As filed, via EDGAR, with the Securities and Exchange Commission on January 30,
1998
File No.: 333-42837
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No. __
(check appropriate box or boxes)
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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)
-------------------
Michael Sullivan
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
Jay G. Baris
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, 1997.
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 March 6, 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 vote for each full and fractional share 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
question and answer guide 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.
This proposal has 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 recommend
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 PROPOSAL 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 PROPOSAL 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 Operating 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
Class
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 last business
day prior to the closing date of the Reorganization. There
are two separate closing dates for the Reorganization.
Owners of the following funds may redeem shares before the
close of business on March 13, 1998:
Key Stock Index Fund
SBSF Capital Growth Fund
SBSF Fund
Owners of the following funds may redeem shares
before the close of business on March 20, 1998:
KeyChoice Growth Fund
KeyChoice Income and Growth Fund
KeyChoice Moderate Growth Fund
Key Money Market Mutual Fund
SBSF Convertible Securities Fund
WHEN WILL THE REORGANIZATION OCCUR?
A Shareholder Meeting will be held on March 6, 1998. A
majority of the shareholders of each Key Fund must approve
the reorganization. We expect the merger of all the Funds to
be completed by March 23, 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 your 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 MARCH 6, 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 and
referred to as the "Key Mutual Funds"), will be held at the offices of Key
Mutual Funds, 3435 Stelzer Road, Columbus, Ohio 43219-3035, on March 6, 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, inclusive of the several transactions contemplated
thereby, applies to, and will be voted on, as appropriate and necessary to fully
consummate the transactions so described, (a) separately by the shareholders of
each Key Fund and (b) by the shareholders of Key Mutual Funds voting together as
a single class:
1. To approve an Agreement and Plan of Reorganization and Liquidation
and the transactions contemplated thereby, including (a) the transfer of all or
substantially all of the assets belonging to each Key Fund to a corresponding
series of The Victory Portfolios, a Delaware business trust, ("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 (which transactions, collectively, will effect the transfer of all or
substantially all of the assets of Key Mutual Funds to Victory in exchange for
shares of Victory); (b) the distribution of shares of Victory received in
consideration for the transfer of assets belonging to each Key Fund to the
shareholders of the respective Key Funds in complete liquidation of the
respective Key Funds; and (c) the cancellation of the outstanding shares of
capital stock ("shares") of each Key Fund following the distribution of shares
of the corresponding series of Victory to the holders of such shares of each Key
Fund (the foregoing steps relative to each Key Fund are referred to as a
"Reorganization" of that Key Fund) and, (d) upon such distribution in respect of
each of the separate series of the Key Funds, the dissolution of Key Mutual
Funds (collectively with each Reorganization, the "Reorganization and
Liquidation").
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.
<PAGE>
On the day of each Reorganization, your shares will be exchanged,
without the imposition of a sales charge and on a tax-free basis, for shares of
the corresponding series of Victory 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,
Leigh A. Wilson
President
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
MARCH 6, 1998
GENERAL INFORMATION
This Combined Prospectus/Proxy Statement, which you should keep for
future reference, sets forth the information about the Victory Funds that a
prospective investor should know before voting. 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. 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 and referred to herein as "Key Mutual Funds"), a Maryland
corporation, 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, 800-KEY-FUND, on
March 6, 1998, at 8:30 a.m., Eastern time, at which shareholders of each Key
Fund, voting separately, and the shareholders of Key Mutual Funds voting as a
single class, will as appropriate, be asked to consider the following:
1. To approve an Agreement and Plan of Reorganization and Liquidation
(the "Plan") and the transactions contemplated thereby, including (a) the
transfer of all or substantially all of the assets belonging to each Key Fund to
a corresponding series of The Victory Portfolios, a Delaware business trust,
("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 (which transactions, collectively, will effect
the transfer of all or substantially all of the assets of Key Mutual Funds to
Victory in exchange for shares of Victory); (b) the distribution of shares of
Victory received in consideration for the transfer of assets belonging to each
Key Fund to the shareholders of the respective Key Funds in complete liquidation
of the respective Key Funds; and (c) the cancellation of the outstanding shares
of capital stock ("shares") of each Key Fund following the distribution of
shares of the corresponding series of Victory to the holders of such shares of
each Key Fund (the foregoing steps relative to each Key Fund are referred to as
a "Reorganization" of that Key Fund) and, (d) upon such distribution in respect
of each of the separate series of the Key Funds, the dissolution of Key Mutual
Funds (collectively with each Reorganization, the "Reorganization and
Liquidation").
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.
-3-
<PAGE>
The Reorganization and Liquidation will be submitted for approval by
the shareholders of each Key Fund voting separately as a series of Key Mutual
Funds and for approval by the shareholders of Key Mutual Funds, inclusive of
each Key Fund, voting as a single class.
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 and
Liquidation, shareholders of the Key Funds will become shareholders of Victory.
Certain shareholders of the Key Funds will become shareholders of
currently operating series of Victory, while certain shareholders of the Key
Funds will become shareholders of series of Victory that have been newly created
to continue the operations of the respective Key Funds. The currently operating
series and newly created series of Victory are collectively referred to herein
as the "Victory Funds," and individually as a "Victory Fund."
OPERATING VICTORY FUNDS. Current shareholders of the Key Stock Index
Fund, SBSF Capital Growth Fund, and SBSF Fund will become shareholders in the
Victory Stock Index Fund-Class A, Victory Special Growth Fund-Class A, and
Victory Diversified Stock Fund-Class A, the latter being currently operating
funds (each an "Operating Victory Fund" and collectively the "Operating Victory
Funds").
NEW VICTORY FUNDS. The current 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 become
shareholders in the Victory LifeChoice Growth Investor Fund-Class A, Victory
LifeChoice Conservative Investor Fund-Class A, Victory LifeChoice Moderate
Investor Fund-Class A, Victory Federal Money Market Fund-Investor Class, and
Victory Convertible Securities Fund-Class A, the latter being newly created
series to continue operations following the Reorganization and Liquidation (each
a "New Victory Fund" and collectively the "New Victory Funds").
The following table shows each Key Fund and each corresponding series
(or class of the corresponding series) of Victory which will remain following
the Reorganization and Liquidation:
<TABLE>
<CAPTION>
KEY FUNDS VICTORY FUNDS
<S> <C>
Key Stock Index Fund Victory Stock Index Fund-Class A*
SBSF Capital Growth Fund Victory Special Growth Fund-Class A*
SBSF Fund Victory Diversified Stock Fund-Class A*
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**
SBSF Convertible Securities Fund Victory Convertible Securities Fund-Class A**
</TABLE>
*Currently Operating Victory Fund.
**New Victory Fund established to continue the operations of the corresponding
Key Fund.
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,
-4-
<PAGE>
New York 10111. BISYS Fund Services, Inc. ("BISYS"), 3435 Stelzer Road,
Columbus, Ohio 43219 serves as distributor and administrator for the Key Funds
and Victory Funds.
FOR SHAREHOLDERS OF THE KEY FUNDS THAT WILL BE REORGANIZED INTO 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 REFERENCE. THE ANNUAL REPORT OF THE
OPERATING VICTORY FUNDS DATED OCTOBER 31, 1997 WHICH ACCOMPANIES THIS COMBINED
PROSPECTUS/PROXY STATEMENT, AND THE ANNUAL REPORT OF THE KEY MUTUAL FUNDS DATED
NOVEMBER 30, 1997, WHICH WAS MAILED SEPARATELY, ARE INCORPORATED BY REFERENCE IN
THEIR ENTIRETY. The annual reports and prospectuses of 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.
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 and Liquidation. 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 AND LIQUIDATION.
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 February 6, 1998.
-5-
<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.
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.
- --------------------------------------------------------------------------------
-6-
<PAGE>
TABLE OF CONTENTS
PROPOSAL
SYNOPSIS.....................................................................
Agreement and Plan of Reorganization and Liquidation....................
Tax Consequences .......................................................
Investment Objectives and Policies......................................
Share Classes...........................................................
Investment Adviser......................................................
Fees and Expenses.......................................................
Distribution, Purchase, and Redemption Procedures.......................
Exchange Rights.........................................................
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............................................
Agreement and Plan of Reorganization and Liquidation....................
Description of Shares of the Victory Funds..............................
Sales Charges and Shareholder Service Fees..............................
Description of Shares of the Key Funds..................................
Expenses................................................................
Shareholder Approval....................................................
Federal Income Tax Consequences.........................................
Capitalization..........................................................
Application for Exemptive Relief........................................
REASONS FOR THE TRANSACTION..................................................
INFORMATION ABOUT THE FUNDS..................................................
Investment Advisory Agreements..........................................
Distribution Plans......................................................
Shareholder Services Plans..............................................
Administrator and Distributor...........................................
Sub-Administrator.......................................................
Dividends and Distributions.............................................
Purchase Procedures.....................................................
Exchange Rights.........................................................
Redemption Procedures...................................................
General.................................................................
ADDITIONAL INFORMATION.......................................................
INFORMATION RELATING TO VOTING MATTERS.......................................
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION.........................
MISCELLANEOUS................................................................
EXHIBIT A....................................................................
-7-
<PAGE>
PROPOSAL
SYNOPSIS
This Synopsis of the Proposal provides a summary of the information
contained in this Combined Prospectus/Proxy Statement.
AGREEMENT AND PLAN OF Under the Plan, each Key Fund will transfer all or
REORGANIZATION AND substantially all of its assets to a corresponding
LIQUIDATION Operating Victory Fund or New Victory Fund in
exchange for shares of the corresponding Victory
Fund (or shares of a comparable class of the
corresponding Victory Fund), and the corresponding
Victory Fund will assume 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 to
Victory 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 and
Liquidation. See "Information About the
Transaction." Some of the Key Funds are expected
to distribute realized capital gains prior to the
Reorganization and Liquidation. Any such
distribution will be taxable.
INVESTMENT OBJECTIVES The New Victory Funds. Generally, the investment
AND POLICIES objectives, policies, and restrictions of the New
Victory Funds are the same 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 (although the New Victory
Funds have different limitations regarding
borrowing and the Victory Convertible Securities
Fund has a different limitation concerning
illiquid securities).
The Operating Victory Funds. The following
paragraphs state the investment objectives and
summarize the policies of the Operating Victory
Funds and the corresponding Key Funds.
KEY STOCK INDEX FUND 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
- --------
/1/ "Standard & Poor's 500" is a registered service mark of Standard and Poor's,
which does not sponsor and is in no way affiliated with Victory, Key Mutual
Funds, the Victory Stock Index Fund, or the Key Stock Index Fund.
-8-
<PAGE>
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 compose 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
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,
but may invest in companies of any size and 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. Because the
Victory Special Growth Fund may have a higher
percentage of investments in smaller
capitalization companies than the SBSF Capital
Growth Fund, shareholders may be subject to a
greater degree to the risk factors associated with
such companies. See "Comparison of the Funds'
Investment Objectives, Policies, and Risks."
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
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<PAGE>
investing primarily in equity securities and
securities that are convertible into common stocks
issued by established domestic and foreign
companies. Because the Victory Diversified Stock
Fund may invest in securities that are convertible
into common stocks issued by foreign companies,
shareholders may be subject to the risk factors
associated with investing in foreign companies.
See "Comparison of the Funds' Investment
Objectives, Policies, and Risks."
The Key Funds and Victory Funds have additional
investment policies which are discussed in
"Comparison of the Funds' Investment Objectives,
Policies, and Risks."
SHARE CLASSES The Key Funds. The Key Funds each offer one class
of shares, which has no sales charges or
redemption fees. See "Comparison of Fees and
Expenses."
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 each Reorganization, shareholders of each
Key Fund (other than Key Money Market Mutual Fund)
will receive Class A Shares of the corresponding
Victory Fund. Shareholders of the Key Money Market
Mutual Fund will receive Investor Class Shares of
the Victory Federal Money Market Fund. Class A
Shares of the Victory Funds (other than the three
LifeChoice Funds) are subject to an initial sales
charge on purchases under $1 million and are not
subject to an asset-based sales charge. A
substantial majority of the Key Fund shareholders
will not be subject to a sales charge on future
purchases of shares in the Victory Funds because
they qualify for sales charge waivers noted in the
Victory Funds' prospectuses. The LifeChoice Funds
and the 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 on an
annual basis at the following rates:
KEY FUNDS TO BE REORGANIZED INTO OPERATING ANNUAL RATE OF ADVISORY
VICTORY FUNDS FEES (AS A PERCENTAGE
OF AVERAGE DAILY NET ASSETS)
Key Stock Index Fund 0.10%
SBSF Capital Growth Fund 0.75%
SBSF Fund 0.75%
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<PAGE>
KEY FUNDS TO BE REORGANIZED INTO ANNUAL RATE OF
NEW VICTORY FUNDS ADVISORY FEES (AS A PERCENTAGE
OF AVERAGE DAILY NET ASSETS)
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%
SBSF Convertible Securities 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:
GROSS
OPERATING EXPENSE
EXPENSES WAIVERS
KEY FUNDS TO BE REORGANIZED INTO NET (BEFORE FEE AND
OPERATING VICTORY FUNDS OPERATING WAIVERS AND REIMBURSE-
EXPENSES REIMBURSEMENTS) MENTS
Key Stock Index Fund $ 0 $ 337,006 $337,006
SBSF Capital Growth Fund 555,145 555,145 0
SBSF Fund 1,270,577 1,274,309 3,732
GROSS
OPERATING
NET EXPENSES EXPENSE
KEY FUNDS TO BE REORGANIZED INTO OPERATING (BEFORE FEE REIMBURSE
NEW VICTORY FUNDS EXPENSES WAIVERS) -MENT
KeyChoice Growth Fund $9,255 $114,772 $105,517
KeyChoice Income and Growth Fund 6,389 115,280 108,891
KeyChoice Moderate Growth Fund 10,360 125,995 115,635
Key Money Market Mutual Fund 584,155 950,244 366,089
SBSF Convertible Securities Fund 1,064,519 1,064,519 0
The New Victory Funds. The New Victory Funds have no current operations and have
been 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.
The Operating Victory Funds. KAM is entitled to receive 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%
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<PAGE>
For the fiscal year ended October 31, 1997, the total operating expenses, and
operating expenses before voluntary fee waivers, of each Operating Victory Fund
were as follows:
EXPENSE
WAIVER OR
NET GROSS BEFORE REIMBURSE
EXPENSES WAIVERS -MENT
(In Thousands) (In Thousands) (In Thousands)
Victory Diversified Stock Fund $7,455 $7,455 $0
Victory Special Growth Fund 1,275 1,275 0
Victory Stock Index Fund 3,280 2,138 1,142
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 and
Liquidation, shareholders of the Key Stock Index Fund, SBSF Capital Growth Fund,
and SBSF Fund will not be subject to higher total expense whether or not those
Key Funds approve the Reorganization and Liquidation, although current expense
reimbursements relating to all Key Mutual Funds will no longer limit expenses to
former levels. See "Comparison of Fees and Expenses."
DISTRIBUTION, PURCHASE, AND REDEMPTION PROCEDURES
Key Funds. The Key Funds are sold at net asset value with no initial sales
charge, contingent deferred sales charge ("CDSC"), or asset-based sales charges.
See "Comparison of Fees and Expenses."
Victory Funds. Class A Shares of the Victory Funds (other than the three
LifeChoice Funds) are subject to an initial sales charge on investments up to $1
million. However, on investments 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 .50% within two years of the purchase. Each
LifeChoice Fund and 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 and
Liquidation. In addition, you will not pay a sales charge if you invest in
additional shares of the Victory Funds after the Reorganization and Liquidation
provided that you qualify for a waiver of the sales charge. Please refer to the
prospectus of your particular Fund.
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.
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<PAGE>
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."
APPLICATIONS FOR EXEMPTIVE RELIEF
Key Mutual Funds, Victory, and KAM (the "Applicants") have applied for an order
from the Commission that would permit the Funds to carry out the Reorganization
and Liquidation, despite certain provisions of the federal securities laws which
may be deemed to prohibit the transactions involved in the Reorganization and
Liquidation. The Applicants have also applied for exemptive relief in order to
be able to charge a sales load in accordance with the limits described in
"Comparison of Fees and Expenses" and "Information About the Transaction -
Application for Exemptive Relief."
OTHER CONSIDERATIONS
In the event that the shareholders of any Key Fund do not approve the
Reorganization applicable to that Key Fund when voting separately as
shareholders of that Key Fund, the Reorganization as respects that Key Fund will
not proceed in the manner currently contemplated. In the event that the
shareholders of one or more Key Funds approve a Reorganization when voting as
shareholders of the respective Key Funds, but the shareholders of Key Mutual
Funds voting together do not approve the Reorganization and Liquidation, the
Reorganization may proceed as respects certain or all of those Key Funds
approving the Reorganization, as determined by the Board, so long as so
proceeding does not constitute a transfer of all or substantially all of the
assets of Key Mutual Funds, and no dissolution of Key Mutual Funds can be
affected until approved by the shareholders of Key Mutual Funds voting together.
The Board will consider possible alternatives to the proposed Reorganization
insofar as not approved. 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 currently have no assets; they have been created
for the sole purpose of receiving the assets of the corresponding Key Funds in
the Reorganization and Liquidation and to continue their operations. Each New
Victory Fund has an investment objective and investment policies which are the
same in all material respects to the investment objective and policies of its
corresponding Key Fund.
As is the case with respect to the Key Funds, there is no assurance
that the Victory Funds will
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<PAGE>
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 the section
titled, "The New Victory Funds," the New Victory Funds will have certain
investment limitations that are different from the corresponding Key Funds, as
described below in the section titled, "The New Victory Funds."
OPERATING VICTORY FUNDS AND CORRESPONDING KEY FUNDS
The current investment objectives, policies, and restrictions of the
Operating Victory Funds are, in general, substantially 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 Stock Index Fund and the Victory Stock Index Fund invest
primarily in the equity securities that are in the S&P 500 Index and
secondarily in stock index 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 Stock Index Fund and the Victory Stock Index Fund 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 Stock Index Fund or the Victory Stock
Index Fund. The Key Stock Index Fund and the 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 Stock Index Fund or the Victory Stock Index
Fund investment results (before expenses) and that of the S&P 500
Index).
o The Key Stock Index Fund and the Victory Stock Index Fund may invest
in preferred stocks, investment-grade corporate debt securities,
short-term debt obligations, and U.S. Government obligations. The
Victory Stock Index Fund may invest in American Depository Receipts.
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
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<PAGE>
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.
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>
<S> <C>
INVESTMENT POLICIES OF THE VICTORY INVESTMENT POLICIES OF THE SBSF CAPITAL
SPECIAL GROWTH FUND GROWTH FUND
Under normal circumstances, at least 65% The SBSF Capital Growth Fund invests
of the Victory Special Growth Fund's primarily in small to medium
total assets will be invested in equity capitalization companies, i.e., issuers
securities of companies with market having a market capitalization of $200
capitalization of $750 million or less million to $1.5 billion, but may invest
at the time of purchase. These equity in companies of any size and may take
investments include: advantage of any investment opportunity
with attractive long-term growth
Common stock; prospects, including preferred stocks,
Preferred stock; convertible securities, and bonds.
Convertible preferred stock;
Debt convertible or exchangeable The SBSF Capital Growth Fund seeks to
into equity securities; and achieve its objective by investing in
Securities convertible into common stock. equity securities of companies which KAM
believes are likely to have rapid growth
The Victory Special Growth Fund may in earnings or cash flow.
invest up to 35% of its total assets in
equity securities of companies with The SBSF Capital Growth Fund seeks to
market capitalizations of approximately invest in growth oriented common stocks
$1 billion or more. of domestic corporations and, to a
limited extent, foreign corporations
The Victory Special Growth Fund may listed on any national securities
invest up to 35% of its total assets in exchange or traded in the
investment-grade debt securities. over-the-counter market.
The Victory Special Growth Fund may also The SBSF Capital Growth Fund is not
invest up to 5% of its total assets in restricted to investments in specific
lower-rated debt securities, commonly market sectors and may invest in any
referred to as "junk bonds." market sector.
</TABLE>
Risk Factors. The following paragraphs describe the additional risks
involved with 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
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<PAGE>
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 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.
Lower Rated Debt Securities. 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 and the SBSF Fund.
<TABLE>
<CAPTION>
<S> <C>
Investment Policies of the Victory Investment Policies of the SBSF Fund
Diversified Stock Fund
The Victory Diversified Stock Fund 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.
The SBSF Fund invests in securities
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 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 The SBSF Fund is not restricted to
dividend yield and potential for investments in any specific market
appreciation. sector or industry group.
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
or exchangeable into common stocks.
Under normal conditions, the Victory
Diversified Stock Fund may invest up to
20% of its total assets in:
o Investment-grade corporate debt
securities;
o Short-term debt obligations; and
o U.S. Government obligations.
</TABLE>
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<PAGE>
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). In addition, because the Victory Diversified
Stock Fund may have some exposure to securities of foreign issuers,
the Fund may be subject to greater market risks than mutual funds that
invest only in securities of U.S. issuers. For example, foreign
investments may be unfavorably affected by changes in exchange rates.
Foreign companies may not be subject to the same degree of reporting
standards as U.S. companies. Investments in foreign securities may
also be subject to local economic or political risks, such as
political instability of foreign governments.
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 and Liquidation of the corresponding Key Funds and continuing
their operations as series of Victory. After the Reorganization and Liquidation,
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, in effect, a continuation of the
corresponding Key Funds, the New Victory Funds will be substantially the same in
most material respects to the corresponding Key Funds. Three differences,
however, are (1) that each New Victory Fund is a series of Victory, which is a
Delaware business trust, whereas each Key Fund is a series of Key Mutual Funds,
which is a Maryland corporation, (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
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<PAGE>
Mutual Funds, and (3) several of the New Victory Funds will have investment
restrictions that are slightly different from those of the Key Funds.
With respect to investment restrictions regarding borrowing, the
different restrictions between certain Key Funds, and the New Victory Funds are
described as follows:
<TABLE>
<CAPTION>
KEY FUNDS: NEW VICTORY FUNDS:
<S> <C>
Currently, for the KeyChoice Growth Fund, KeyChoice For the Victory LifeChoice Growth Investor Fund,
Moderate Growth Fund, and KeyChoice Income and Growth Victory LifeChoice Moderate Investor Fund, Victory
Fund, the borrowing restriction states: LifeChoice Conservative Investor Fund, Victory Federal
Money Market Fund, and Victory Convertible Securities
The above noted Key Funds ("Funds") may not borrow money, Fund, the borrowing restriction will state:
except that (a) a Fund may invest in Underlying
Portfolios that have the authority to borrow money to the None of the above noted Victory Funds ("Funds") may
extent permissible under applicable regulations and borrow money, except that (a) each Fund may enter into
interpretations of the Investment Company Act of 1940, as commitments to purchase securities in accordance with
amended (the "1940 Act") or an exemptive order; (b) a its investment program, including delayed-delivery and
Fund may invest in Underlying Portfolios (other mutual when-issued securities and reverse repurchase
funds) that borrow money from banks for temporary or agreements, provided that the total amount of any such
emergency purposes, including meeting redemption borrowing does not exceed 33 1/3% of the Fund's total
requests, in an amount not exceeding 5% of the lower of assets; and (b) each Fund may borrow money for
market value or the cost of its total assets at the time temporary or emergency purposes in an amount not
when the loan is made, in which case it may pledge, exceeding 5% of the value of its total assets at the
mortgage, or hypothecate any of its assets as security time when the loan is made. Any borrowings
for such borrowing, but not to an extent greater than 5% representing more than 5% of a Fund's total assets must
of the market value of its assets; and (c) a Fund may be repaid before the Fund may make additional
borrow money for temporary or emergency purposes in an investments.
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 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 CHANGE AND TERMS DEFINED. Certain terms noted within
the borrowing restriction of the New Victory Funds are defined as follows.
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<PAGE>
Delayed-delivery and when-issued securities are securities subject to settlement
on a future date. The risk associated with delayed-delivery and when-issued
securities is that the market value of the securities may change in the time
between the purchase and delivery dates of the securities. An additional risk
with these securities is that no interest accrues to the Fund during the time
period prior to settlement. A segregated account is established and the Funds
maintain cash and marketable securities at least equal in value to commitments
for delayed-delivery and when-issued securities. Under a reverse repurchase
agreement, a Fund would sell securities and agree to repurchase them at a
mutually agreed date and price. Reverse repurchase agreements involve the risk
that the market value of the securities may decline prior to the repurchase
date. The cash proceeds of the sales may be invested in securities or other
instruments. In the event that the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities, and the Fund's use
of the proceeds of the reverse repurchase agreement may effectively be
restricted pending such a decision. The New Victory Funds' borrowing restriction
clarifies and modernizes the restriction on borrowing by treating borrowing for
temporary or emergency purposes separately from other borrowing. The borrowing
limits for non-temporary or non-emergency purposes would increase from 10% to 33
1/3% of a Fund's total assets. Borrowing for emergency purposes may be necessary
to address unanticipated liquidation of Fund shares that exceed available cash.
To increase flexibility, reverse repurchase agreements would not be used by a
Fund for the purpose of leveraging, and would be subject to the 33 1/3%
limitation (rather than 10%) of a Fund's total assets. Money borrowed will be
subject to interest and other costs.
With respect to investment restrictions regarding restricted and illiquid
securities, the differences between the SBSF Convertible Securities Fund and the
Victory Convertible Securities Fund are described as follows:
SBSF CONVERTIBLE SECURITIES VICTORY CONVERTIBLE SECURITIES
FUND: FUND:
Currently, for the SBSF For the Victory Convertible
Convertible Securities Fund, the Securities Fund the
fundamental restriction non-fundamental restriction
regarding restricted and regarding restricted and
illiquid securities provides: illiquid securities provides
would provide:
The SBSF Convertible Securities
Fund will not invest more than The Victory Convertible
10% of its total assets in (i) Securities Fund will not invest
securities restricted as to more than 15% of its net assets
disposition under the Federal in illiquid securities.
securities laws, (ii) securities
as to which there are no readily
available market quotations, or
(iii) repurchase agreements with
a maturity in excess of seven
days.
EXPLANATION OF THE CHANGE AND TERMS DEFINED. The amount invested in
illiquid securities would increase from 10% of the Fund's total assets to 15% of
the Fund's net assets. Illiquid securities are securities that are not readily
marketable or cannot be disposed of within seven days 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. KAM determines whether a
particular security is deemed to be liquid based on the trading markets for the
specific security and other factors.
The change would standardize, among all Victory Funds within the same
-19-
<PAGE>
category (i.e., all money market funds and all non-money market funds), the
applicable investment restriction, as well as modernize the restriction to
reflect the current position of the Commission staff. In addition, the change
from a fundamental to non-fundamental restriction would allow the Board of
Victory to amend the restriction in a timely manner without requiring
shareholder approval. Thus, as a non-fundamental restriction, the policy of the
Victory Convertible Securities Fund would give the Fund additional flexibility,
because the Board of Victory may amend the restriction to meet the changing
needs of the Victory Convertible Securities Fund or changes in applicable laws.
It should be noted that approval of the Reorganization and Liquidation
by shareholders shall be deemed acceptance by shareholders of the investment
policies and restrictions of the New Victory Funds, which differ from those of
certain Key Funds, as described above. Furthermore, if shareholders approve the
Reorganization and Liquidation, shareholders will no longer have the opportunity
to vote on the changes discussed above concerning the borrowing restrictions and
investment in illiquid securities.
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 Key Fund, which
could include the adoption of a plan, upon shareholder approval, to liquidate
such Key Fund or the resolicitation of shareholder proxies.
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. Annual expenses may be more or less than those shown below.
<TABLE>
<CAPTION>
Victory Victory
KeyChoice Victory KeyChoice LifeChoice KeyChoice LifeChoice
Growth LifeChoice Moderate Moderate Income and Conservative
Fund Growth Growth Fund Investor Fund Growth Investor Fund
Investor Fund Fund
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases None(1) None(1) None(1) None(1) None(1) None(1)
(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 (no waivers applicable) 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 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%
Key Money Victory Federal Money
Market Mutual Market Fund Key Stock Victory Stock
Fund Investor Class Index Fund Index Fund
SHAREHOLDER TRANSACTION EXPENSES
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
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<PAGE>
ANNUAL FUNDS OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Management Fees (after waivers, if applicable) 0.00%(2) 0.00%(3) 0.00%(4) 0.45%(5)
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 (after waivers) 0.27%(2) 0.27%(3) 0.56%(4) 0.56%(5)
<CAPTION>
SBSF Victory
Convertible Convertible Victory
SBSF Victory Special Securities Securities SBSF Diversified
Capital Growth Fund Fund Fund Fund Stock
Growth Fund Fund
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 (no waivers applicable) 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>
(1) Although the KeyChoice Growth Fund, KeyChoice Moderate Growth Fund, and
KeyChoice Income and Growth Fund ("KeyChoice Funds"), do not currently impose a
sales charge, an application for exemptive relief has been filed with the
Commission that would permit the KeyChoice Funds, and, if granted, the
corresponding Victory LifeChoice Funds (Growth Investor, Moderate Investor, and
Conservative Investor), to impose a maximum sales charge of 5.75% on purchases
of shares. The decision to grant or deny the application is, however, solely
within the discretion of the Commission.
(2) Without waivers, the Management Fee paid by the Key Money Market Mutual Fund
would be 0.25% of the average daily net assets of the Fund, and Total Fund
Operating Expenses would be 0.52% of the average daily net assets of the Fund.
(3) Without waivers, the Management Fee paid by the Victory Federal Market
Mutual Fund would be 0.25% of the average daily net assets of the Fund, and
Total Fund Operating Expenses would be 0.52% of the average daily net assets of
the Fund.
(4) Without waivers, the Management Fee paid by the Key Stock Index Fund would
be 0.10% of the average daily net assets of the Fund, and Total Fund Operating
Expenses would be 0.66% of the average daily net assets of the Fund.
(5) Without waivers, the Management Fee paid by the Victory Stock Index Fund
would be 0.60% of the average daily net assets of the Fund, and Total Fund
Operating Expenses would be 1.16% of the average daily net assets of the Fund.
-21-
<PAGE>
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:
- --------------------------------------------------------------------------------
10
1 YEAR 3 YEARS 5 YEARS YEARS
- --------------------------------------------------------------------------------
KeyChoice Growth Fund $14 $45 $78 $170
Victory LifeChoice Growth Investor Fund $14 $45 $78 $170
- --------------------------------------------------------------------------------
KeyChoice Moderate Growth Fund $14 $43 $75 $165
Victory LifeChoice Moderate Investor Fund $14 $43 $75 $165
- --------------------------------------------------------------------------------
KeyChoice Income and Growth Fund $14 $42 $73 $160
Victory LifeChoice Conservative Investor Fund $14 $42 $73 $160
- --------------------------------------------------------------------------------
Key Money Market Mutual Fund $3 $9 $15 $34
Victory Federal Money Market Fund $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 Fund $68 $89 $112 $178
- --------------------------------------------------------------------------------
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.
INFORMATION ABOUT THE TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The
Reorganization and Liquidation 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
and Liquidation without liability on the part of any Key Fund. Assuming
satisfaction of the conditions of the Plan, the closing date for a
Reorganization will be on March 16, 1998, or such other date or dates as is
agreed to by the parties (each a "Closing Date"). The parties may agree to
establish one or more Closing Dates for a Reorganization insofar as applicable
to a particular Key Fund.
The Board has approved the Plan which provides that on the Closing Date
all, or substantially all, of the assets of or belonging to each Key Fund whose
shareholders approve a Reorganization 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 belonging to the Key Fund. Each Key Fund will distribute the
shares as received to the shareholders of that Key Fund, and the shares of the
Key Fund will become void. Thus, each shareholder of the Key Fund approving a
Reorganization will, at the time of the Reorganization as applicable to that Key
Fund, become a shareholder of the corresponding Victory Fund and will receive
the same dollar value in the Victory Fund shares as the shareholder held in
shares of the Key Fund.
-22-
<PAGE>
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 Fund and the 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 as applicable to that Key Fund 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 corresponding Key Fund. After the distributions in respect of
each Key Fund, that Key Fund will be terminated.
Shareholders of each Key Fund (other than Key Money Market Mutual 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 of a Key Fund, Key
Mutual Funds reserves the right on behalf of such Key Fund to sell portfolio
securities and/or purchase other securities to the extent necessary so that the
asset composition of each 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 or belonging to 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 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. The Victory Funds provide, however, a waiver of the sales
charges on Class A shares, for which substantially all of the Key Fund
shareholders will qualify. Class A Shares (except Class A Shares of the Victory
Stock Index Fund) are subject to a shareholder servicing fee at an annual rate
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."
DESCRIPTION OF SHARES OF THE KEY FUNDS. The Key Mutual Funds offer one
class of shares with no sales charges, redemption fees, or exchange fees. See
"Comparison of Fees and Expenses."
-23-
<PAGE>
EXPENSES. Each 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 Reorganization and Liquidation
requires the approval at the Meeting of each Key Fund voting separately as a
series and the approval at the Meeting of the shareholders of Key Mutual Funds
(i.e. the shareholders of all of the Key Funds) voting together as a single
class. Approval of the Reorganization with respect to each Key Fund voting
separately as a series requires the affirmative vote of a "majority of the
outstanding voting securities" of that Key Fund, where a "majority of the
outstanding voting securities" means the lesser of (i) 67% or more of the voting
securities of the Key Fund present at the Meeting, if the holders of more than
50% of the outstanding voting securities of the Key Fund are present or
represented by proxy, or (ii) more than fifty percent of the outstanding voting
securities of the Key Fund. To the extent which the Reorganization as applicable
to one or more Key Funds and results in the transfer of all or substantially all
of the assets of Key Mutual Funds, the approval of such transfer will also
require the affirmative vote of a majority of shares of Key Mutual Funds issued
and outstanding on the Record Date, voting together as a single class.
In the event that the shareholders of any Key Fund do not approve the
Reorganization by the requisite vote when voting separately as a series, the
Reorganization as respects that Key Fund will not proceed in the manner
currently contemplated. In the event that the shareholders of one or more Key
Funds approve the Reorganization by the requisite vote when voting separately as
a series, but the shareholders of Key Mutual Funds voting together as a single
class do not approve the Reorganization as applicable to the several Key Funds
and the resulting transfer of all or substantially the assets of Key Mutual
Funds by the requisite vote, the Reorganization may proceed as respects certain
or all of those Key Funds approving the Reorganization when voting separately as
a series, so long and insofar as so proceeding does not constitute a transfer of
all or substantially all of the assets of Key Mutual Funds, and no dissolution
of Key Mutual Funds can be effected unless and until the requisite vote of the
shareholders of Key Mutual Funds voting together as a single class is obtained.
In such event, the Board reserves the right to determine those Key Funds as
respects which a Reorganization will and will not then proceed. In addition, the
Board will consider possible alternatives to the Reorganization and the
Reorganization and Liquidation.
Each 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 and Liquidation
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 the
liabilities of or belonging to 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 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 recognize any gain or loss as a result of the Reorganization; (3)
the Victory Fund will not recognize any gain or loss on the receipt of the
assets of the Key Fund in exchange for shares of the Victory Fund and the
assumption of the liabilities of the Key Fund; (4) 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; (5) 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; (6) the Victory Fund's adjusted tax bases in the assets
received from the Key Fund in the Reorganization will be the same as the
-24-
<PAGE>
adjusted tax bases of such assets in the hands of the Key Fund immediately prior
to the Reorganization; (7) 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; and (8) 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. 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. 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 on the Closing Date. 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 each 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 Key Funds' and Operating Victory Funds' as well as the effects
of their 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.
PRO FORMA CAPITALIZATION
(As of October 31, 1997)
(In Thousands)
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 24,807
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.
-25-
<PAGE>
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 December 26, 1997, SNBOC and
Company ("SNBOC") and Key Trust Company of Ohio, N.A. ("Key Trust"), which are
affiliates of KAM, held shares of each of the following Victory and Key Funds as
record holder for the benefit of various customers (including employees of
KeyCorp and its affiliates) noted below. Because SNBOC owns in excess of 5% of
the outstanding voting securities of the Victory and Key Funds set out below,
SNBOC may be deemed to be an affiliate of the Victory and Key Funds. In
addition, because SNBOC owns in excess of 25% of the outstanding voting
securities of the Victory and Key Funds, it may be deemed to be a control person
of those Funds. As a consequence of SNBOC's ownership of shares in the Victory
and Key Funds, such Funds may be deemed affiliated persons of each other for
reasons not based solely on their common adviser, KAM. Thus, the transfer of
assets contemplated by the Plan may be prohibited by the 1940 Act.
-26-
<PAGE>
% OF TOTAL
FUND OUTSTANDING SHARES
Victory Stock Index Fund 97.97%
Victory Special Growth Fund 98.32%
Victory Diversified Stock Fund 83.65%
Key Stock Index Fund 94.47%
KeyChoice Growth Fund 99.11%
KeyChoice Moderate Growth Fund 98.56%
KeyChoice Income and Growth Fund 97.98%
SBSF Convertible Securities Fund 10.12%
SBSF Capital Growth Fund 72.07%
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 involved; 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. 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 and Liquidation without receiving such an order.
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" (as
defined by the 1940 Act) 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 and Liquidation.
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 Liquidation. 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 and Liquidation could simplify the marketing of the
funds as a whole. The Directors also believe that 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.
-27-
<PAGE>
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 objective of each
Operating Victory Fund is similar to that of the comparable Key Mutual Fund in
all material respects. The Directors further considered that KAM will continue
to provide investment advisory services to the Victory 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 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 March 1, 1997 between KAM and Victory, on behalf of the Victory Funds
(including the Victory Stock Index Fund, Victory Special Growth Fund, and
Victory Diversified Stock Fund). KAM will also serve as investment adviser to
the New Victory Funds (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), pursuant to an investment advisory agreement.
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.
-28-
<PAGE>
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 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. With respect to the selection of brokers or
dealers, the investment advisory agreement between KAM and Victory provides that
KAM shall use its best efforts to select brokers or dealers to execute portfolio
transactions at prices which, under the circumstances, result in total costs or
proceeds being the most favorable to the Victory Funds. In assessing the best
overall terms available for any transaction, KAM considers all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, research services provided to KAM, and the reasonableness of the
commission.
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:
<TABLE>
<CAPTION>
ANNUAL RATE OF ADVISORY FEES
OPERATING VICTORY FUNDS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<S> <C>
Victory Stock Index Fund 0.60%
Victory Special Growth Fund 1.00%
Victory Diversified Stock Fund 0.65%
ANNUAL RATE OF ADVISORY FEES
NEW VICTORY FUNDS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
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 Convertible Securities Fund 0.75%
</TABLE>
-29-
<PAGE>
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:
<TABLE>
<CAPTION>
------------------ ------------------ ------------------ ------------------
Key Fund *Advisory Fees Gross Dollars Due WAIVED Net
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Key Stock Index Fund 0.10% $27,585.16 $27,585.16 $0.00
SBSF Convertible Securities Fund 0.75% 595,736.75 0.00 595,736.75
SBSF Capital Growth Fund 0.75% 290,732.60 0.00 290,732.60
SBSF Fund 0.75% 760,259.20 0.00 760,259.20
Key Money Market Fund 0.25% 277,325.72 277,325.72 0.00
KeyChoice Growth Fund 0.20% 6,257.72 127.60 6,129.74
KeyChoice Moderate Growth Fund 0.20% 7,588.95 1,023.51 6,565.44
Keychoice Income & Growth Fund 0.20% 4,449.98 138.51 4,311.47
----- -------- ------ --------
3.20% 1,969,935.69 306,200.50 1,663,735.20
</TABLE>
* Annual Rate of Advisory Fees (as a percentage of average daily net assets).
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. However, the total operating expenses of the Victory Stock Index
Fund will be no higher than that of the Key Stock Index Fund, while the total
operating expenses of the Victory Special Growth Fund, and Victory Diversified
Stock Fund, will be lower than the expenses of the SBSF Capital Growth Fund and
the SBSF Fund.
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,
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
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<PAGE>
(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. The Operating Victory Funds
have not adopted a Rule 12b-1 distribution plan.
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 exceptions being 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, Key Stock Index 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.
For expenses incurred and services provided as administrator of the
Victory Funds, BISYS receives a fee at the following annual rate based on each
Victory Fund's average daily net assets:
0.15% for portfolio assets up to $300 million;
0.12% for the next $300 million of portfolio assets; and
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<PAGE>
0.10% for portfolio assets in excess of $600 million.
After the Reorganization and Liquidation, 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, but
receives sales charges paid by shareholders. 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 and Liquidation.
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. The Key Funds do not have a sub-administrator.
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.
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 shares of the particular Victory
or Key Fund in which such shareholder owns shares in 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 Victory and Key Funds, it is each Victory and
Key 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
Victory or Key Fund.
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<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 Mutual Funds each offer one class of shares with no
initial sales charge.
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. As noted previously, substantially all of the Key Fund shareholders
will qualify for a waiver of the sales charges on Class A shares.
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. Shareholders of the Key Funds and Victory Funds may redeem shares
by mail, telephone, or wire.
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 organized on December 6, 1995, whereas Key Mutual Funds is a Maryland
corporation that was incorporated on May 26, 1983. 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 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.
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, as amended, 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
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<PAGE>
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
_______, 1998 and is incorporated by reference.
The Victory and Key Funds are subject to the informational requirements
of the 1940 Act and the regulations thereunder 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 may 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.
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
charged 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, each of the Key Funds had the number of shares
issued and outstanding set forth below, each share being entitled to one vote:
FUND NAME TOTAL SHARES OUTSTANDING
*Key Stock Index Fund 2,964,790.618
*SBSF Fund 5,852,343.790
*SBSF Capital Growth Fund 3,602,038.989
**Key Money Market Fund 278,683,431.430
**SBSF Convertible Securities Fund 8,472,421.641
**KeyChoice Growth Fund 681,719.768
**KeyChoice Moderate Growth Fund 704,548.390
**KeyChoice Income & Growth Fund 845,189.710
* Key Fund that will be reorganized into an Operating Victory Fund
** Key Fund that will be reorganized into a New Victory Fund
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<PAGE>
As of December 26, 1997, the Directors and officers of Key Mutual
Funds, as a group, owned less than 1% of the outstanding shares of each Key
Fund. To the best of the knowledge of the Key Funds, the following shareholders
beneficially owned 5% or more of the outstanding shares of the Key Funds and
Operating Victory Funds as of December 26, 1997:
<TABLE>
<CAPTION>
======================================================================================================================
PERCENT OF CLASS OWNED PERCENT OF CLASS OWNED
FUND NAME AND ADDRESS OF RECORD OF RECORD AND
BENEFICIALLY
======================================================================================================================
<S> <C> <C>
SBSF Convertible Charles Schwab & Co. 28.13% N/A
Securities Fund Special Custody Acct. #2
FBO Customers
Attn: Mutual Funds Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
======================================================================================================================
SBSF Convertible Key Trust 10.12% N/A
Securities Fund P.O. Box 93971
4900 Tiedeman Road
Brooklyn, OH 44144-2338
======================================================================================================================
SBSF Convertible Donaldson Lufkin & Jenrette SEC 9.34% N/A
Securities Fund For the Exclusive Benefit of Our Mutual
Funds Dept.
P.O. Box 2052
Jersey City, NJ 07303-2052
======================================================================================================================
Key Money Market Mutual Student Loan Funding Corp. 75.76% 75.76%
Fund One West Fourth Street, Suite 200
Cincinnati, OH 45202-3699
======================================================================================================================
Key Money Market Mutual KeyCorp Investment Products 5.60% N/A
Fund 127 Public Square
Cleveland, OH 44114-1216
======================================================================================================================
SBSF Capital Growth Fund Key Trust 72.07% N/A
P.O. Box 93971
4900 Tiedeman Road
Brooklyn, OH 44144-2338
======================================================================================================================
SBSF Fund Mac & Co. 9.09% N/A
Mellon Bank N.A.
P.O. Box 320
Pittsburgh, PA 15230-0320
======================================================================================================================
SBSF Fund Fleet National Bank FBO Alliance 5.88% N/A
P.O. Box 92800
Rochester, NY 14692-8900
======================================================================================================================
Key Stock Index Fund SNBOC & Company 94.47% N/A
4900 Tiedeman Road
P.O. Box 93971
Cleveland, OH 44144-2338
======================================================================================================================
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<PAGE>
KeyChoice Income & SNBOC & Company 97.98% N/A
Growth Fund 4900 Tiedeman Road
P.O. Box 93971
Cleveland, OH 44144-2338
======================================================================================================================
KeyChoice Moderate SNBOC & Company 98.56% N/A
Growth Fund 4900 Tiedeman Road
P.O. Box 93971
Cleveland, OH 44144-2338
======================================================================================================================
KeyChoice Growth Fund SNBOC & Company 99.11% N/A
4900 Tiedeman Road
P.O. Box 93971
Cleveland, OH 44144-2338
======================================================================================================================
Victory Diversified SNBOC & Company 83.65% N/A
Stock Fund 4900 Tiedeman Road
Cleveland, OH 44144-2338
======================================================================================================================
Victory Stock Index Fund SNBOC & Company 97.97% N/A
4900 Tiedeman Road
Cleveland, OH 44144-2338
======================================================================================================================
Victory Special Growth SNBOC & Company 98.32% N/A
Fund P.O. Box 93971
4900 Tiedeman Road
Cleveland, OH 44144-2338
======================================================================================================================
</TABLE>
The KeyCorp Cash Balance Mutual Equity Fund may be deemed to control
the Victory Special Growth Fund because as of December 26, 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 outstanding 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 December 26, 1997 it owned 75.76% 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.
As of December 26, 1997, SNBOC held shares of certain Key and Victory
Funds listed in the above chart. SNBOC 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 Key Trust and their affiliates who furnish
voting instructions).
Each whole share of each Key Fund shall be entitled to one vote when
voting on the Reorganization or any of the transactions contemplated thereby,
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, if executed and returned in time
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<PAGE>
for the meeting, such proxy will be voted to approve the Reorganization and any
transactions contemplated thereby, whether as a matter submitted for the
separate approval by the shareholders of any Key Fund or for the approval by the
shareholders of Key Mutual Funds voting as a single class. 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 a majority of the
outstanding shares of Key Mutual Funds at the close of business on the Record
Date present in person or by proxy shall constitute a quorum for the transaction
of business at the Meeting. If a quorum is not present at the Meeting, the
holders of a majority of shares of Key Mutual Funds present at the Meeting, 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. If necessary, proxies indicating a vote in favor of the Reorganization
and Liquidation will be voted for adjournment and proxies indicating the vote
against the Reorganization and Liquidation will be voted against adjournment. An
adjourned meeting may be held within 120 days after the record 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 Charter 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 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.
REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of the Reorganization and Liquidation requires the approval at
the Meeting of each Key Fund voting separately as a series and the approval at
the Meeting of the shareholders of Key Mutual Funds (i.e. the shareholders of
all of the Key Funds) voting together as a single class. Approval of the
Reorganization with respect to each Key Fund voting separately as a series
requires the affirmative vote of a "majority of the outstanding voting
securities" of that Key Fund, where a "majority of the outstanding voting
securities" means the lesser of (i) 67% or more of the voting securities of the
Key Fund present at the Meeting, if the holders of more than 50% of the
outstanding voting securities of the Key Fund are present or represented by
proxy, or (ii) more than fifty percent of the outstanding voting securities of
the Key Fund. To the extent which the Reorganization as applicable to one or
more Key Funds would result in the transfer of all or substantially all of the
assets of Key Mutual Funds, the approval of such transfer will also require
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<PAGE>
the affirmative vote of a majority of shares of Key Mutual Funds issued and
outstanding on the Record Date, voting together as a single class.
In the event that the shareholders of any Key Fund do not approve the
Reorganization by the requisite vote when voting separately as a series, the
Reorganization as respects that Key Fund will not proceed in the manner
currently contemplated. In the event that the shareholders of one or more Key
Funds approve the Reorganization by the requisite vote when voting separately as
a series, but the shareholders of Key Mutual Funds voting together as a single
class do not approve the Reorganization as applicable to the several Key Funds
and the resulting transfer of all or substantially all the assets of Key Mutual
Funds by the requisite vote, the Reorganization may proceed as respects certain
or all of those Key Funds approving the Reorganization when voting separately as
a series, so long and insofar as so proceeding does not constitute a transfer of
all or substantially all of the assets of Key Mutual Funds, and no dissolution
of Key Mutual Funds can be effected unless and until the requisite vote of the
shareholders of Key Mutual Funds voting together as a single class is obtained.
In such event, the Board reserves the right to determine which Key Funds as
respects which a Reorganization will and will not then proceed. In addition, the
Board will consider possible alternatives to the Reorganization and the
Reorganization and Liquidation.
After carefully considering all of the issues involved, the Board of
Directors has unanimously concluded that each Reorganization and the
Reorganization and Liquidation, and any other of the transactions contemplated
thereby, is advisable and in the best interest of each of the Key Funds and
their shareholders and is advisable and in the best interest of all of the
shareholders of the Key Mutual Funds. Therefore, the Board recommends that
shareholders approve the proposal.
MISCELLANEOUS
FINANCIAL STATEMENTS. Coopers & Lybrand L.L.P., independent accountants
to the Key and Victory Funds, have audited the financial statements included in
the Related Statement of Additional Information accompanying this Combined
Prospectus/Proxy Statement for the Victory Funds for the year ended October 31,
1997, and for the Key Mutual Funds for the year ended November 30, 1997.
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.
__________________, 1998
By Order of the Board of Directors,
Leigh A. Wilson
President
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<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 __________, 1998, 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 or substantially 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 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
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Liabilities, and such Acquiring Fund will provide such Acquired Portfolio 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 Acquired 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 Acquired 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 Acquired 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 Acquired 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 and subject to its Charter and Maryland law to
effect a termination of that Acquired Portfolio and to terminate the
qualification, classification and registration of such Acquired Portfolio 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
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date being referred to as an "Applicable Valuation Date"), using the 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 Fund Services,
Inc.). 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 16, 1998, or on such other date or dates as may
be mutually agreed upon 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
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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
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 the approval of the transaction
contemplated by 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 the Victory Stock Index Fund, 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
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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 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 Director 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 Director in connection with any claim that is asserted against
such Director arising out of such person's service as a Director 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.
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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 insured 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 by the Trust 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);
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(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
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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 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 corporation 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 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 assuming this Agreement is enforceable against the Trust,
this Agreement is a valid and binding obligation of the Company,
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 Acquired Portfolio are, and on the
Applicable Closing Date will be, duly authorized and validly issued and
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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 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);
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(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 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
-48-
<PAGE>
and is a valid and binding obligation of the Trust and each Acquiring
Fund, enforceable in accordance 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 Trust on behalf of the Acquiring Fund a statement of Portfolio
Assets and Stated Liabilities of each Acquired Portfolio, together, if required
by the Trust, 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.
-49-
<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 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, 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 Acquired 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 advisable and 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 ending on or before the Applicable Closing.
-50-
<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, and insofar as such transactions are to be consummated and require
the approval of the shareholders of the Company voting together as a single
class, the requisite vote of the shareholders of the Company, all 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 the Reorganization 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. Each party agrees to make reasonable
covenants and representations as to factual matters that are true and correct as
of the Applicable Closing Date in connection with the rendering of such opinion.
9. EXPENSES
The Trust and the Company confirm their understanding that each party
will be responsible for its own expenses in connection with the Reorganization.
-51-
<PAGE>
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 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) upon a finding by the
Board of the terminating party 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 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
-52-
<PAGE>
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 Acquired Portfolio without the approval by
the shareholders of such an Acquired 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: Michael Sullivan
with a copy to:
Key Asset Management Inc.
127 Public Square
Cleveland, Ohio 44114
Attention: Kathleen A. Dennis
and an additional copy to:
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: Michael Sullivan
-53-
<PAGE>
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.
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.
-54-
<PAGE>
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:_____________________________
Name: Leigh A. Wilson
By:_________________________ Title: President
Name: Jay G. Baris
Title: Assistant Secretary
The Trust, for itself and on behalf of the Acquiring Funds
By: ________________________________
Name: Leigh A. Wilson
Title: President
ATTEST:
By:____________________
Name: Jay G. Baris
Title: Assistant Secretary
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
ACQUIRED PORTFOLIOS CORRESPONDING ACQUIRING FUNDS
<S> <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 Fund (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, 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 (unaudited)
October 31, 1997
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Victory
Diversified
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 (unaudited)
October 31, 1997
(Amounts in thousands, except per share amounts)
Victory SBSF
Special Capital
Growth Growth 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 -- -- --
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 (6) 148,131
----------- ----------- ----------- -----------
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) (6) (661)
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 $ -- $ 147,233
=========== =========== =========== ===========
----------- ----------- ----------- -----------
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 (unaudited)
October 31, 1997
(Amounts in thousands, except per share amounts)
Victory Key
Stock Stock
Index Index 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 (24) 6
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 (24) 430
----------- ----------- ----------- ------------
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 (unaudited)
For the Year Ended October 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Diversified Stock Fund 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
--------- -------- ----- ---------
Total Expenses 7,455 1,337 (140) 8,932
Expenses voluntarily reduced -- (4) (882) (886)
--------- -------- ----- ---------
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 (unaudited)
For the Year Ended October 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Special Growth SBSF 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 (55) 29
Amortization of organization costs -- 6 (6) 12
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
-------- ------- ----- --------
Total Expenses 1,275 564 92 1,931
Expenses voluntarily reduced -- -- (164) (164)
Expenses reimbursed by distributor -- -- -- --
-------- ------- ----- --------
Net Expenses 1,275 564 (72) 1,767
-------- ------- ----- --------
Net Investment Income (Loss) (859) (405) 72 (1,192)
-------- ------- ----- --------
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 $ 72 $ 24,457
======== ======= ===== ========
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS:
THE VICTORY/ KEY FUNDS
ProForma Combined Statements of Operation (unaudited)
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 (62) 50
Amortization of organization costs -- 5 (--) 5
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
-------- ------- ----- ---------
Total Expenses 3,280 341 (225) 3,396
Expenses voluntarily reduced (1,142) (64) 53 (1,153)
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 International 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>
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 SBSF SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED FUND FUND 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>
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 FUND FUND 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
SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED FUND FUND 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>
SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED FUND FUND 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>
SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED FUND FUND 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>
SBSF FUND AND VICTORY DIVERSIFIED STOCK
FUND ProForma Combined Schedules of
Portfolio Investments October 31, 1997
(Amounts in Thousands, except shares)
VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA
DIVERSIFIED DIVERSIFIED FUND FUND 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>
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 SBSF CAPITAL SBSF 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>
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 SBSF CAPITAL SBSF 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 the 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 assets 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
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.
ORGANIZATIONAL EXPENSES
Organization costs cannot be carried over when being merged with
another fund. Therefore, in the Statements of Operations, the organization costs
were amortized for the SBSF Capital Growth Fund, Key Stock Index Fund, and SBSF
Fund, rather than being carried forward.
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 and the
Key Capital Growth Fund, and 0.10% for 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, 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 921 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 the rates that would be in effect for the Surviving Funds based
upon the combined net assets of the 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 are 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 49,913
- --------------------------------------------------------------------------------
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
December 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) Inapplicable.
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.
EX-99.11(b) Opinion of Morris, Nichols, Arscht & Tunnell as to the
legality of the securities being issued.
EX-99.11(c) Opinion of Morrison & Foerster as to the legality of the
securities is to be filed by amendment.
EX-99.11(d) Opinion of Ballard Spahr Ingersoll & Andrews as to the
legality of the securities is to be filed by amendment.
EX-99.12 Opinion of Kramer, Levin, Naftalis & Frankel as to tax
consequences.
EX-99.13 Inapplicable.
EX-99.14 Consent of Coopers & Lybrand L.L.P.
EX-99.15 Inapplicable.
EX-99.16(a) Power of Attorney of Leigh A. Wilson is incorporated
herein by reference to Exhibit 99.B P of A to
Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A and Powers of
Attorney of Robert G. Brown, Edward P. Campbell, Harry
Gazelle, Stanley I. Landgraf, Thomas F. Morrissey and H.
Patrick Swygert are incorporated herein by reference to
Exhibit 99.B P of A to Post-Effective Amendment No. 26
to the Registrant's Registration Statement on Form N-1A
filed electronically on January 31, 1996, accession
number 0000922423-96-000047 and December 28, 1995,
accession number 0000950152-95-003085, respectively.
EX-99.16(a) Powers of Attorney of Roger Noall, Eugene J. McDonald, and
Frank A. Weil.
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 reports of Key Mutual Funds relating to
the Key Stock Index Fund, accession number
00000906197-98-000011, Key Money Market Mutual Fund,
accession number 0000906197-98-000010, KeyChoice Growth
Fund, KeyChoice Income and Growth Fund, and KeyChoice
Moderate Growth Fund, accession number
0000906197-98-000012, SBSF Fund, SBSF Convertible
Securities Fund, and SBSF Capital Growth Fund, accession
number 0000906197- 98-000013, as of November 30, 1997
are incorporated herein by reference to Key Mutual
Funds' Form N-30D filings as filed electronically on
January 28, 1998.
EX-99.17(e) Audited annual report of The Victory Portfolios relating
to all of the portfolios as of October 31, 1997 is
incorporated herein by reference to The Victory
Portfolios' Form N-30D as filed electronically on
December 24, 1997, accession number
0000906197-97-000068.
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, the ___ day of _________, 1998.
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 ___ day of
_________, 1998.
/s/Roger Noall Chairman of the Board and Trustee
- ------------------------
Roger Noall
/s/Leigh A. Wilson President and Trustee
- ------------------------
Leigh A. Wilson
/s/Thomas E. Line Treasurer
- ------------------------
Thomas E. Line
* Trusteee
- ------------------------
Robert G. Brown
* Trustee
- ------------------------
Edward P. Campbell
* Trustee
- ------------------------
Harry Gazelle
* Trustee
- ------------------------
Thomas F. Morrisey
* Trustee
- ------------------------
H. Patrick Swygert
* Trustee
- ------------------------
Frank A. Weil
* Trustee
- ------------------------
Eugene J. McDonald
*By: /s/ Carl Frischling
- ------------------------
Carl Frischling
Attorney-in-Fact
<PAGE>
Exhibit 99.11(a)
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas Moers Mayer Maurice N. Nessen
Philip Bentley Thomas E. Molner Founding Partners
Saul E. Burian Thomas H. Moreland Counsel
Barry Michael Cass Ellen R. Nadler _____
Thomas E. Constance Gary P. Naftalis
Michael J. Dell Michael J. Nassau Martin Balsam
Kenneth H. Eckstein Michael S. Nelson Joshua M. Berman
Charlotte M. Fischman Jay A. Neveloff Jules Buchwald
David S. Frankel Michael S. Oberman Rudolph de Winter
Marvin E. Frankel Paul S. Pearlman Meyer Eisenberg
Alan R. Friedman Susan J. Penry-Williams Arthur D. Emil
Carl Frischling Bruce Rabb Maria T. Jones
Mark J. Headley Allan E. Reznick Maxwell M. Rabb
Robert M. Heller Scott S. Rosenblum James Schreiber
Philip S. Kaufman Michele D. Ross Counsel
Peter S. Kolevzon Howard J. Rothman _____
Kenneth P. Kopelman Max J. Schwartz
Michael Paul Korotkin Mark B. Segall M. Frances Buchinsky
Shari K. Krouner Judith Singer Abbe L. Dienstag
Kevin B. Leblang Howard A. Sobel Ronald S. Greenberg
David P. Levin Jeffrey S. Trachtman Debora K. Grobman
Ezra G. Levin Jonathan M. Wagner Christian S. Herzeca
Randy Lipsitz Harold P. Weinberger Jane Lee
Larry M. Loeb E. Lisk Wyckoff, Jr. Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
January 30, 1998
The Key Mutual Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
Dear Ladies and Gentlemen:
Reference is made to the Registration Statement on Form N-14,
Registration No. 333-42837, under the Securities Act of 1933, as amended (the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "Commission") on December 19, 1997, registering shares of beneficial
interest, no par value, (the "Shares") of The Victory Portfolios (the "Trust"),
a Delaware business trust. The Shares are to be issued in connection with an
Agreement and Plan of Reorganization and Liquidation (the "Plan") whereby all of
the then-existing assets of the Key Mutual Funds, a Maryland corporation (the
"Company"), for itself and on behalf of each of its existing investment
portfolios, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF Fund, KeyChoice
Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund,
Key Money Market Mutual Fund, and SBSF Convertible Securities Fund (each an
"Acquired Portfolio," and collectively the "Acquired Portfolios"), will be
transferred to a corresponding series of the Trust, Victory Stock Index
Fund-Class A, Victory Special Growth Fund-Class A, Victory Diversified Stock
Fund-Class A, Victory LifeChoice Growth Investor Fund-Class A, Victory
LifeChoice Conservative Investor Fund-Class A, Victory LifeChoice Moderate
Investor Fund-Class A, Victory Federal Money Market Fund-Investor Class, and
Victory Convertible Securities Fund-Class A (each an "Acquiring Portfolio," and
collectively the "Acquiring Portfolios"), in exchange for (i) the assumption of
all the obligations and stated liabilities of the Acquired
<PAGE>
The Key Mutual Funds
January 30, 1998
Page 2
Portfolios and (ii) the issuance and delivery to each Acquired Portfolio of full
and fractional shares of the Acquiring Portfolio's Shares (as described in the
Plan); such Shares will be distributed by the Acquired Portfolio pro rata to its
shareholders upon its liquidation. The Plan was approved by the Board of
Directors of the Company on December 2, 1997, and by the Board of Trustees of
the Trust on December 3, 1997, and must be approved by the shareholders of the
Acquired Portfolios at a special meeting of shareholders called for that
purpose.
We have reviewed the Declaration of Trust of the Trust, its
By-Laws, resolutions of the Trustees of the Trust, and the Registration
Statement (including exhibits thereto). We have also made such inquiries and
have examined originals, certified copies or copies otherwise identified to our
satisfaction of such documents, records and other instruments as we have deemed
necessary or appropriate for the purposes of this opinion. For purposes of such
examination, we have assumed the genuineness of all signatures on original
documents and the conformity to the original documents of all copies submitted.
In addition, we have assumed that the representations to be made as of the
closing date by the Trust will be made by such parties in form acceptable to us
and that the Trust's activities in connection with the Plan and the transactions
contemplated therein have been and will be conducted in the manner provided in
such documents and as set forth herein.
The opinions expressed herein are limited to matters of law
which govern the due organization of the Trust and the authorization and
issuance of the Shares. We are members of the Bar of the State of New York and
do not hold ourselves out as experts as to the law of any other state or
jurisdiction. As to matters of Delaware law, we have relied upon the opinion of
Morris, Nichols, Arsht & Tunnell. Based upon and subject to the foregoing and
provided that the terms of reorganization occur in accordance with the terms of
the Plan, we are of the opinion that, and so advise you as follows:
(1) 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 Investment Company Act of 1940, as amended (the
"1940 Act"), and each Acquiring Portfolio is a validly existing series of shares
of the Trust representing interests in the Acquiring Portfolio under the laws of
the State of Delaware;
(2) The execution, delivery and performance of the Plan will
not result in a violation of the Trust's Declaration of Trust or By-Laws, each
as amended to date;
(3) The execution, delivery and performance of the Plan has
been duly authorized by all necessary action on the part of the Trust and each
Acquiring Portfolio, and the Plan has been duly executed and delivered by the
Trust and is a valid and binding
<PAGE>
The Key Mutual Funds
January 30, 1998
Page 3
obligation of the Trust and each Acquiring Portfolio, enforceable in accordance
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
(4) The Acquiring Portfolio Shares to be issued and delivered
pursuant to the terms of the Plan will have been duly authorized as of the
closing date of the Reorganization and Liquidation, and, when so issued and
delivered, will be validly issued, fully paid and non-assessable (except as
disclosed in the Acquiring Portfolio's then current Prospectus and Statement of
Additional Information).
This opinion is solely for your information and is not to be
quoted in whole or in part, summarized or otherwise referred to, nor is it to be
filed with or supplied to or relied upon by any governmental agency or other
person without the prior written consent of this firm. This opinion is as of the
date hereof. We disclaim any responsibility to update or supplement this opinion
to reflect any events or state of facts which may hereafter come to our
attention, or any changes in statutes or regulations or any court decisions
which may hereafter occur.
Very truly yours,
------------------------------------
/s/ Kramer, Levin, Naftalis & Frankel
<PAGE>
Exhibit 99.11(b)
January 22, 1998
The Victory Portfolios
3435 Stelzer Road
Columbus, Ohio 43219-3035
Re: The Victory Portfolios
----------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to The Victory
Portfolios, a Delaware business trust (the "Trust"), in connection with certain
matters relating to the creation of the Trust and the issuance of Shares by the
Trust. Capitalized terms used herein and not otherwise herein defined are used
as defined in the Trust Instrument of the Trust dated December 6, 1995 (the
"Governing Instrument").
We understand that, pursuant to an Agreement and Plan of
Reorganization and Liquidation (the "Plan") to be entered into among SBSF Funds,
Inc. for itself and on behalf of each of its existing investment portfolios
identified by Schedule A thereto (each individually an "Acquired Portfolio" and
collectively, the "Acquired Portfolios") and the Trust for itself and on behalf
of each of its existing investment portfolios set forth on Schedule A thereto
(each individually an "Acquiring Fund" and collectively the "Acquiring Funds"),
and subject to the conditions set forth therein, Shares of each of the Acquiring
Funds will be distributed to the Shareholders of each corresponding Acquired
Portfolio in connection with the liquidation and termination of each of the
Acquired Portfolios.
In rendering this opinion, we have examined copies of the
following documents, each in the form provided to us: the Certificate of Trust
of the Trust as filed in the Office of the
<PAGE>
The Victory Portfolios
January 22, 1998
Page 2
Secretary of State of the State of Delaware (the "Recording Office") on December
21, 1995 (the "Certificate"); the Governing Instrument; the Bylaws of the Trust;
certain resolutions of the Trustees of the Trust; the Plan; Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A of The Victory
Portfolios, a Massachusetts business trust and the predecessor to the Trust (the
"Predecessor Trust") by which the Trust adopted such Registration Statement and
the Predecessor Trust's Notification of Registration and Registration Statement
under the Investment Company Act of 1940, as filed with the Securities and
Exchange Commission on December 28, 1995; the Trust's Registration Statement on
Form N-14 as filed with the Securities and Exchange Commission on December 19,
1997 (the "Registration Statement"); and a certification of good standing of the
Trust obtained as of a recent date from the Recording Office. In such
examinations, we have assumed the genuineness of all signatures, the conformity
to original documents of all documents submitted to us as copies or drafts of
documents to be executed, and the legal capacity of natural persons to complete
the execution of documents. We have further assumed for the purpose of this
opinion: (i) the due authorization, execution and delivery by, or on behalf of,
each of the parties thereto of the above-referenced instruments, certificates
and other documents, including, without limitation, the Plan, and of all
documents contemplated by the Governing Instrument and applicable resolutions of
the Trustees to be executed by investors desiring to become Shareholders; (ii)
the transfer of the assets of each Acquired Portfolios to the corresponding
Acquiring Fund, the satisfaction of all conditions precedent to the issuance of
Shares pursuant to the Plan and compliance with all other terms, conditions and
restrictions set forth in the Plan and the Governing Instrument and all
applicable resolutions of the Trustees in connection with the issuance of Shares
(including, without limitation, the taking of all appropriate action by the
Trustees to designate Series of Shares, including the Acquiring Funds, and the
rights and preferences attributable thereto as contemplated by the Governing
Instrument); (iii) that appropriate notation of the names and addresses of, the
number of Shares held by, and the consideration paid by, Shareholders will be
maintained in the appropriate registers and other books and records of the Trust
in connection with the issuance or transfer of Shares; (iv) that, subsequent to
the filing of the Certificate, no event has occurred, or prior to the issuance
of Shares pursuant to the Plan will occur, that would cause a termination or
dissolution of the Trust under Sections 11.04 or 11.05 of the Governing
Instrument; (v) that the activities of the
<PAGE>
The Victory Portfolios
January 22, 1998
Page 3
Trust have been and will be conducted in accordance with the terms of the
Governing Instrument and the Delaware Act; and (vi) that each of the documents
examined by us is in full force and effect and has not been amended,
supplemented or otherwise modified, except as herein referenced. No opinion is
expressed herein with respect to the requirements of, or compliance with,
federal or state securities or blue sky laws. Further, we express no opinion on
the sufficiency or accuracy of the Registration Statement, or any other
registration or offering documentation relating to the Trust or the Shares. As
to any facts material to our opinion, other than those assumed, we have relied
without independent investigation on the above-referenced documents and on the
accuracy, as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that:
1. The Trust is a duly created and validly existing business
trust in good standing under the laws of the State of Delaware.
2. The Shares to be issued pursuant to the Plan will, upon
issuance, constitute legally issued, fully paid and non-assessable Shares of
beneficial interest in the Trust.
3. Under the Delaware Act and the terms of the Governing
Instrument, each Shareholder of the Trust, in such capacity, will be entitled to
the same limitation of personal liability as that extended to stockholders of
private corporations for profit organized under the general corporation law of
the State of Delaware; provided, however, that we express no opinion with
respect to the liability of any Shareholder who is, was or may become a named
Trustee of the Trust.
We consent to the filing of a copy of this opinion with the
Securities and Exchange Commission as an exhibit to a pre-effective amendment to
the Registration Statement. In giving this consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder. Except as provided in this
paragraph, the opinion set forth above is expressed solely for the benefit of
the addressee hereof in connection with the matters contemplated hereby and may
not be
<PAGE>
The Victory Portfolios
January 22, 1998
Page 4
relied upon by, or filed with, any other person or entity or for any other
purpose without our prior written consent.
Sincerely,
/s/MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
Exhibit 99.12
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
Arthur H. Aufses III Monica C. Lord Sherwin Kamin
Thomas D. Balliett Richard Marlin Arthur B. Kramer
Jay G. Baris Thomas Moers Mayer Maurice N. Nessen
Philip Bentley Thomas E. Molner Founding Partners
Saul E. Burian Thomas H. Moreland Counsel
Barry Michael Cass Ellen R. Nadler _____
Thomas E. Constance Gary P. Naftalis
Michael J. Dell Michael J. Nassau Martin Balsam
Kenneth H. Eckstein Michael S. Nelson Joshua M. Berman
Charlotte M. Fischman Jay A. Neveloff Jules Buchwald
David S. Frankel Michael S. Oberman Rudolph de Winter
Marvin E. Frankel Paul S. Pearlman Meyer Eisenberg
Alan R. Friedman Susan J. Penry-Williams Arthur D. Emil
Carl Frischling Bruce Rabb Maria T. Jones
Mark J. Headley Allan E. Reznick Maxwell M. Rabb
Robert M. Heller Scott S. Rosenblum James Schreiber
Philip S. Kaufman Michele D. Ross Counsel
Peter S. Kolevzon Howard J. Rothman _____
Kenneth P. Kopelman Max J. Schwartz
Michael Paul Korotkin Mark B. Segall M. Frances Buchinsky
Shari K. Krouner Judith Singer Abbe L. Dienstag
Kevin B. Leblang Howard A. Sobel Ronald S. Greenberg
David P. Levin Jeffrey S. Trachtman Debora K. Grobman
Ezra G. Levin Jonathan M. Wagner Christian S. Herzeca
Randy Lipsitz Harold P. Weinberger Jane Lee
Larry M. Loeb E. Lisk Wyckoff, Jr. Pinchas Mendelson
Lynn R. Saidenberg
Special Counsel
-----
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
March __, 1998
Key Mutual Funds
3435 Stelzer Road
Columbus, Ohio 43219
and
The Victory Portfolios
3435 Stelzer Road
Columbus, Ohio 43219
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the
reorganization (the "Reorganization") of each series of SBSF Funds, Inc., doing
business as Key Mutual Funds, a Maryland corporation ("Key," and each such
series, a "Transferor"), into a corresponding series of The Victory Portfolios,
a Delaware business trust ("Victory," and each such series, a "Transferee"),
pursuant to the Agreement and Plan of Reorganization and Liquidation (the
"Reorganization Plan") dated as of _____, 1998, by and among Key, for itself and
on behalf of each Transferor, and Victory, for itself and on behalf of each
Transferee.
In the Reorganization, each Transferor will transfer
substantially all of its assets to a corresponding Transferee in exchange for
stock of such Transferee and the
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
Key Mutual Funds
and
The Victory Portfolios
March __, 1998
Page 2
assumption by such Transferee of the liabilities of Transferor.1 Each Transferor
will distribute the stock of the Transferee received in the Reorganization pro
rata to its shareholders in exchange for their Transferor stock in complete
liquidation of Transferor. Certain Transferors are reorganizing into new
Transferees created to carry on the operations of the corresponding Transferor
(each such Transferee, a "New Transferee"), as follows:
(1) KeyChoice Growth Fund into Victory LifeChoice Growth Investor Fund;
(2) KeyChoice Income and Growth Fund into Victory LifeChoice Conservative
Investor Fund;
(3) KeyChoice Moderate Growth Fund into Victory LifeChoice Moderate
Investor Fund;
(4) Key Money Market Mutual Fund into Victory Federal Money Market Fund;
and
(5) SBSF Convertible Securities Fund into Victory Convertible Securities
Fund.
Each of the other Transferors is reorganizing into an existing
Transferee (each such Transferee, an "Existing Transferee"), as follows:
(1) SBSF Fund into Victory Diversified Stock Fund;
(2) SBSF Capital Growth Fund into Victory Special Growth Fund; and
(3) Key Stock Index Fund into Victory Stock Index Fund.
All capitalized terms used in this opinion and not defined
herein have the respective meanings assigned to them in the Reorganization Plan
and the Combined Prospectus/Proxy Statement included in the registration
statement on Form N-14, as amended, filed by Victory with The Securities and
Exchange Commission on December 19, 1997 (the "Proxy Statement").
For purposes of the opinion set forth below, we have reviewed
and relied upon (i) the Reorganization Plan, (ii) the Proxy Statement, and (iii)
such other documents, records, and instruments as we have deemed necessary or
appropriate as a basis for our opinion. In
- --------
1 Pursuant to section 851(g)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), each Transferor and each Transferee is treated as a
separate corporation. Under Delaware law, ownership interests in a
Transferee constitute shares of beneficial interest. Such interests are
considered stock for federal income tax purposes and are referred to as
"stock" or "shares" in this letter.
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
Key Mutual Funds
and
The Victory Portfolios
March __, 1998
Page 3
addition, in rendering our opinion we have relied upon certain statements and
representations, which we have neither investigated nor verified, made by Key,
Victory, and Key Asset Management, Inc., the investment adviser to each of the
Transferees and Transferors (the "Certified Representations"), including, inter
alia, that with respect to each Transferor and its corresponding Transferee:
(i) there is no plan or intention by the holders of shares of Transferor
to sell, exchange, or otherwise dispose of a number of shares of
Transferee stock received in the Reorganization that would reduce the
Transferor shareholders' ownership of Transferee stock to a number of
shares having a value, as of the date of the Reorganization, of less
than 50 percent of the value of all of the formerly outstanding stock
of Transferor as of the same date,
(ii) the fair market value of Transferee stock received by each shareholder
of Transferor will be approximately equal to the fair market value of
the Transferor stock surrendered in the Reorganization,
(iii)each of Transferor and Transferee is qualified as a regulated
investment company, as defined in section 851 of the Code; and
(iv) Transferee will acquire at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market value of
the gross assets held by Transferor immediately prior to the
Reorganization, calculated in accordance with the relevant provisions
of Rev. Proc. 77-37, 1977-2 C.B. 568, as amended.
We have also obtained such additional information and
representations as we have deemed relevant and necessary through consultation
with the officers and directors of Key and Victory, as well as with other
professionals engaged by them. We have assumed, with your consent, that all
documents reviewed by us are originals or photocopies that faithfully reproduce
the originals thereof, that all such documents have been or will be duly
executed to the extent required, that all representations and statements set
forth in such documents are true, correct, complete, and not breached, that no
actions that are inconsistent with such representations and statements will be
taken, and that all obligations imposed by any such documents on the parties
thereto have been or will be performed or satisfied in accordance with their
terms. We have further assumed that all representations made in the
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
Key Mutual Funds
and
The Victory Portfolios
March __, 1998
Page 4
Certified Representations "to the best knowledge of" any person will be true,
correct, and complete as if made without such qualification.
Based upon the foregoing, and subject to the qualifications
set forth below, it is our opinion that, with respect to each Transferor and its
corresponding Transferee, for federal income tax purposes:
(i) the transfer by Transferor of substantially all of its assets to
Transferee in exchange for shares of Transferee and the assumption by
Transferee of the liabilities of Transferor, and the subsequent
liquidation of Transferor, pursuant to the Plan, will constitute a
reorganization within the meaning of section 368(a)(1) of the Code,
and Transferor and Transferee will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code;
(ii) Transferor will not recognize any gain or loss as a result of the
Reorganization;
(iii)Transferee will not recognize any gain or loss on the receipt of the
assets of Transferor in exchange for shares of Transferee and the
assumption of the liabilities of Transferor;
(iv) the shareholders of Transferor will not recognize any gain or loss on
the exchange of their shares of Transferor for shares of Transferee in
the Reorganization;
(v) the aggregate tax basis of the shares of Transferee received by each
shareholder of Transferor will be the same as the aggregate tax basis
of the shares of Transferor exchanged therefor;
(vi) Transferee's adjusted tax bases in the assets received from Transferor
in the Reorganization will be the same as the adjusted tax bases of
such assets in the hands of Transferor immediately prior to the
Reorganization;
(vii)the holding period of each former shareholder of Transferor in the
shares of Transferee received in the Reorganization will include the
period during which such shareholder held the Transferor shares
exchanged therefor, if such shares were held as a capital asset at the
time of the Reorganization; and
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
Key Mutual Funds
and
The Victory Portfolios
March __, 1998
Page 5
(viii) Transferee's holding periods in the assets received from Transferor
in the Reorganization will include the holding periods of such assets
in the hands of Transferor immediately prior to the Reorganization.
Our opinion, which is not binding on the Internal Revenue
Service or the courts, is based upon existing statutory, regulatory, and
administrative and judicial authority, any of which may be changed at any time
with retroactive effect to the detriment of Transferee, Transferor, and/or their
shareholders. We do not undertake to advise you as to any changes after the date
of this opinion in the above-referenced authorities that may affect our opinion
unless we are specifically requested to do so. As noted above, our opinion is
based solely on the documents that we have examined, the assumptions we have
made, the additional information that we have obtained, and the representations
that have been made to us. Our opinion cannot be relied upon if any of the facts
contained in such documents, such additional information, or any of our
assumptions or the representations made to us is, or later becomes, inaccurate.
Finally, our opinion is limited to the tax matters specifically stated above,
and we have not been asked to address, nor have we addressed, any other matters
relating to the Reorganization, Transferees, Transferors, or any investment in
or by Transferees or Transferors.
This opinion is intended for the exclusive use of Key and
Victory. This opinion may not be circulated or relied upon by any other person
or entity or for any other purpose without our prior consent. We hereby
authorize you to attach this opinion as an exhibit to the Registration Statement
on Form N-14.
Very truly yours,
<PAGE>
Exhibit 99.14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Pre-Effective Amendment No.
1 to the Registration Statement of The Victory Portfolios on Form N-14 (File No.
333-42837) of our report dated December 15, 1997 on our audits of the financial
statements and financial highlights of The Victory Portfolios (comprising,
respectively, the Institutional Money Market Fund, U.S. Government Obligations
Fund, Prime Obligations Fund, Financial Reserves Fund, Tax-Free Money Market
Fund, Ohio Municipal Money Market Fund, Limited Term Income Fund, Intermediate
Income Fund, Investment Quality Bond Fund, Government Mortgage Fund, Fund for
Income, National Municipal Bond Fund, New York Tax-Free Fund, Ohio Municipal
Bond Fund, Balanced Fund, Stock Index Fund, Diversified Stock Fund, Value Fund,
Growth Fund, Special Value Fund, Special Growth Fund, Ohio Regional Stock Fund,
International Growth Fund, Lakefront Fund, and Real Estate Investment Fund)
which report is included in the Annual Report to Shareholders for the year ended
October 31, 1997 which is incorporated by reference in the Registration
Statement. We also consent to the reference to our Firm under the caption
"Financial Statements" in this Registration Statement on Form N-14 (File No.
333-42837).
/s/COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 30, 1998
<PAGE>
Exhibit 99.14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Pre-Effective Amendment No.
1 to the Registration Statement of The Victory Portfolios on Form N-14 (File No.
333-42837) of our report dated January 16, 1998 on our audits of the financial
statements and financial highlights of Key Mutual Funds (SBSF Funds, Inc.)
(comprising, respectively, the Key Money Market Mutual Fund, Key Stock Index
Fund, KeyChoice Income & Growth Fund, KeyChoice Moderate Growth Fund, KeyChoice
Growth Fund, SBSF Fund, SBSF Convertible Securities Fund, and SBSF Capital
Growth Fund) which report is included in the Annual Report to Shareholders for
the year ended November 30, 1997 which is incorporated by reference in the
Registration Statement. We also consent to the reference to our Firm under the
caption "Financial Statements" in this Registration Statement on Form N-14 (File
No. 333-42837).
/s/COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 30, 1998
<PAGE>
Exhibit 99.16(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE
VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and
appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact,
with full power of substitution and resubstitution, for me and in my name, place
and stead, in any and all capacities as a trustee of the Trust, to sign for me
and in my name in the appropriate capacity, any and all Pre-Effective Amendments
to any Registration Statement of the Trust, any and all Post-Effective
Amendments to said Registration Statements, any Registration Statements on Form
N-14, and any supplements or other instruments in connection therewith, and
generally to do all such things in my name and behalf in connection therewith as
said attorneys-in-fact deem necessary or appropriate, and that have been
approved by the Board of Trustees of the Trust or by the appropriate officers of
the Trust, acting in good faith and in a manner they reasonably believe to be in
the best interests of the Trust, upon the advice of counsel, such approval to be
conclusively evidenced by their execution thereof, to comply with the provisions
of the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and all related requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes may do or cause to be done by virtue hereof.
Witness my hand on this 2nd day of January, 1998.
/s/ Roger Noall
---------------
Roger Noall
<PAGE>
Exhibit 99.16(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE
VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and
appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact,
with full power of substitution and resubstitution, for me and in my name, place
and stead, in any and all capacities as a trustee of the Trust, to sign for me
and in my name in the appropriate capacity, any and all Pre-Effective Amendments
to any Registration Statement of the Trust, any and all Post-Effective
Amendments to said Registration Statements, any Registration Statements on Form
N-14, and any supplements or other instruments in connection therewith, and
generally to do all such things in my name and behalf in connection therewith as
said attorneys-in-fact deem necessary or appropriate, and that have been
approved by the Board of Trustees of the Trust or by the appropriate officers of
the Trust, acting in good faith and in a manner they reasonably believe to be in
the best interests of the Trust, upon the advice of counsel, such approval to be
conclusively evidenced by their execution thereof, to comply with the provisions
of the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and all related requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes may do or cause to be done by virtue hereof.
Witness my hand on this 2nd day of January, 1998.
/s/ Eugene J. McDonald
----------------------
Eugene J. McDonald
<PAGE>
Exhibit 99.16(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE
VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and
appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact,
with full power of substitution and resubstitution, for me and in my name, place
and stead, in any and all capacities as a trustee of the Trust, to sign for me
and in my name in the appropriate capacity, any and all Pre-Effective Amendments
to any Registration Statement of the Trust, any and all Post-Effective
Amendments to said Registration Statements, any Registration Statements on Form
N-14, and any supplements or other instruments in connection therewith, and
generally to do all such things in my name and behalf in connection therewith as
said attorneys-in-fact deem necessary or appropriate, and that have been
approved by the Board of Trustees of the Trust or by the appropriate officers of
the Trust, acting in good faith and in a manner they reasonably believe to be in
the best interests of the Trust, upon the advice of counsel, such approval to be
conclusively evidenced by their execution thereof, to comply with the provisions
of the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and all related requirements of the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes may do or cause to be done by virtue hereof.
Witness my hand on this 2nd day of January, 1998.
/s/ Frank A. Weill
----------------------
Frank A. Weill
<PAGE>
<PAGE>
EX-99.17(a)
================================================================================
IMPORTANT NOTICE: Please take a moment now to vote your shares. You may vote
directly over the telephone by calling 1-800-733-8481, Ext. 431. Representatives
are available from 9 a.m. to 11 p.m. Eastern Time. You may also fax your ballot
to 1-800-733-1885 or return it in the enclosed postage paid envelope.
Your vote is important. Thank you for your prompt action.
================================================================================
KEY MUTUAL FUNDS
KeyChoice Growth Fund
KeyChoice Income and Growth Fund
KeyChoice Moderate Growth Fund
Key Stock Index Fund
SBSF Capital Growth Fund
SBSF Fund
Key Money Market Mutual Fund
-----------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED
TO BE HELD ON MARCH 6, 1998
------------------------------------------
Please refer to the Combined Prospectus/Proxy Statement for a discussion of
these matters. THE UNDERSIGNED CONSTITUTES AND APPOINTS KAREN HABER AND MARILYN
FARMER, OR EITHER OF THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED WITH
FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED AT THE
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AT 3435 STELZER ROAD, COLUMBUS, OHIO
ON MARCH 6, 1998, AT 8:30 A.M. EASTERN TIME, AND AT ANY AND ALL ADJOURNMENTS
THEREOF, AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark an x in blue or
black ink on the proxy card below. THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF KEY MUTUAL FUNDS.
<PAGE>
1. To approve an Agreement and Plan of Reorganization and
Liquidation of each Key Fund following the distribution of
shares of beneficial interest in the corresponding series of
the Victory Portfolios to the holder of such shares in capital
stock and, upon the dissolution to Key Mutual Funds.
FOR AGAINST ABSTAIN
|_| |_| |_|
Please sign exactly as your name appears on
this card. When account is joint tenants,
all should sign. When signing as executor,
administrator, trustee, or guardian, please
give title. If a corporation or partnership,
sign entity's name and by authorized person.
X___________________________________________
Signature
X___________________________________________
Signature (if jointly held)
Date:________________, 1998
