648 82 118 6 1,766 88
Temple-Inland, Inc. 3,242 186 233 13 3,475 199
Union Camp Corp. 3,950 214 283 15 4,233 229
Westvaco Corp. 5,807 191 416 14 6,223 204
Weyerhauser Co. 11,354 542 811 39 12,165 581
Willamette Industries, Inc. 6,325 209 452 15 6,777 224
5,436 390 5,827
Funeral Services (0.1%)
Service Corp. International 14,323 436 1,029 31 15,352 467
Health Care (0.2%)
Columbia/HCA Healthcare Corp. 37,238 1,052 2,678 76 39,916 1,127
Humana, Inc.(b) 9,316 196 668 14 9,984 210
1,248 90 1,337
Heavy Machinery (0.6%)
Case Corp. 4,246 254 304 18 4,550 272
Caterpillar Tractor, Inc. 21,435 1,098 1,542 80 22,977 1,177
Deere & Co. 14,356 755 1,032 54 15,388 810
Harnischfeger Industries, Inc. 2,814 111 201 8 3,015 119
Ingersoll Rand Co. 9,447 368 678 26 10,125 394
McDermott International, Inc. 3,162 115 225 8 3,387 123
2,701 194 2,895
Hotels & Motels (0.5%)
HFS, Inc.(b) 9,039 637 646 47 9,685 683
Hilton Hotels Corp. 14,239 439 1,019 31 15,258 470
ITT Corp.(b) 6,632 495 475 35 7,107 531
Marriott International, Inc. 7,240 505 518 36 7,758 541
Mirage Resorts, Inc.(b) 10,181 255 732 18 10,913 273
2,331 167 2,498
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
<PAGE>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Household Goods-Appliances,
Furnishings & Electronics
(0.1%)
Maytag Corp. 5,613 187 399 13 6,012 201
Whirlpool Corp. 4,246 258 304 19 4,550 275
445 32 476
Industrial Goods & Services
(0.1%)
Aeroquip-Vickers Inc. 1,599 83 114 6 1,713 89
Dover Corp. 6,332 428 457 31 6,789 458
511 37 547
Insurance-Life (0.1%)
Jefferson Pilot Corp. 4,032 312 289 22 4,321 334
Insurance-Multi-Line (2.7%)
Aetna, Inc. 8,532 606 616 44 9,148 650
Allstate Corp. 24,774 2,055 1,781 148 26,555 2,202
American International Group, 39,930 4,076 2,872 291 42,802 4,370
Inc.
Aon Corp. 9,516 513 680 37 10,196 550
CIGNA Corp. 4,215 654 302 47 4,517 701
Conseco Inc. 10,698 467 769 34 11,467 500
General Re Corp. 4,534 894 330 65 4,864 959
Hartford Financial Services 6,719 544 482 39 7,201 583
Group, Inc.
Lincoln National Corp. 5,805 399 420 29 6,225 428
Marsh & McLennan Cos., Inc. 9,593 681 690 49 10,283 730
MGIC Investment Corp. 6,499 392 467 28 6,966 420
Safeco Corp. 8,054 384 578 28 8,632 411
SunAmerica, Inc. 11,107 399 798 29 11,905 428
Torchmark Corp. 7,881 314 569 23 8,450 337
USF&G Corp. 6,312 128 451 9 6,763 137
12,506 900 13,406
Insurance-Property, Casualty,
Health (0.4%)
Chubb Corp. 9,821 651 712 47 10,533 697
Progressive Corp. 4,106 428 295 31 4,401 459
St. Paul Cos., Inc. 4,781 382 342 27 5,123 410
UNUM Corp. 7,946 387 570 28 8,516 415
1,848 133 1,981
Investment Company (0.1%)
TCI Ventures Group, Class A(b) 13,594 314 799 18 14,393 332
Machine Tools (0.0%)
Cincinnati Milacron, Inc. 2,270 63 163 5 2,433 68
Manufacturing -Capital Goods
(0.2%)
Cooper Industries, Inc. 6,955 363 500 26 7,455 389
Illinois Tool Works, Inc. 14,202 698 1,017 50 15,219 748
1,061 76 1,137
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Manufacturing-Consumer Goods
(0.2%)
Eaton Corp. 4,403 425 315 30 4,718 456
Mattel, Inc. 16,539 643 1,189 47 17,728 689
1,068 77 1,145
Manufacturing-Miscellaneous
(0.6%)
Briggs & Stratton Corp. 1,443 72 104 5 1,547 77
NACCO Industries, Inc. 470 48 33 3 503 52
Pall Corp. 7,231 150 517 11 7,748 160
Thermo Electron Corp.(b) 8,556 319 613 23 9,169 342
Unilever N.V. 36,456 1,946 2,612 140 39,068 2,085
Western Atlas, Inc.(b) 3,075 265 220 19 3,295 284
2,800 201 3,000
Medical Services (0.8%)
Beverly Enterprises, Inc.(b) 6,277 94 450 7 6,727 100
HEALTHSOUTH Corp.(b) 25,277 646 1,816 45 27,093 693
Manor Care, Inc. 3,625 124 259 9 3,884 133
Tenet Healthcare Corp.(b) 17,238 527 1,240 38 18,478 565
United Healthcare Corp. 10,679 495 767 36 11,446 530
1,886 135 2,021
Medical Supplies (0.7%)
Alza Corp., Class A(b) 4,842 126 347 9 5,189 135
Bausch & Lomb, Inc. 3,156 124 227 9 3,383 133
Baxter International, Inc. 15,914 736 1,144 53 17,058 789
Becton Dickinson & Co. 6,957 320 499 23 7,456 343
Biomet, Inc. 6,335 158 454 11 6,789 169
Boston Scientific Corp.(b) 11,055 503 794 36 11,849 539
C.R. Bard, Inc. 3,265 91 233 6 3,498 97
Guidant Corp. 8,439 485 607 35 9,046 520
Medtronic, Inc. 26,627 1,159 1,914 84 28,541 1,242
St. Jude Medical, Inc.(b) 5,227 158 373 11 5,600 170
United States Surgical Corp. 4,182 113 299 8 4,481 121
3,973 285 4,258
Medical-Wholesale Drug
Distribution (0.1%)
Cardinal Health, Inc. 6,181 459 443 33 6,624 492
Metals-Fabrication (0.1%)
Phelps Dodge Corp. 3,440 256 252 18 3,692 275
Timken Co. 3,573 120 256 9 3,829 128
376 27 403
Mining (0.1%)
Asarco, Inc. 2,399 66 176 5 2,575 70
Cyprus Amax Minerals Co. 5,324 111 381 8 5,705 119
Inco Ltd. 9,508 196 680 14 10,188 211
373 27 400
Newspapers (0.5%)
Dow Jones & Co., Inc. 5,465 254 390 18 5,855 272
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Gannett Co., Inc. 16,140 849 1,156 61 17,296 910
Knight-Ridder, Inc. 4,979 260 359 19 5,338 279
New York Times Co., Class A 5,460 299 390 21 5,850 320
Times Mirror Co., Class A 5,455 295 390 21 5,845 316
Tribune Co. 6,990 385 501 28 7,491 413
2,342 168 2,510
Office Equipment & Supplies
(Non-Computer Related) (0.6%)
Avery Dennison Corp. 5,872 234 422 17 6,294 251
Deluxe Corp. 4,694 154 336 11 5,030 165
IKON Office Solutions, Inc. 7,565 214 541 15 8,106 230
Moore Corp. Ltd. 5,032 81 360 6 5,392 87
Pitney Bowes, Inc. 8,216 652 594 47 8,810 699
Xerox Corp. 18,514 1,468 1,331 106 19,845 1,573
2,803 202 3,005
Oil & Gas Exploration,
Production & Services (1.3%)
Amerada Hess Corp. 5,225 321 378 23 5,603 344
Anadarko Petroleum Corp. 3,398 249 244 18 3,642 267
Apache Corp. 5,142 216 369 15 5,511 231
Ashland, Inc. 4,246 202 304 14 4,550 217
Burlington Resource, Inc. 10,037 491 722 35 10,759 527
Coastal Corp. 6,037 363 432 26 6,469 389
Columbia Gas System, Inc. 3,154 228 226 16 3,380 244
Helmerich & Payne, Inc. 1,426 115 101 8 1,527 123
Kerr-McGee Corp. 2,715 183 195 13 2,910 197
Occidental Petroleum Corp. 18,857 526 1,356 38 20,213 563
ONEOK, Inc. 1,590 55 114 4 1,704 58
Oryx Energy Co.(b) 6,003 165 430 12 6,433 177
Pennzoil Co. 2,685 199 192 14 2,877 213
Rowan Cos., Inc.(b) 4,927 192 351 14 5,278 205
Sonat, Inc. 4,884 224 351 16 5,235 240
Sun Co., Inc. 4,134 166 297 12 4,431 178
Union Pacific Resources Group, 14,451 356 1,036 26 15,487 381
Inc.
Unocal Corp. 14,066 580 1,011 43 15,077 622
USX - Marathon Group 16,402 586 1,175 42 17,577 630
Williams Cos., Inc. 9,052 461 647 33 9,699 494
5,878 422 6,300
Oil-Integrated Companies (6.0%)
Amoco Corp. 27,948 2,562 2,014 185 29,962 2,747
Atlantic Richfield Co. 18,268 1,504 1,314 108 19,582 1,612
Chevron Corp. 37,279 3,092 2,679 222 39,958 3,314
Exxon Corp. 140,891 8,657 10,129 622 151,020 9,278
Mobil Corp. 44,750 3,258 3,215 234 47,965 3,492
Phillips Petroleum Co. 15,001 726 1,076 52 16,077 778
Royal Dutch Petroleum Co., New 122,097 6,425 8,778 462 130,875 6,887
York Shares
Texaco, Inc. 30,561 1,740 2,154 123 32,715 1,863
27,964 2,008 29,971
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Oilfield Services & Equipment
(1.0%)
Baker Hughes, Inc. 9,608 441 690 32 10,298 473
Dresser Industries, Inc. 9,970 420 719 30 10,689 450
Halliburton Co. 14,436 861 1,032 62 15,468 922
Parker-Hannifin Corp. 6,360 266 458 19 6,818 285
Schlumberger, Ltd. 28,189 2,467 2,026 177 30,215 2,645
4,455 320 4,775
Paint, Varnishes, Enamels
(0.1%)
Sherwin-Williams Co. 9,832 273 704 20 10,536 292
Pharmaceuticals (7.9%)
Abbott Laboratories 43,813 2,686 3,154 193 46,967 2,880
Allergan, Inc. 3,693 122 267 9 3,960 130
American Home Products Corp. 36,930 2,737 2,655 197 39,585 2,934
Amgen, Inc.(b) 15,098 744 1,081 53 16,179 797
Bristol-Myers Squibb Co. 56,756 4,980 4,079 358 60,835 5,338
Cognizant Corp. 9,350 366 672 26 10,022 393
Crescendo Pharmaceuticals(b) 230 3 17 0 248 3
Eli Lilly & Co. 63,348 4,236 4,554 305 67,902 4,541
Johnson & Johnson 75,775 4,348 5,447 313 81,222 4,660
Merck & Co., Inc. 68,777 6,139 4,944 440 73,721 6,580
Pfizer, Inc. 73,602 5,207 5,291 374 78,893 5,582
Pharmacia & Upjohn, Inc. 28,910 918 2,077 66 30,987 984
Schering-Plough Corp. 41,718 2,339 2,999 168 44,717 2,507
Warner-Lambert Co. 15,453 2,213 1,108 159 16,561 2,371
37,038 2,661 39,700
Photography (0.3%)
Eastman Kodak Co. 18,552 1,110 1,334 80 19,886 1,191
Polaroid Corp. 2,594 117 184 8 2,778 125
1,227 88 1,316
Pollution Control Services &
Equipment (0.2%)
Browning-Ferris Industries, Inc. 11,313 368 803 26 12,116 394
Safety-Kleen, Corp. 3,319 73 238 5 3,557 79
Waste Management, Inc. 25,820 604 1,855 44 27,675 646
1,045 75 1,119
Precision Instruments &
Related (0.0%)
Perkin-Elmer Corp. 2,494 156 180 11 2,674 167
Primary Metal & Mineral
Production (0.3%)
Barrick Gold Corp. 21,225 437 1,522 32 22,747 467
Battle Mountain Gold Co. 13,081 80 938 6 14,019 86
Echo Bay Mines Ltd. 7,937 32 569 2 8,506 35
<PAGE>
KEY STOCK INDEX FUND AND VICTORY STOCK INDEX
FUND ProForma Combined Schedule of Portfolio
Investments October 31, 1997 (Amounts in
Thousands, except shares)
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Freeport-McMoRan Copper & Gold, 11,323 270 817 20 12,140 290
Inc., Class B
Homestake Mining Co. 8,356 103 602 7 8,958 111
Inland Steel Industries, Inc. 2,779 55 200 4 2,979 58
Newmont Mining Corp. 8,900 312 637 22 9,537 334
Placer Dome, Inc. 13,638 211 980 15 14,618 227
1,500 108 1,608
Publishing (0.6%)
Dun & Bradstreet Corp. 9,708 277 698 20 10,406 297
John H. Harland Co. 1,768 40 126 3 1,894 42
McGraw-Hill Cos., Inc. 5,633 368 408 27 6,041 395
Meredith Corp. 3,049 104 218 7 3,267 111
R.R. Donnelley & Sons Co. 8,331 272 597 19 8,928 291
Time Warner, Inc. 31,877 1,839 2,291 133 34,168 1,972
2,900 209 3,108
Radio & Television (0.4%)
Clear Channel Communications, 5,582 368 401 26 5,983 395
Inc.(b)
Comcast, Class A Special Shares 19,862 546 1,427 39 21,289 585
U.S. West Media Group(b) 34,529 872 2,482 63 37,011 935
1,786 128 1,915
Railroads (0.7%)
Burlington Northern Santa Fe 8,857 841 637 61 9,494 902
CSX Corp. 12,405 678 889 49 13,294 727
Norfolk Southern Corp. 21,468 690 1,536 49 23,004 739
Union Pacific Corp. 14,070 862 1,008 61 15,078 923
3,071 220 3,291
Restaurants (0.5%)
Darden Restaurants, Inc. 8,712 99 625 7 9,337 106
McDonald's Corp. 39,176 1,755 2,814 126 41,990 1,882
Tricon Global Restaurants(b) 8,715 264 626 19 9,342 283
Wendy's International, Inc. 7,500 158 536 11 8,036 169
2,276 163 2,440
Retail (1.3%)
Costco Cos., Inc.(b) 12,102 466 870 33 12,972 499
Dayton Hudson Corp. 12,395 779 886 56 13,281 834
K-Mart Corp.(b) 27,723 366 1,992 26 29,715 392
Wal-Mart Stores, Inc. 128,951 4,528 9,270 326 138,221 4,856
Woolworth Corp.(b) 7,672 146 550 10 8,222 156
6,285 451 6,737
Retail-Department Stores (0.8%)
Dillard's, Inc., Class A 6,362 244 463 18 6,825 262
Federated Department Stores, 11,908 524 856 38 12,764 562
Inc.(b)
Harcourt General, Inc. 4,029 202 289 14 4,318 216
J.C. Penney Co., Inc. 14,172 832 1,019 60 15,191 892
May Department Stores Co. 13,243 713 952 51 14,195 765
<PAGE>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Mercantile Stores Co., Inc. 2,093 123 150 9 2,243 132
Nordstrom, Inc. 4,398 269 322 20 4,720 289
Sears, Roebuck & Co. 22,299 934 1,600 67 23,899 1,000
3,841 277 4,118
Retail-Drug Stores (0.4%)
CVS Corp. 9,793 600 703 43 10,496 644
Longs Drug Stores Corp. 2,229 56 159 4 2,388 60
Rite Aid Corp. 7,002 416 501 30 7,503 445
Walgreen Co. 28,031 788 2,009 56 30,040 845
1,860 133 1,994
Retail-Specialty Stores (1.1%)
AutoZone, Inc.(b) 8,599 254 616 18 9,215 272
Charming Shoppes, Inc.(b) 6,021 31 431 2 6,452 33
Circuit City Stores, Inc. 5,604 223 400 16 6,004 239
Gap, Inc. 15,267 812 1,098 58 16,365 870
Home Depot, Inc. 41,569 2,314 2,988 168 44,557 2,481
Limited, Inc. 15,462 364 1,108 26 16,570 390
Lowe's Cos., Inc. 9,893 412 707 29 10,600 441
Pep Boys - Manny, Moe & Jack 3,599 91 258 6 3,857 97
TJX Cos., Inc. 9,296 275 668 20 9,964 295
Toys "R" Us, Inc.(b) 16,245 553 1,166 40 17,411 593
5,329 383 5,711
Rubber & Rubber Products (0.1%)
Cooper Tire & Rubber Co. 4,484 95 321 7 4,805 102
Goodyear Tire & Rubber Co. 8,882 556 637 40 9,519 596
651 47 698
Semiconductors (1.8%)
Applied Materials, Inc.(b) 20,758 693 1,480 49 22,238 742
Intel Corp. 92,983 7,159 6,683 515 99,666 7,674
LSI Logic Corp.(b) 8,083 176 578 13 8,661 189
Micron Technology, Inc.(b) 11,997 322 858 23 12,855 345
8,350 600 8,950
Software & Computer Services
(3.0%)
Adobe Systems, Inc. 4,150 198 293 14 4,443 212
Autodesk, Inc. 2,731 101 195 7 2,926 108
Ceridian Corp.(b) 4,595 179 329 13 4,924 192
Computer Associates 20,723 1,545 1,484 111 22,207 1,656
International, Inc.
HBO & Co 11,167 486 810 35 11,977 521
Microsoft Corp.(b) 68,234 8,871 4,905 638 73,139 9,509
Novell, Inc.(b) 19,833 167 1,429 12 21,262 179
Oracle Corp.(b) 55,793 1,996 4,010 143 59,803 2,140
Parametric Technology Corp.(b) 7,254 320 521 23 7,775 343
Shared Medical Systems Corp. 1,423 78 101 6 1,524 83
Siebel Systems Inc.(b) 14 1 1 0 15 1
13,942 1,002 14,944
<PAGE>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Steel (0.2%)
Allegheny Teledyne, Inc. 10,019 264 718 19 10,737 282
Armco, Inc.(b) 6,097 35 437 3 6,534 38
Bethlehem Steel Corp.(b) 6,413 64 458 5 6,871 69
Nucor Corp. 5,004 261 360 18 5,364 280
USX-U.S. Steel Group, Inc. 4,882 166 350 12 5,232 178
Worthington Industries, Inc. 5,508 114 395 8 5,903 122
904 65 969
Tax Return Preparation (0.0%)
H&R Block, Inc. 5,927 219 426 16 6,353 235
Telecommunications (1.5%)
Alltel Corp. 10,642 376 761 27 11,403 403
Bell Atlantic Corp. 44,201 3,530 3,178 253 47,379 3,784
DSC Communications Corp.(b) 6,687 163 479 12 7,166 175
Northern Telecom Ltd. 14,928 1,339 1,073 96 16,001 1,435
Scientific-Atlanta, Inc. 4,416 82 316 6 4,732 88
Tellabs, Inc.(b) 10,308 557 737 40 11,045 596
U.S. West Communications Group 27,294 1,087 1,956 78 29,250 1,165
7,134 512 7,646
Telecommunications-Equipment
(0.0%)
NextLevel Systems, Inc.(b) 8,388 113 602 8 8,990 121
Telecommunications-Services &
Equipment (0.0%)
Frontier Corp. 9,347 202 670 14 10,017 217
Textile Manufacturing (0.0%)
Russell Corp. 2,077 61 149 4 2,226 66
Springs Industries, Inc., Class 1,153 53 83 4 1,236 57
A
114 8 123
Tobacco & Tobacco Products
(1.3%)
Fortune Brands, Inc. 9,757 323 702 23 10,459 346
Philip Morris Cos., Inc. 137,964 5,467 9,919 394 147,883 5,859
UST, Inc. 10,468 313 749 22 11,217 336
6,103 439 6,541
Tools & Hardware Manufacturing
(0.1%)
Black & Decker Corp. 5,377 205 385 15 5,762 219
Snap-On Tools, Inc. 3,483 150 248 11 3,731 160
Stanley Works 5,069 214 364 15 5,433 230
569 41 609
Transportation Leasing
&Trucking (0.1%)
Caliber System, Inc. 2,217 116 159 8 2,376 124
Ryder Systems, Inc. 4,426 154 313 11 4,739 166
270 19 290
<PAGE>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
Transportation Services (0.0%)
Laidlaw, Inc. 18,714 264 1,345 19 20,059 283
Utilities-Electric (2.1%)
American Electric Power Co. 10,773 509 771 36 11,544 545
Carolina Power & Light Co. 8,619 308 617 22 9,236 330
Central & South West Corp. 12,086 261 866 19 12,952 279
CINergy Corp. 8,979 296 643 21 9,622 318
Consolidated Edison Co. of New 13,384 458 959 33 14,343 491
York, Inc.
Detroit Edison Co. 8,263 254 592 18 8,855 272
Dominion Resources, Inc. 10,579 393 760 28 11,339 422
Duke Power Co. 20,490 990 1,473 72 21,963 1,060
Edison International 22,604 579 1,626 42 24,230 621
Entergy Corp 13,738 336 987 24 14,725 360
FPL Group, Inc. 10,369 536 744 38 11,113 574
Houston Industries, Inc. 16,244 353 1,168 25 17,412 379
Niagara Mohawk Power Corp.(b) 8,224 80 590 6 8,814 85
Northern States Power Co. 4,202 212 301 15 4,503 227
Minnesota
Ohio Edison Co. 8,688 215 623 15 9,311 230
PacifiCorp 16,865 366 1,208 26 18,073 392
Peco Energy Co. 12,672 287 908 21 13,580 308
PG&E Corp. 24,965 638 1,795 46 26,760 684
PP&L Resources, Inc. 9,387 203 671 15 10,058 218
Public Service Enterprise Group 13,209 343 947 25 14,156 367
Raychem Corp. 2,485 225 178 16 2,663 241
Southern Co. 38,975 894 2,803 64 41,778 958
Texas Utilities Co. 13,694 491 983 35 14,677 527
Unicom Corp. 12,317 345 883 25 13,200 370
Union Electric Co. 5,816 219 417 16 6,233 235
9,791 703 10,493
Utilities-Electric & Gas (0.1%)
Baltimore Gas & Electric Co. 8,409 231 602 17 9,011 247
GPU, Inc. 6,876 249 493 17 7,369 267
480 34 514
Utilities-Natural Gas (0.3%)
Consolidated Natural Gas Co. 5,432 294 388 21 5,820 315
Eastern Enterprises 1,164 46 83 3 1,247 49
Enron Corp. 17,423 661 1,252 48 18,675 709
NICOR, Inc. 2,767 107 200 8 2,967 114
Pacific Enterprises 4,744 155 341 11 5,085 166
Peoples Energy Corp. 2,001 72 143 5 2,144 77
1,335 96 1,430
Utilities-Telecommunications
(5.0%)
AirTouch Communications, Inc.(b) 28,683 1,108 2,061 80 30,744 1,187
Ameritech Corp. 31,313 2,035 2,250 146 33,563 2,182
AT&T Corp. 92,496 4,527 6,650 326 99,146 4,852
BellSouth Corp. 56,451 2,671 4,058 192 60,509 2,863
<PAGE>
Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma
Index Index Combined Combined
Shares Shares Shares
Or Or Or
Principal Market Principal Market Principal Market
Amount Value Amount Value Amount Value
------ ----- ------ ----- ------ -----
GTE Corp. 54,446 2,311 3,914 166 58,360 2,477
Lucent Technologies, Inc. 36,540 3,012 2,626 216 39,166 3,229
MCI Telecommunications Corp. 39,394 1,398 2,832 101 42,226 1,499
SBC Communications, Inc. 52,041 3,311 3,741 238 55,782 3,549
Sprint Corp. 24,510 1,275 1,758 91 26,268 1,366
WorldCom, Inc.(b) 51,362 1,727 3,692 124 55,054 1,851
23,375 1,680 25,055
Total Common Stocks (Cost 404,137 29,030 433,166
$312,855)
U.S. TREASURY BILLS (0.6%)
4.92%, 12/18/97 (c) 2,340 2,325 450 447 2,790 2,772
4.95%, 12/26/97 (c) 215 213 215 213
Total U.S. Treasury Bills (Cost 2,538 447 2,985
$2,971)
Total Investments (Cost 463,357 36,918 500,275
$379,963) (a) - 100.0%
Other assets in excess of 1,658 198 1,856
liabilities 0.0%
TOTAL NET ASSETS - 100.0% 465,015 37,116 502,131
________________
Number of Market Number of Market Number of Market
Contracts Value Contracts Value Contracts Value
FUTURES CONTRACTS (13.5%)
S & P 500 Index, face amount 260 60,060 17 7,854 277 67,914
$60,872, expiring December 18,
1997
Total Futures Contracts (Cost 60,060 7,854 67,914
$68,827)
</TABLE>
(a) Represents cost for
federal income tax purposes and
differs from value by net
unrealized appreciation of
securities as follows:
Unrealized appreciation 127,674
Unrealized depreciation
(7,362)
Net unrealized appreciation 120,312
<PAGE>
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
<TABLE>
<CAPTION>
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (1.9%)
FINANCIAL SERVICES (1.9%)
General Electric Capital Corp., 15,762 15,762 1,468 1,468 17,229 17,230
------ ----- ------
5.79%, 11/3/97
TOTAL COMMERCIAL PAPER (COST 15,762 1,468 17,230
------ ----- ------
$17,229)
COMMON STOCKS (98.1%)
AEROSPACE/DEFENSE (3.0%)
AlliedSignal, Inc. 452,200 16,279 452,200 16,279
B.F. Goodrich Inc. 167,500 7,464 167,500 7,464
Boeing Co. 72,000 3,447 72,000 3,447
----- -----
27,190 27,190
------ ------
ALUMINUM (1.1%)
Aluminum Co. of America 115,000 8,395 115,000 8,395
-----
Reynolds Metal Co. 25,000 1,523 25,000 1,523
----- -----
9,918
AUTOMOBILES (1.3%)
General Motors Corp. 180,000 11,554 180,000 11,554
------ ------
BANKS (8.7%)
Banc One Corp. 215,000 11,207 215,000 11,207
Chase Manhattan Corp. 90,000 10,384 90,000 10,384
First Union Corp. 260,000 12,755 260,000 12,755
Mellon Bank Corp. 204,000 10,519 204,000 10,519
NationsBank Corp. 185,000 11,077 185,000 11,077
Norwest Corp. 320,200 10,266 320,200 10,266
PNC Bank Corp. 235,000 11,163 235,000 11,163
------ ------
77,371 77,371
------ ------
BEVERAGES (3.2%)
Anheuser-Busch Cos., Inc. 350,000 13,978 350,000 13,978
PepsiCo, Inc. 400,000 14,725 400,000 14,725
------ ------
28,703 28,703
------ ------
BROKERAGE SERVICES (0.9%)
Bear Stearns Cos., Inc. 192,428 7,637 192,428 7,637
----- -----
CHEMICALS-GENERAL (2.4%)
Air Products & Chemicals, Inc. 80,000 6,080 80,000 6,080
Nalco Chemical Co. 255,900 10,236 255,900 10,236
RPM Inc. 277,750 5,208 277,750 5,208
----- -----
21,524 21,524
------ ------
COMPUTERS & PERIPHERALS (9.2%)
Cabletron Systems, Inc.(b) 224,000 6,496 224,000 6,496
Cisco Systems, Inc.(b) 25,000 2,051 20,000 1,641 45,000 3,692
Compaq Computer Corp.(b) 150,000 9,563 150,000 9,563
<PAGE>
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
Computer Sciences Corp.(b) 130,000 9,222 130,000 9,222
Dell Computer, Inc.(b) 96,000 7,692 96,000 7,692
Hewlett-Packard Co. 110,000 6,786 110,000 6,786
International Business Machines 275,000 26,965 38,200 3,746 313,200 30,711
-----
Corp.
Seagate Technology, Inc.(b) 245,000 6,646 245,000 6,646
----- -----
75,421 5,387 80,808
------ ----- ------
CONGLOMERATES (4.9%)
Canadian Pacific, Ltd. 113,600 3,387 113,600 3,387
Corning, Inc. 145,000 6,543 30,000 1,354 175,000 7,897
General Electric Co. 126,600 8,174 126,600 8,174
Noel Group, Inc.(b) 225,000 886 225,000 886
Tenneco, Inc. 65,000 2,921 65,000 2,921
Textron, Inc. 85,000 4,914 30,000 1,734 115,000 6,648
-----
Westinghouse Electric Corp. 512,500 13,549 512,500 13,549
------ ------
36,101 7,361 43,462
------ ----- ------
CONTAINERS-METAL, GLASS, PAPER,
PLASTIC (2.0%)
Crown Cork & Seal, Inc. 250,000 11,266 250,000 11,266
Sonoco Products Co. 203,000 6,534 203,000 6,534
----- -----
17,800 17,800
------ ------
ELECTRONIC & ELECTRICAL-GENERAL
(1.8%)
Andrew Corp.(b) 260,000 6,029 260,000 6,029
Motorola, Inc. 30,000 1,853 30,000 1,853
Texas Instruments, Inc. 60,000 6,400 60,000 6,400
-----
Vishay Intertechnology, Inc.(b) 69,300 1,659 69,300 1,659
----- -----
14,282 1,659 15,941
------ ----- ------
ENTERTAINMENT (0.8%)
Viacom, Inc., Class B(b) 96,700 2,925 96,700 2,925
Walt Disney Co. 50,000 4,113 50,000 4,113
----- -----
7,038 7,038
----- -----
FINANCIAL SERVICES (1.2%)
Franklin Resources, Inc. 25,000 2,247 25,000 2,247
Travelers Group, Inc. 100,000 7,000 20,000 1,400 120,000 8,400
----- ----- -----
9,247 1400 10,647
----- ---- ------
FOOD PROCESSING & PACKAGING
(1.6%)
Sara Lee Corp. 235,000 12,014 40,000 2,045 275,000 14,059
------ ----- ------
FOREST PRODUCTS-LUMBER & PAPER
(1.5%)
Bowater, Inc. 97,600 4,081 97,600 4,081
International Paper Co. 213,400 9,603 213,400 9,603
----- -----
13,684 13,684
------ ------
HEALTH CARE (0.7%)
Columbia/HCA Healthcare Corp. 200,000 5,650 200,000 5,650
-----
Healthplan Services Corp. 45,869 966 45,869 966
--- ---
6,616
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
HOTELS & MOTELS (0.1%)
Mirage Resorts, Inc.(b) 50,000 1,250 50,000 1,250
----- -----
HOUSEHOLD GOODS-APPLIANCES,
FURNISHINGS & ELECTRONICS (0.9%)
Whirlpool Corp. 130,600 7,918 130,600 7,918
----- -----
INDUSTRIAL GOODS & SERVICES
(0.5%)
Dover Corp. 15,300 1,033 15,300 1,033
Hexcel Corp.(b) 121,300 3,252 121,300 3,252
----- -----
4,285 4,285
----- -----
INSURANCE (3.6%)
American International Group, 128,025 13,066 30,000 3,062 158,025 16,128
Inc.
General Re Corp. 49,500 9,761 49,500 9,761
-----
Partner Re Ltd. 115,500 4,735 115,500 4,735
RenaissanceRe Holdings Ltd. 27,000 1,175 27,000 1,175
----- -----
22,827 8,972 31,799
------ ----- ------
INSURANCE-MULTI-LINE (1.3%)
Marsh & McLennan Cos., Inc. 160,000 11,360 160,000 11,360
------ ------
INSURANCE-PROPERTY, CASUALTY,
HEALTH (1.6%)
Everest Reinsurance Holdings, 228,500 8,598 228,500 8,598
Inc.
Travelers Property Casualty 147,000 5,310 147,000 5,310
----- -----
Corp., Class A
13,908 13,908
------ ------
INVESTMENT COMPANY (0.5%)
TCI Ventures Group, Class A(b) 158,252 3,650 29,104 671 187,356 4,321
----- --- -----
MACHINE TOOLS (0.5%)
Kennametal, Inc. 100,000 4,850 100,000 4,850
----- -----
MANUFACTURING-MISCELLANEOUS
(0.9%)
Millipore Corp. 215,000 8,412 215,000 8,412
----- -----
MEDICAL LABS & TESTING SERVICES
(0.7%)
Biogen, Inc.(b) 44,800 1,501 44,800 1,501
Genzyme Corp. - Tissue Repair(b) 2,280 20 2,280 20
Genzyme Corp.(b) 76,000 2,081 76,000 2,081
SmithKline Beecham Plc 60,000 2,856 60,000 2,856
----- -----
6,458 6,458
----- -----
MEDICAL SERVICES (0.3%)
Tenet Healthcare Corp. 100,000 3,056 100,000 3,056
----- -----
MEDICAL SUPPLIES (0.7%)
Biomet, Inc. 247,600 6,175 247,600 6,175
----- -----
METALS & MINING (0.3%)
Cleveland Cliffs, Inc. 60,000 2,606 60,000 2,606
----- -----
<PAGE>
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
NEWSPAPERS (0.8%)
Dow Jones & Co., Inc. 160,000 7,440 160,000 7,440
----- -----
OIL & GAS EXPLORATION,
PRODUCTION & SERVICES (4.6%)
Anadarko Petroleum Corp. 40,000 2,930 40,000 2,930
Enron Corp. 380,700 14,467 380,700 14,467
Forcenergy, Inc.(b) 90,000 2,936 90,000 2,936
Noble Affiliates, Inc. 74,200 3,047 74,200 3,047
-----
Unocal Corp. 420,000 17,325 420,000 17,325
------ ------
31,792 8,913 40,705
------ ----- ------
OIL-INTEGRATED COMPANIES (3.2%)
Atlantic Richfield Co. 30,800 2,535 30,800 2,535
Exxon Corp. 76,000 4,669 76,000 4,669
Phillips Petroleum Co. 179,500 8,683 179,500 8,683
Royal Dutch Petroleum Co., New 40,000 2,105 40,000 2,105
York Shares
Texaco, Inc. 181,000 10,306 181,000 10,306
------ ------
28,298 28,298
------ ------
OILFIELD SERVICES & EQUIPMENT
(3.6%)
Baker Hughes, Inc. 300,000 13,781 300,000 13,781
Dresser Industries, Inc. 225,600 9,503 225,600 9,503
Schlumberger, Ltd. 105,000 9,188 105,000 9,188
----- -----
32,472 32,472
------ ------
PHARMACEUTICALS (5.8%)
Abbott Laboratories 65,000 3,985 65,000 3,985
American Home Products Corp. 185,000 13,713 25,000 1,853 210,000 15,566
-----
Merck & Co., Inc. 85,000 7,586 85,000 7,586
Pfizer, Inc. 350,000 24,763 350,000 24,763
------ ------
50,047 1,853 51,900
------ ----- ------
POLLUTION CONTROL SERVICES &
EQUIPMENT (1.9%)
Browning-Ferris Industries, Inc. 123,400 4,011 123,400 4,011
Waste Management, Inc. 475,000 11,103 75,000 1,753 550,000 12,856
------ ----- ------
15,114 1,753 16,867
------ ----- ------
PUBLISHING (1.1%)
Time Warner, Inc. 170,000 9,807 170,000 9,807
----- -----
RADIO & TELEVISION (0.8%)
Tele-Communications, Inc., Class 276,748 6,348 50,896 1,168 327,644 7,515
----- ----- -----
A(b)
REAL ESTATE (0.3%)
Beazer Homes USA, Inc. 125,000 2,391 125,000 2,391
----- -----
REAL ESTATE INVESTMENT TRUSTS
(1.1%)
Avatar Holdings Inc.(b) 119,347 3,759 119,347 3,759
Cousins Properties, Inc. 100,000 3,138 100,000 3,138
Security Capital Industrial Trust 108,333 2,661 108,333 2,661
----- -----
9,558 9,558
----- -----
<PAGE>
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
RETAIL (1.8%)
Dayton Hudson Corp. 35,800 2,249 35,800 2,249
Wal-Mart Stores, Inc. 400,000 14,050 400,000 14,050
------ ------
16,299 16,299
------ ------
RETAIL-DEPARTMENT STORES (0.6%)
Nordstrom, Inc. 90,000 5,513 90,000 5,513
----- -----
RETAIL-DRUG STORES (0.6%)
Walgreen Co. 185,000 5,203 185,000 5,203
----- -----
RETAIL-SPECIALTY STORES (2.7%)
AutoZone, Inc.(b) 315,000 9,312 315,000 9,312
Lowe's Cos., Inc. 208,000 8,658 208,000 8,658
OfficeMax, Inc.(b) 450,000 6,019 450,000 6,019
----- -----
23,989 23,989
------ ------
SEMICONDUCTORS (2.3%)
Intel Corp. 80,000 6,160 46,000 3,542 126,000 9,702
LSI Logic Corp.(b) 400,000 8,725 80,000 1,745 480,000 10,470
----- ----- ------
14,885 5,287 20,172
------ ----- ------
SOFTWARE & COMPUTER SERVICES
(1.6%)
America Online Inc(b) 125,000 9,625 125,000 9,625
Computer Associates 61,000 4,548 61,000 4,548
----- -----
International, Inc.
14,173 14,173
------ ------
STEEL (0.3%)
J&L Speciality Steel, Inc. 235,000 2,967 235,000 2,967
----- -----
TELECOMMUNICATIONS (0.3%)
Bell Atlantic Corp. 28,400 2,268 28,400 2,268
----- -----
TOBACCO & TOBACCO PRODUCTS
(0.7%)
UST, Inc. 207,000 6,197 207,000 6,197
----- -----
UTILITIES-ELECTRIC (1.7%)
CINergy Corp. 121,700 4,016 121,700 4,016
Houston Industries, Inc. 100,000 2,175 100,000 2,175
Northeast Utilities 225,000 2,588 225,000 2,588
-----
Southern Co. 204,300 4,686 204,300 4,686
Texas Utilities Co. 58,500 2,099 58,500 2,099
----- -----
12,976 2,588 15,564
------ ----- ------
UTILITIES-TELECOMMUNICATIONS
(6.1%)
AirTouch Communications, Inc.(b) 140,000 5,408 140,000 5,408
Ameritech Corp. 208,600 13,559 208,600 13,559
GTE Corp. 500,000 21,218 48,500 2,058 548,500 23,276
-----
MCI Telecommunications Corp. 350,000 12,425 350,000 12,425
------ ------
47,202 7,466 54,668
------ ----- ------
<PAGE>
KEY SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED COMBINED COMBINED
STOCK STOCK
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET
AMOUNT VALUE AMOUNT COST AMOUNT VALUE
------ ----- ------ ---- ------ -----
TOTAL COMMON STOCKS (COST 781,716 92,601 874,317
------- ------ -------
$700,679)
TOTAL INVESTMENTS (COST 797,478 94,068 891,546
$717,908) (A) - 100.0%
OTHER ASSETS IN EXCESS OF (5,010) (380) (5,389)
------- ----- -------
LIABILITIES 0.0%
TOTAL NET ASSETS - 100.0% 792,468 93,689 886,157
------- ------ --------
</TABLE>
- ----------------
(A) REPRESENTS COST FOR FEDERAL
INCOME TAX PURPOSES AND DIFFERS
FROM VALUE BY NET UNREALIZED
APPRECIATION OF SECURITIES AS
FOLLOWS:
Unrealized appreciation 193,778
Unrealized depreciation
(20,140)
Net unrealized appreciation 173,638
<PAGE>
KEY CAPTIAL GROWTH FUND AND VICTORY SPECIAL
GROWTH FUND ProForma Combined Schedule of
Portfolio Invesments October 31, 1997
(Amounts in Thousands, except shares)
<TABLE>
<CAPTION>
VICTORY SPECIAL VICTORY SPECIAL KEY CAPITAL KEY CAPITAL PROFORMA PROFORMA
GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (7.6%)
FINANCIAL SERVICES (7.6%)
General Electric Capital Corp., 5.79%, 7,821 7,821 3,256 3,256 11,077 11,077
----- ----- ------
11/3/97
TOTAL COMMERCIAL PAPER (COST $11,077) 7,821 3,256 11,077
----- ----- ------
COMMON STOCKS (92.4%)
AIRLINES (0.9%)
Trans World Airlines, Inc.(b) 120,000 893 50,000 372 170,000 1,264
--- --- -----
APPAREL (1.0%)
Ashworth, Inc.(b) 100,000 994 50,000 497 150,000 1,491
--- --- -----
APPAREL-FOOTWEAR (0.7%)
Steven Madden Ltd.(b) 100,000 700 40,000 280 140,000 980
--- --- ---
BANKS (0.8%)
U.S. Trust Corp. 20,000 1,170 20,000 1,170
----- -----
BROADCASTING & PUBLISHING (1.2%)
Westwood One, Inc.(b) 35,000 1,074 20,000 614 55,000 1,688
----- --- -----
BROKERAGE SERVICES (1.6%)
Donaldson, Lufkin & Jenrette, Inc. 25,000 1,756 8,000 562 33,000 2,318
----- --- -----
CHEMICALS-GENERAL (0.9%)
Brunswick Technologies, Inc.(b) 54,000 999 20,000 370 74,000 1,369
--- --- -----
COMMERCIAL SERVICES (3.6%)
Cornell Corrections Inc.(b) 60,000 1080 25,000 450 85,000 1,530
Hooper Holmes, Inc. 100,000 1,474 40,000 590 140,000 2,065
Substance Abuse Technologies(b) 250,000 63 100,000 25 350,000 88
Venture Seismic(b) 120,000 1,058 50,000 441 170,000 1,498
----- --- -----
3,675 1,506 5,181
----- ----- -----
COMPUTERS & PERIPHERALS (4.9%)
Creative Technology Ltd.(b) 60,000 1,526 25,000 636 85,000 2,161
Eltron International, Inc.(b) 40,000 1,165 15,000 437 55,000 1,602
Standard Microsystems Corp.(b) 80,200 927 33,400 386 113,600 1,314
UniComp, Inc.(b) 140,000 1,374 70,000 687 210,000 2,061
----- --- -----
4,992 2,146 7,138
----- ----- -----
CONSTRUCTION (0.5%)
Schuff Steel Co.(b) 50,000 550 20,000 220 70,000 770
--- --- ---
CONTAINERS (1.1%)
Mercury Interactive Corp.(b) 50,000 1,125 20,000 450 70,000 1,575
----- --- -----
COSMETICS & RELATED (1.1%)
French Fragrances, Inc.(b) 100,000 1,069 50,000 534 150,000 1,603
----- --- -----
ELECTRICAL EQUIPMENT (2.0%)
Printrak International, Inc.(b) 68,200 691 29,000 294 97,200 984
Semitool Inc.(b) 75,000 1,293 35,000 603 110,000 1,898
----- --- -----
1,984 897 2,882
----- --- -----
ELECTRONIC & ELECTRICAL-GENERAL (3.2%)
Sipex Corp.(b) 60,000 1,972 25,000 822 85,000 2,794
Uniphase Corp.(b) 20,000 1,343 8,000 537 28,000 1,880
----- --- -----
3,315 1,359 4,674
----- ----- -----
ENTERTAINMENT (0.8%)
Speedfam International Inc.(b) 30,000 1,114 30,000 1,114
-----
FINANCIAL SERVICES (1.0%)
Hambrecht & Quist Group(b) 35,000 1,103 12,000 378 47,000 1,481
----- --- -----
LEISURE-RECREATION, GAMING (2.8%)
Anchor Gaming(b) 20,000 1,570 7,000 550 27,000 2,120
The North Face, Inc.(b) 60,000 1,418 25,000 590 85,000 2,008
----- --- -----
2,988 1,140 4,128
----- ----- -----
MACHINERY & ENGINEERING (0.5%)
Middleby Corp.(b) 50,000 506 20,000 203 70,000 709
--- --- ---
MANUFACTURING-MISCELLANEOUS (0.8%)
Flanders Corp.(b) 100,000 800 40,000 320 140,000 1,120
--- --- -----
<PAGE>
KEY CAPTIAL GROWTH FUND AND VICTORY SPECIAL
GROWTH FUND ProForma Combined Schedule of
Portfolio Invesments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY SPECIAL VICTORY SPECIAL KEY CAPITAL KEY CAPITAL PROFORMA PROFORMA
GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------ ----- ------ ----- ------ -----
MEDICAL LABS & TESTING SERVICES (1.3%)
Matritech Inc(b) 120,300 812 52,700 355 173,000 1,168
Renex Corporation,(b) 70,000 543 30,000 233 100,000 775
--- --- ---
1,355 588 1,943
----- --- -----
MEDICAL SUPPLIES (3.6%)
Bionx Implants, Inc.(b) 40,000 835 15,000 313 55,000 1,148
Martek Biosciences Corp.(b) 100,000 1,113 40,000 445 140,000 1,558
Spine-Tech, Inc.(b) 25,000 778 10,000 311 35,000 1,089
---
Wesley Jessen VisionCare, Inc.(b) 50,000 1,462 50,000 1,462
----- -----
4,188 1,069 5,257
----- ----- -----
METALS-NONFERROUS (1.0%)
International Precious Metals Corp.(b) 200,000 938 100,000 469 300,000 1,406
--- --- -----
OIL & GAS EXPLORATION, PRODUCTION &
SERVICES (7.6%)
Bellwether Exploration(b) 80,000 1,000 40,000 500 120,000 1,500
Continental Natural Gas, Inc.(b) 80,000 930 35,000 407 115,000 1,337
Diamond Offshore Drilling, Inc. 10,000 623 10,000 623
Magnum Hunter Resources Inc(b) 80,000 565 35,000 247 115,000 812
Marine Drilling Cos., Inc.(b) 50,.000 1,481 20,000 593 70,000 2,074
Noble Drilling Corp.(b) 50,000 1,778 20,000 711 70,000 2,487
Swift Energy Co.(b) 60,000 1,556 25,000 648 85,000 2,205
----- --- -----
7,310 3,729 11,038
----- ----- ------
OILFIELD SERVICES & EQUIPMENT (11.8%)
Cal Dive International, Inc.(b) 20,000 625 20,000 625
Energy Ventures, Inc.(b) 10,000 642 6,000 385 16,000 1,027
Global Industries Ltd.(b) 70,000 1,409 35,000 704 105,000 2,113
Grey Wolf, Inc.(b) 200,000 1,650 80,000 660 280,000 2,310
Midcoast Energy Resources, Inc. 56,600 1,362 12,000 289 68,600 1,651
Patterson Energy, Inc.(b) 40,000 2,239 12,000 672 52,000 2,910
Pool Energy Services Co.(b) 50,000 1,697 15,000 509 65,000 2,206
Pride International, Inc.(b) 40,000 1,320 18,000 594 58,000 1,914
Varco International, Inc.(b) 30,000 1,828 10,000 609 40,000 2,438
----- --- -----
12,147 5,047 17,194
------ ----- ------
PHARMACEUTICALS (2.9%)
Collagenex Pharmaceuticals, Inc.(b) 50,000 600 50,000 600
DUSA Pharmaceuticals, Inc.(b) 100,000 1,213 40,000 485 140,000 1,698
Vivus, Inc.(b) 50,000 1,318 20,000 528 70,000 1,846
----- --- -----
3,131 1,013 4,144
----- ----- -----
RADIO & TELEVISION (2.6%)
Echostar Communications(b) 75,000 1,425 30,000 570 105,000 1,995
Jacor Communications, Inc.(b) 30,000 1,256 12,000 503 42,000 1,759
----- --- -----
2,681 1,073 3,754
----- ----- -----
RETAIL-SPECIALTY STORES (1.1%)
Claire's Stores, Inc. 50,000 1,106 20,000 443 70,000 1,549
----- --- -----
SOFTWARE & COMPUTER SERVICES (16.2%)
Accelr8 Technology Corp.(b) 75,000 1,491 40,000 794 115,000 2,286
Ciber, Inc.(b) 30,000 1,328 15,000 664 45,000 1,991
Hyperion Software Corp.(b) 50,000 1,904 20,000 763 70,000 2,667
Intelligent Electronics, Inc.(b) 250,000 1,328 100,000 531 350,000 1,859
Intuit, Inc.(b) 40,000 1,305 15,000 489 55,000 1,794
ISG International Software Group 100,000 1,250 40,000 500 140,000 1,750
Ltd.(b)
Keane, Inc.(b) 20,000 593 20,000 593
Lycos, Inc.(b) 40,000 1,045 15,000 392 55,000 1,437
NEXTLINK Communications, Inc.(b) 20,000 453 20,000 453
ONTRACK Data International, Inc.(b) 50,000 1,019 50,000 1,019
Platinum Technology, Inc. (b) 50,000 1,213 20,000 485 70,000 1,698
SEEC, Inc.(b) 70,000 1,636 30,000 701 100,000 2,338
Summit Design, Inc.(b) 60,000 870 30,000 435 90,000 1,305
Versant Object Technology Corp.(b) 70,000 1,173 70,000 1,173
Visio Corp.(b) 30,000 1,116 16,000 595 46,000 1,711
------ ----- ------
16,677 7,395 24,072
------ ----- ------
<PAGE>
KEY CAPTIAL GROWTH FUND AND VICTORY SPECIAL
GROWTH FUND ProForma Combined Schedule of
Portfolio Invesments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY SPECIAL VICTORY SPECIAL KEY CAPITAL KEY CAPITAL PROFORMA PROFORMA
GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED
SHARES SHARES SHARES
OR OR OR
PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
------ ----- ------ ----- ------ -----
STEEL (1.2%)
NS Group, Inc.(b) 49.500 1,324 15,000 401 64,500 1,725
----- --- -----
TELECOMMUNICATIONS (6.3%)
American Communications Services, 120,000 1,350 50,000 563 170,000 1,913
Inc.(b)
Digital Microwave Corp.(b) 30,000 1,080 15,000 540 45,000 1,620
Mobile Telecommunication Technologies 75,000 1,247 30,000 499 105,000 1,746
Corp.(b)
Paging Network, Inc.(b) 100,000 1,238 40,000 495 140,000 1,733
Tekelec(b) 100,000 1,465 15,000 627 50,000 2,091
----- --- -----
6,380 2,724 9,104
----- ----- -----
TELECOMMUNICATIONS-SERVICES &
EQUIPMENT (1.3%)
Star Telecommunications Inc.(b) 60,000 1,388 24,000 555 84,000 1,943
----- --- -----
TOBACCO & TOBACCO PRODUCTS (2.9%)
800-JR CIGAR, Inc.(b) 40,000 1,250 18,000 563 58,000 1,813
-----
General Cigar Holdings, Inc.(b) 60,000 1,736 25,000 722 85,000 2,458
----- --- -----
4,199 1,770 5,969
----- ----- -----
TRANSPORTATION LEASING &TRUCKING
(1.3%)
Budget Group Inc., Class A,(b) 40,000 1,400 15,000 525 55,000 1,925
----- --- -----
UTILITIES-TELECOMMUNICATIONS (1.4%)
Pacific Gateway Exchange, Inc.(b) 40,000 1,530 15,000 574 55,000 2,104
----- --- -----
TOTAL COMMON STOCKS (COST $110,849) 95,349 38,738 134,086
------ ------ -------
RIGHTS & WARRANTS (0.0%)
Morrison Knudsen Corp., Expire 158 1 158 1
- -
3/11/03(b)
TOTAL RIGHTS & WARRANTS (COST $0) 1 1
- -
TOTAL INVESTMENTS (COST $121,926) 103,171 41,994 145,165
(A) - 100.0%
OTHER ASSETS IN EXCESS OF 1,394 680 2,074
----- --- -----
LIABILITIES 0.0%
TOTAL NET ASSETS - 100.0% 104,565 42,674 147,239
------- ------ --------
</TABLE>
- ----------------
(A) REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES AND DIFFERS FROM VALUE BY
NET UNREALIZED APPRECIATION OF SECURITIES AS FOLLOWS:
Unrealized appreciation 31,912
Unrealized depreciation
(8,673)
Net unrealized appreciation 23,239
<PAGE>
VICTORY/KEY FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
------
1. BASIS OF COMBINATION:
The unaudited Pro Forma Combining Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of three investment portfolios offered by The Victory Portfolios (the
"Company"): the Diversified Stock Fund, the Special Growth Fund and the Stock
Index Fund (the "Surviving Funds") and three investment portfolios offered by
The Key Mutual Funds: the SBSF Fund, the Capital Growth Fund and tile Stock),
Index Fund (the "Transferor Funds"), (collectively,"Funds") as if the proposed
reorganization occurred as of and for the year ended October 31, 1997. These
statements have been derived from books and records utilized in calculating
daily net asset value at October 31, 1997,
The Plan of Reorganization provides that at the time the reorganization
becomes effective (the "Effective Time of the Reorganization"), all of the
assets and liabilities will be transferred as follows such that at and after the
Effective Time of Reorganization, the assets and liabilities of the Transferor
Fund will become the uses and liabilities of the Surviving Fund the SBSF Fund
will be transferred to the Diversified Stock Fund the Capital Growth Fund will
be transferred to the Victory Special Growth Fund and the Key Stock Index Fund
will be transferred to the Victory Stock Index Fund. In exchange for the
transfer of assets and liabilities, the Company will issue to the Transferor
Funds full and fractional shares of the corresponding Surviving Funds, and the
Transferor Funds will make a liquidating distribution of such shares to its
shareholders. The number of shares of the Surviving Funds so issued will be
equal in value to the full and fractional shares of the Transferor 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 Transferor Funds will attach to the Surviving Funds and may
thereafter be enforced against the Surviving Funds to the same extent as if they
had been incurred by it. The pro forma statements give edict to the proposed
transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the basis on the part of the Surviving
Funds, of the assets of the Transferor Funds will be the fair market value of
such assets on the closing date of the transaction. The Surviving Funds will
recognize no gain or loss for federal tax purposes on its issuance of shares in
the reorganization, and the basis to the Surviving Funds of the assets of the
Transferor Funds received pursuant to the reorganization will equal the fair
market value of the consideration furnished, and costs incurred, by the
Surviving Funds in the reorganization -- i.e., the sum of the liabilities
assumed, the fair market value of the Surviving Funds shares issued, and such
costs. For accounting purposes, the Surviving Funds are the survivor of this of
this reorganization. The pro forma statements reflect the combined results of
operations of
<PAGE>
VICTORY/KEY FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
the Transferor Funds and the Surviving Funds. However, should such
reorganization be effected, the statements of operations of the Surviving Funds
will not be restated for precombination period results of the corresponding
Transferor 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 Funds
incorporated by reference in the Statement of Additional Information.
The Transferor Funds and the Surviving Funds are each separate
portfolios of the Key Mutual Funds and the Victory Portfolios respectively,
which are registered as an open-end management companies under the Investment
Company Act of 1940 (the "1940 Act"). The investment objective of the Victory
Diversified Stock Fund is to provide long term growth of capital. The investment
objective of the SBSF Fund is to provide a high total return over the long term
consistent with reasonable risk. The investment objective of the Victory Special
Growth Fund and the SBSF Capital Growth Fund is to provide capital appreciation.
The investment objective of the Victory Stock Index Fund and the Key Stock Index
Fund is to provide long term capital appreciation by attempting to match the
investment performance of the Standard & Poor's 500 Composite Stock Index. The
purchase and redemption policies of each of these Funds are the same and the
service providers for each of the Funds are the same.
EXPENSES
KeyCorp Mutual Fund Advisers, Inc, (the "Adviser"), a wholly-owned
subsidiary of KeyBank National Association ("Key"), serves as the Funds'
investment adviser. Key and its affiliated brokerage and banking companies also
serve as Shareholder Servicing Agent for the Funds. BISYS Fund Services (the
"Administrator"), an indirect, wholly-owned subsidiary of The BISYS Group, Inc.
(BISYS) serves as the administrator and distributor to the Funds. BISYS Fund
Service Ohio, Inc. (The Company), an affiliate of BISYS, serves the Funds' as
Mutual Fund Accountant.
TRANSFEROR FUNDS:
The Transferor Funds issue one class of shares. The one class of the Transferor
Funds has rights and privileges analogous to those of Class A shares of the
Surviving Funds.
Under the terms of the investment advisory agreement, the Adviser is entitled to
receive fees computed at the annual rate of 0.75% for the Key SBSF Fund, the Key
Capital Growth Fund and the Key Stock Index Fund. Such fees are accrued daily
and paid monthly. For the year ended October 31, 1997, total investment advisory
fees incurred by the Funds were as follows:
- 2 -
<PAGE>
VICTORY/KEY FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
Total Fees Waiver
---------- ------
SBSF 775 4
Capital Growth 289 0
Stock Index 26 26
Under the terms of the administration agreement the Administrator's fees are
computed at the annual rate of 0.25% of each funds average daily net uses of $50
million and less, 0.15% of each funds average daily net assets in excess of $50
million. For the year ended October 31 1997, the Administrator's fees earned
from the Funds were as follows:
Total Fees Waiver
---------- ------
SBSF 205 0
Capital Growth 96 0
Stock Index 38 38
SURVIVING FUNDS
The Victory Stock Index and Special Growth Funds issue one class of
shares. The Victory Diversified Stock Fund is authorized to issue two classes of
shares: Class A shares and Class B shares. Each class of shares has identical
rights and privileges except with respect to 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 spares, and the
exchange privilege of each class of shares. Class A shares are subject to an
initial sales charge, upon purchase Class B shares are subject to a contingent
deferred sales change (CDSC).
Under the terms of the investment advisory agreement, the Adviser is
entitled to receive fees computed at the annual rate of 0.65% of the average
daily net assets of the Diversified Stock Fund, of 1.00% of the Special Growth
Fund and 0.60% of the Stock Index Fund. Such fees are accrued daily and paid
monthly. For the year ended October 31, 1997, total investment advisory fees
incurred by the funds were as follows:
Total Fees Waiver
---------- ------
Diversified Stock 4,561 0
Special Growth 91 0
Stock Index 290 574
Under the terms of the administration agreement, effective October 1,
1997, the Administrator's fees are computed at the annual rate of 0.15% of each
funds average daily net assets of $300 million and less 0.12% of each funds
average daily net assets between $300 million and $600 million and 0.10% of each
funds average daily net assets greater than $600 million- Prior to October 1,
1997, the Administrator's fees were computed at the annual rate of
- 3 -
<PAGE>
VICTORY/KEY FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
0.15% of each funds average daily net assets. For the year ended October 31,
1997, the Administrator's fees were as follows:
Total Fees Waiver
---------- ------
Diversified Stock l,035 0
Special Growth 138 0
Stock Index 568 568
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 rates which would have been in effect if the Transferor Funds were included
in the Surviving Funds for the year ended October 31, 1997, Investment advisory
and shareholder service and 12b- 1 fees in the pro forma combined column are
calculated at be rates in effect for the Surviving Funds based upon the combined
net assets of tile Transferor Funds and the Surviving Funds, Certain pro forma
adjustments were made to estimate the benefit of combining operations of
separate funds into one survivor fund.
For the year ended October 31, 1997, approximately $1,667 of the
investment advisory fees on a pro forma combined basis for the Surviving Funds
were waived.
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, 1997.
2. 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 axe valued at their market values
determined on the basis of the latest available bid prices in the principal
market (closing sales prices if the principal market is an exchange) in which
such securities are normally traded or on the basis of valuation procedures
approved by the Board of Trustees. 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
- 4 -
<PAGE>
VICTORY/KEY FUNDS
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
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,
3. CAPITAL SHARES:
The pro forma net asset values per share assume the issuance of shares
of the Surviving Funds which would have occurred at October 31, 1997 in
connection with the proposed reorganization. The pro forma number of shares
outstanding consists of the following:
================================================================================
Shares Additional Shares
outstanding at Assumed in the
October 31, Reorganization Proforma Shares at
1997 (000) (000) October 31, 1997
- --------------------------------------------------------------------------------
Diversified Stock Fund 44,638 5,275 59,913
- --------------------------------------------------------------------------------
Special Growth Fund 6,420 2,620 9,040
- --------------------------------------------------------------------------------
Stock Index Fund 24,807 1,980 26,787
================================================================================
- 5 -
<PAGE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
THE VICTORY PORTFOLIOS
PART C
Item 15. Indemnification.
Article X, Section 10.02 of the Registrant's Delaware Trust Instrument,
incorporated herein as Exhibit 1 hereto, provides for the indemnification of
Registrant's Trustees and officers, as follows:
"Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer
of the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in
office or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body
before which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights
<PAGE>
to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and
shall inure to the benefit of the heirs, executors and administrators
of such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if it
is ultimately determined that he is not entitled to indemnification
under this Section 10.02; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of
any such advance payments or (iii) either a majority of the Trustees
who are neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed
to a trial-type inquiry or full investigation), that there is reason
to believe that such Covered Person will be found entitled to
indemnification under this Section 10.02."
Indemnification of the Registrant's principal underwriter, custodian, fund
accountant, and transfer agent is provided for, respectively, in Section V of
the Distribution Agreement incorporated by reference as Exhibit 7(a) hereto,
Section 28 of the Custody Agreement incorporated by reference as Exhibit 9
hereto, Section 5 of the Registrant's Fund Accounting Agreement dated May 31,
1995 between the Registrant and BISYS Fund Services Ohio, Inc. which was filed
as Exhibit 9(d) to Post-Effective Amendment No. 22 of the Registrant's
Registration Statement on Form N-1A filed on August 28, 1995, and Section 7 of
the Transfer Agency and Service Agreement dated July 12, 1996 between the
Registrant and State Street Bank and Trust Company filed as Exhibit 6(a) to
Post-Effective Amendment No. 30 to the Registrant's Registration Statement on
Form N-1A. Registrant has obtained from a major insurance carrier a trustee's
and officer's liability policy covering certain types of errors and omissions.
In no event will Registrant indemnify any of its trustees, officers, employees
or agents against any liability to which such person would otherwise be subject
by reason of his willful misfeasance, bad faith, or gross negligence in the
performance of his duties, or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act of 1940 in connection with any
indemnification.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Investment Company
Act of 1940, as amended, and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Investment
Company Act of 1940, as amended, and will be governed by the final adjudication
of such issue.
<PAGE>
Item 16. Exhibits.
Exhibit No.
EX-99.1 Delaware Trust Instrument dated December 6, 1995 is
incorporated herein by reference to Exhibit 99.B1(a) to
Post-Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A filed electronically on
December 28, 1995, accession number 0000950152-95-003085.
EX-99.2 By-Laws adopted December 6, 1995 are incorporated herein by
reference to Exhibit 99.B2 to Post-Effective Amendment No.
26 to the Registrant's Registration Statement on Form N-1A
filed electronically on December 28, 1995, accession number
0000950152-95-003085.
EX-99.3 Inapplicable.
EX-99.4 Agreement and Plan of Reorganization and Liquidation (filed
herewith as Exhibit A to Part A).
EX-99.5 Inapplicable.
EX-99.6(a) Investment Advisory Agreement dated as of March 1, 1997,
between the Registrant and Key Asset Management Inc. is
incorporated herein by reference to Exhibit 99.B(5)(a) to
Post-Effective Amendment No. 34 to the Registrant's
Registration Statement on Form N-1A filed electronically on
Deceber 12, 1997, accession number 0000922423-97-001015.
EX-99.7(a) Distribution Agreement dated June 1, 1996 between the
Registrant and BISYS Fund Services Limited Partnership is
incorporated herein by reference to Exhibit 99.B6(a) to
Post-Effective Amendment No. 30 to the Registrant's
Registration Statement on Form N-1A filed electronically on
July 30, 1996, accession number 0000922423-96-000344.
EX-99.7(b) Form of Broker-Dealer Agreement is incorporated herein by
reference to Exhibit 99.B6(b) to Post-Effective Amendment
No. 27 to the Registrant's Registration Statement on Form
N-1A filed electronically on January 31, 1996, accession
number 0000922423-96-000047.
EX-99.8 Inapplicable.
EX-99.9(a) Amended and Restated Mutual Fund Custody Agreement dated May
24, 1995 by and between the Registrant and Key Trust Custody
of Ohio, N.A. is incorporated herein by reference to Exhibit
8(a) to Post-Effective Amendment No. 22 to the Registrant's
Registration Statement on Form N-1A filed on August 28,
1995.
EX-99.9(b) Custody Agreement dated May 31, 1996 between Morgan Stanley
Trust Company and Key Trust Company of Ohio is incorporated
herein by reference to Exhibit 99.B8(c) to Post-Effective
Amendment No. 30 to the Registrant's Registration Statement
on Form N-1A filed electronically on July 30, 1996,
accession number 0000922423-96-000344.
<PAGE>
EX-99.10(a) Distribution Plan dated June 5, 1995 for Class B Shares of
National Municipal Bond Fund, Government Bond Fund and New
York Tax-Free Fund and adopted December 6, 1995 for Class B
Shares of Balanced Fund, Diversified Stock Fund,
International Growth Fund, Ohio Regional Stock Fund, Special
Value Fund, Institutional Money Market Fund, and U.S.
Government Obligations Fund is incorporated by reference to
Exhibit 99.B15(b) to Post-Effective Amendment No. 22 to the
Registrant's Registration Statement on Form N-1A filed on
August 28, 1995, and the updated schedule thereto dated
December 6, 1995 is incorporated by reference to Exhibit
99B(b) to Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A filed
electronically on January 31, 1996, accession number
0000922423-96-000047.
EX-99.10(b) Custody Agreement dated May 31, 1996 between Morgan Stanley
Trust Company and Key Trust Company of Ohio is incorporated
herein by reference to Exhibit 99.B8(c) to Post-Effective
Amendment No. 30 to the Registrant's Registration Statement
on Form N-1A filed electronically on July 30, 1996,
accession number 0000922423-96-000344.
EX-99.B10(c) Amended and Restated Rule 18f-3 Multi-Class Plan effective
as of February 14, 1996 is incorporated herein by reference
to Exhibit 99.B18(c) to Post-Effective Amendment No. 28 to
the Registrant's Registration Statement on Form N-1A filed
electronically on February 28, 1996, accession number
0000922423-96-000106.
EX-99.11(a) Opinion of Kramer, Levin, Naftalis & Frankel as to the
legality of the securities being issued is to be filed by
amendment.
EX-99.11(b) Opinion of Morris, Nichols, Arscht & Tunnell as to the
legality of the securities being issued is to be filed by
amendment.
EX-99.12 Opinion of Kramer, Levin, Naftalis & Frankel as to tax
consequences is to be filed by amendment.
EX-99.13 Inapplicable.
EX-99.14 Consent of Coopers & Lybrand L.L.P. is to be filed by
amendment.
EX-99.15 Inapplicable.
EX-99.16 Powers of Attorney filed electronically with Post-Effective
Amendments 27 and 26 to Registrant's Registration Statement
on January 31, 1996, accession number 0000922423-96-000047
and December 28, 1995, accession number 0000950152-
95-003085, respectively.
EX-99.17(a) Form of Proxy Card is to be filed by amendment.
EX-99.17(b) Registrant's Registration Statement Part A and Part B
relating to the Victory Stock Index Fund, Victory Special
Growth Fund, and Victory Diversified Stock Fund is
incorporated herein by reference to Post-Effective Amendment
No. 31 to the
<PAGE>
Registrant's Registration Statement on Form N-1A as filed
electronically on February 7, 1997, accession number
0000922423-97-000066, as supplemented by Post-Effective
Amendment No. 32 to the Registrant's Registration Statement
on Form N-1A as filed electronically on June 27, 1997,
accession number 0000922423-97-000530, as supplemented on
August 29, 1997, accession number 0000922423-97-000710, and
as supplemented on December 1, 1997, accession number
0000922423-97-000986.
EX-99.17(c) Registration Statement of the SBSF Funds, Inc. (d/b/a Key
Mutual Funds) Part A and Part B, including audited financial
statements as of November 30, 1996 are incorporated herein
by reference to Post-Effective Amendment No. 30 to Key
Mutual Fund's Registration Statement on Form N-1A as filed
electronically on March 28, 1997, accession number
0000950152-97-002413, as supplemented on August 29, 1997,
accession number 0000925421-97-000046, and on October 1,
1997 accession number 0000925421-97-000054.
EX-99.17(d) Audited annual report of The Victory Portfolios relating to
the Victory Stock Index Fund, Victory Special Growth Fund,
and Victory Diversified Stock Fund as of October 31, 1997 is
to be filed by amendment.
EX-99.17(e) Unaudited semi-annual report of Key Mutual Funds relating to
the Key Stock Index Fund as of May 31, 1997 is incorporated
herein by reference to Key Mutual Funds' Form N-30D as filed
electronically on July 31, 1997, accession number
0000906197-97-000048.
EX-99.17(f) Unaudited semi-annual report of Key Mutual Funds relating to
the SBSF Fund and SBSF Capital Growth Fund as of May 31,
1997 is incorporated herein by reference to Key Mutual
Funds' Form N-30D as filed electronically on July 31, 1997,
accession number 0000906197-97-000047.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a
part of this Registration Statement by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities
Act [17 CFR 230.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has duly caused this
Registration Statement on Form N-14 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on the 19th day of December, 1997.
THE VICTORY PORTFOLIOS
(Registrant)
By: /s/Leigh A. Wilson
--------------------
Leigh A. Wilson
President and Trustee
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 19th day of
December, 1997.
/s/Leigh A. Wilson President and Trustee
- ------------------------
Leigh A. Wilson
/s/ Kevin L. Martin Treasurer
- ------------------------
Kevin L. Martin
* Trustee
- ------------------------
Robert G. Brown
* Trustee
- ------------------------
Edward P. Campbell
* Trustee
- ------------------------
Harry Gazelle
* Trustee
- ------------------------
Stanley I. Landgraf
* Trustee
- ------------------------
Thomas F. Morrisey
* Trustee
- ------------------------
H. Patrick Swygert
*By: /s/ Carl Frischling
- ------------------------
Carl Frischling
Power of Attorney
