As filed with the Securities and Exchange Commission on December 30, 1999
File No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Amendment No. ___
The Victory Portfolios
(Exact name of Registrant as Specified in Trust Instrument)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Office)
(800) 362-5365
(Area Code and Telephone Number)
Copy to:
George Stevens, Esq. Carl Frischling, Esq.
BISYS Fund Services Limited Partnership Kramer Levin Naftalis & Frankel LLP
3435 Stelzer Road 919 Third Avenue
Columbus, Ohio 43219 New York, New York 10022
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
No filing fee is due because of reliance on Section 24(f) under 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
Government Mortgage Fund
Ohio Regional Stock Fund
800-589-3863
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
The Victory Portfolios (the "Trust"), on behalf of each of the
investment portfolios named above (the "Funds"), will host a Special Meeting of
Shareholders on March 20, 2000, at 8:30 a.m., Eastern Time. The Special Meeting
will be held at the Trust's offices, 3435 Stelzer Road, Columbus Ohio. At the
meeting, we will ask shareholders of each Fund to vote on:
1. A proposal to reorganize each Fund into an existing portfolio of the
Trust;
2. The election of ten Trustees;
3. A proposal to approve an Amended and Restated Trust Instrument;
4. Any other business properly brought before the meeting.
February __, 2000
By Order of the Boards of Trustees
Robert D. Hingston, Secretary
3435 Stelzer Road
Columbus, Ohio 43219
<PAGE>
Please read the full text of this proxy
statement. Below is a brief overview of the
matters to be voted upon. Your vote is important.
If you have questions regarding the proposals
please call your Investment Consultant or The
Victory Portfolios at 1-800-539-3863. We
appreciate the confidence you have placed in The
Victory Portfolios and look forward to helping
you achieve your financial goals through
investment in The Victory Portfolios.
What proposals am I being asked to vote on?
You are being asked to vote on the following proposals:
1. To reorganize each Fund into an existing Fund of The
Victory Portfolios.
2. The election of ten Trustees.
3. To approve an Amended and Restated Trust Instrument
VICTORY FUNDS REORGANIZING INTO EXISTING VICTORY FUNDS
- As of Close of Business on ______, 2000
Current Victory Fund Existing Victory Fund
Government Mortgage Fund [ ] Fund for Income -Class A Shares
Ohio Regional Stock Fund [ ] Established Value Fund -Class A Shares
Has my Fund's Board of Trustees approved the Reorganization?
Yes. The Board of Trustees of The Victory Portfolios
unanimously approved the reorganization on December 1, 1999,
and recommends that you vote to approve the reorganization.
The Board of Trustees of The Victory Portfolios also
approved the Plan of Reorganization at this same meeting.
Why is the Reorganization being recommended for these Funds?
The Board of the Victory Portfolios recognized that
Government Mortgage Fund has substantially similar
investment objectives and policies as Fund for Income. The
reorganization will help reduce investor confusion and will
reduce or eliminate the duplicate marketing and other costs
which result when operating two similarly managed funds.
The Board also recognized that Ohio Regional Stock Fund has
not attracted new shareholders, or assets, despite
management's best efforts. Assets in the Fund have declined
since 1997.
In addition, after the reorganization, shareholders of both
Funds will own shares of Funds that are currently operating
at lower expense ratios.
Who will advise my Fund once the merger is completed?
The current portfolio managers of Fund for Income and
Established Value Fund will continue to manage each of the
funds after the reorganization, as noted below.
<TABLE>
<CAPTION>
VICTORY FUNDS REORGANIZING INTO EXISTING VICTORY FUNDS
<S> <C> <C>
Current Victory Fund Existing Victory Fund Portfolio Portfolio Manager
Government Mortgage Fund Fund for Income Thomas Seay
Ohio Regional Stock Fund Established Value Fund William Leugers; Daniel Shick,
Gary Miller
</TABLE>
Will the fees and expenses of my funds increase?
No. Current shareholders will exchange their shares for the
Class A Shares of Fund for Income and Established Value Fund
with expenses that are less than current fund expenses.
Will I, or my Funds have to pay taxes as a result of the Reorganization?
No. Neither you nor the Victory Funds will have any tax
consequences as a result of the share exchange. Your current
cost basis will remain the same.
Will any sales load, sales commission or other fee be imposed on my shares in
connection with the Reorganization?
No.
<PAGE>
What happens if I do not wish to participate in the reorganization of the
Victory Fund in which I own shares, or what if I do not wish to own shares of
the Victory Fund acquiring my Fund?
If you do not wish to participate in the reorganization, you
must redeem your shares as shown below, before the
reorganization date. Please note that redeeming your shares
may result in your incurring a tax liability.
VICTORY FUND REDEEM BY:
Government Mortgage Fund Before 4:00 p.m., ______________
Ohio Regional Stock Fund Before 4:00 p.m., ______________
When will the Shareholder Meeting be held?
A Shareholder Meeting will be held on March 14, 2000. The
approval of a simple majority of the shares outstanding of
Government Mortgage Fund and of Ohio Regional Stock Fund are
required to approve the reorganization for each Fund. In
addition, shareholders are being asked to approve a Trust
level issue, which requires the approval of a simple
majority of the outstanding shares of the Trust and to elect
Trustees of the Trust, which requires a plurality of the
votes cast in the election.
Why am I being asked to approve an Amended and Restated Trust Instrument?
To modernize the Trust's organizational documents and create
greater flexibility in managing the affairs of the Trust.
Creating greater flexibility may reduce Fund or Trust
expenses. The Amended and Restated Trust Instrument will:
o Allow the Funds' Board of Trustees to reorganize a Fund into
another Fund or investment company, without holding a special
shareholder meeting (which can be costly), if it is in the
shareholders' best interests.
o Increase the maximum solicitation period from 60 days to 90 days
when seeking shareholder approval.
o Allow the Board of Trustees to restructure one or more of the
Funds into a master/feeder structure if it is in the Fund's best
interest to invest its assets in another investment company.
o Permit the Board of Trustees to change shareholder voting powers
to a dollar-based voting system to ensure that shareholders'
voting rights remain proportionate to their investment in the
Funds.
o Allow the Board of Trustees to amend the Trust Instrument in the
future without shareholder approval unless required by law.
o Clarify that a Trustee is not an interested person solely
because of his or her affiliation with an investment company
which is affiliated with the Trust.
o Permit the Board of Trustees to require shareholders to redeem
their shares when accounts become too small or where certain
account information has not been made available by the
shareholders.
Why am I being asked to elect Trustees?
Certain regulations require that a majority of trustees be
elected by shareholders. New trustees cannot be appointed to
fill vacancies created by resignations or an expansion of
the Board unless after the appointments, two-thirds of the
trustees have been elected by shareholders. All members of
the current Board of Trustees, including three Trustees who
are Advisory Trustees of the Victory Portfolios, will stand
for election at this Special Meeting of shareholders.
I have received other proxies from Victory. Is this a duplicate? Do I have to
vote again?
This is NOT a duplicate proxy. You must vote separately for
each account you have with the Victory Funds.
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 800-786-8764, by fax at 800-733-1885, or via the
internet at www.proxyvote.com. If you need assistance, or
have any questions regarding the proposals or how to vote
your shares, please call your Investment Consultant or the
Victory Portfolios at 1-800-539-3863.
<PAGE>
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE EASILY AND QUICKLY BY MAIL, BY PHONE (Toll-Free), BY FAX
OR BY THE INTERNET. JUST FOLLOW THE SIMPLE INSTRUCTIONS
THAT APPEAR ON YOUR ENCLOSED PROXY CARD.
THE VICTORY PORTFOLIOS
Government Mortgage Fund
Ohio Regional Stock Fund
SPECIAL MEETING OF SHAREHOLDERS
MARCH 20, 2000
----------------------------------------------------
THE VICTORY PORTFOLIOS
3435 Stelzer Road
Columbus, Ohio 43219
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated February 1, 2000
INTRODUCTION
------------
This Combined Proxy Statement and Prospectus is being provided for a
Special Meeting of shareholders of the Government Mortgage Fund and Ohio
Regional Stock Fund to be held on March 20, 2000. We have divided this Combined
Proxy Statement and Prospectus into six parts:
Part 1 -- An Overview
Part 2 -- Your Fund's Proposals
Part 3 -- More on Proxy Voting and Shareholder Meetings
Part 4 -- Fund Information
Part 5 -- Prospectus for
Fund for Income
Established Value Fund
Part 6 -- Form of Agreement and Plan of Reorganization and
Termination
Please read the entire proxy statement before voting. If you have any
questions, please call us at 800-539-FUND (800-539-3863).
This Combined Proxy Statement and Prospectus was first mailed to
shareholders on or about February __, 2000.
This Combined Proxy Statement and Prospectus contains information
about The Victory Portfolios that you should know. Please
keep it for future reference. A Statement of Additional Information
dated January __, 2000 is incorporated by reference.
-1-
<PAGE>
Neither the Securities and Exchange Commission (the "SEC") nor any
state securities commission has approved or disapproved
these securities, or determined that this Combined Proxy Statement
and Prospectus is truthful or complete. Anyone who tells you otherwise
is committing a crime.
o Shares of the Victory Funds are not insured by the FDIC.
o Shares of the Victory Funds are not deposits of or
guaranteed by KeyBank or any of its affiliates, or any
other bank.
o You can lose money by investing in the Victory Funds,
because they are subject to investment risks.
The Victory Portfolios is required by federal law to file reports,
proxy statements and other information with the SEC. The SEC maintains a Web
site that contains information about the Trust, (www.sec.gov). Any such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
at the SEC's New York Regional Office, Seven World Trade Center, New York, NY
10048 and at the Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such filed materials can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
-2-
<PAGE>
Table of Contents
Part 1 - An Overview..........................................................1
Part 2 - Your Fund's Proposals................................................1
Proposal 1 - To Approve the Reorganization of each Fund............1
Introduction..................................................1
How the Reorganization Works..................................1
Differences in Fees Between the Funds.........................3
Information About Each Reorganization.........................7
Why We Want to Reorganize the Funds...........................8
Considerations by the Boards of Trustees......................9
Comparison of Investment Objectives.....................10
Comparison of Investment Policies and Strategies........11
Comparison of Principal Investment Risks................18
Comparison of Potential Risks and Rewards...............21
Comparison of Operations................................25
Investment Advisory Agreements.....................25
Distribution and Service Plans.....................26
Administrator and Distributor......................27
Sub-Administrator..................................28
Dividends and Other Distributions..................28
Purchase Procedures................................29
Exchange Rights....................................30
Redemption Procedures..............................31
Trustees...........................................31
Comparison of Shareholder Rights........................31
Capitalization of the Funds.............................35
Required Vote.....................................................35
Board Recommendation..............................................36
Proposal 2 - To Elect Ten Trustees of the Trust...................36
Proposal 3 - To Approve An Amended and Restated Trust Instrument for
the Trust
Other Information.................................................41
Part 3 - More on Proxy Voting and Shareholder Meetings.......................45.
Part 4 - Fund Information....................................................48.
Part 5 - Prospectuses for Class A Shares of the Acquiring Funds..............48.
Part 6 - Form of Agreement and Plan of Reorganization and Termination
-3-
<PAGE>
PART 1 - AN OVERVIEW
The Board of Trustees of The Victory Portfolios (the "Trust") has
sent you, as a shareholder of Government Mortgage Fund and/or Ohio Regional
Stock Fund (the "Funds"), this Combined Proxy Statement and Prospectus to ask
for your vote on proposals affecting your Fund.
The shareholders of each Fund will vote separately on the following
item:
o Approval of an Agreement and Plan of Reorganization and
Termination
The shareholders of each Fund will vote together with all of the
shareholders of all of the other Funds in the Trust on the following items:
o Election of Ten Trustees
o Approval of an Amended and Restated Trust Instrument
PART 2 - YOUR FUND'S PROPOSALS
PROPOSAL 1.
TO APPROVE THE REORGANIZATION OF THE FUNDS
Introduction
The Board of Trustees of the Trust has approved a proposal to
reorganize each of your Funds into a specific existing portfolio of the Trust.
The primary purpose of this proposal is to improve operating
efficiencies by combining each Fund with a larger existing
portfolio.
Neither you nor your Fund will have any federal income tax liability
solely as a result of the reorganization.
To adopt the Agreement and Plan of Reorganization and Termination
(the "Plan of Reorganization") that applies to your Fund, we need shareholder
approval. The transactions described in the Plan are referred to as the
"reorganization."
The next few pages of this Combined Proxy Statement and Prospectus
discuss some of the details of each proposed reorganization and how it will
affect your Fund.
How the Reorganization Works
The Trust, on behalf of each Fund, has entered into the Plan of
Reorganization. If shareholders approve this proposal, each Fund will reorganize
into a corresponding existing portfolio of the Trust (the "Acquiring Funds").
Key Asset Management Inc. ("KAM") currently
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<PAGE>
is the investment adviser of your Fund and the Acquiring Funds. If the
reorganization is approved, the reorganization will work as follows:
-> Each Fund will transfer all its assets and liabilities to a
corresponding Acquiring Fund, in exchange for shares of the
Acquiring Fund.
-> Each Fund will distribute the Acquiring Fund's shares it
receives to you. You will receive the same dollar value of
Acquiring Fund shares as you owned of your Fund's shares.
-> You will not have to pay any federal income tax solely as a
result of the reorganization.
-> You will become a shareholder of the corresponding
Acquiring Fund. Your Fund would then cease operations.
-> You will not incur any sales charge as a result of the
reorganization.
-> You will not pay any sales charges in connection with the
shares you receive.
Here is how the reorganization will apply to your Fund:
Your Fund would reorganize into Acquiring Fund
Government Mortgage Fund Fund for Income
Class A* -> Class A
Ohio Regional Stock Fund Established Value Fund
Class A -> Class A
Class B+
* Government Mortgage Fund has only Class A shares.
+ Class B shareholders of the Ohio Regional Stock Fund will receive Class A
shares of the Established Value Fund of the same value as their Class B shares
of the Ohio Regional Stock Fund on the date of the merger.
A few words about this Combined Proxy Statement and Prospectus
This Combined Proxy Statement and Prospectus is a proxy statement for
the Special Meeting of shareholders for your Fund and a prospectus relating to
the Class A shares of the Acquiring Fund that you will receive in the
reorganization.
How the Fees of the Funds Compare to the Fees of the Acquiring Funds
The tables below demonstrate the differences between the shareholder
transaction expenses of your Funds and the Acquiring Funds:
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Government Mortgage Fund for Income
- -------------------------------- ------------------- ---------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 5.75% 2.00%
(as a percentage of offering price)
Sales Charge Imposed on Reinvested Dividends None None
Maximum Deferred Sales Charge None* None*
Redemption Fees None None
</TABLE>
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<PAGE>
* Except for non-IRA tax deferred retirements accounts, there is no initial
sales charge on purchases of $1 million or more for Class A Shares. However, if
you sell those Class A Shares within one year, you will be charged a contingent
deferred sales charge (CDSC) of 1.00%. If you sell your Class A Shares within
two years, you will be charged a CDSC of 0.50%
<TABLE>
<CAPTION>
Shareholder Transaction Expenses Ohio Regional Stock -- Ohio Regional Stock -- Established Value
Class A Class B -- Class A
------- ------- ----------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on 5.75% None 5.75%
Purchases (as a percentage of offering price)
Sales Charge Imposed on Reinvested None None None
Dividends
Maximum Deferred Sales Charge None* 5.00%** None*
Redemption Fees None None None
* Except for non-IRA tax deferred retirements accounts, there is no initial
sales charge on purchases of $1 million or more for Class A Shares. However, if
you sell those Class A Shares within one year, you will be charged a contingent
deferred sales charge (CDSC) of 1.00%. If you sell your Class A Shares within
two years, you will be charged a CDSC of 0.50%
** 5% in the first year, declining to 1% in the sixth year, with no charge after
the sixth year.
</TABLE>
Your Funds, like all mutual funds, incur certain expenses in their
operations. Your Funds pay these expenses from their assets and, as a
shareholder of the Funds, you pay these expenses indirectly. The Acquiring Funds
also incur expenses in their operations. The expenses include management fees,
as well as the costs of maintaining accounts, administration, providing
shareholder liaison services, distribution services and other activities. The
following table compares the expenses paid by your Funds, as a percentage of
average daily net assets, with the expenses that you will incur indirectly as a
shareholder of the Acquiring Funds, after the reorganization. The net expenses
of the Victory Funds shown below are equivalent to the net expenses of the
corresponding Funds for the year ended October 31, 1999. Over time, a Fund's
annual expenses may be more or less than the amounts shown below.
Annual Fund Operating Government Mortgage Fund for Income
Expenses Fund -- Class A
- --------------------- ------------------- ----------------
Management Fees 0.50% 0.50%
Distribution (Rule 12b-1) Fees 0.00% 0.00%
Other Expenses(1) 0.58% 0.72%
Total Fund Operating Expenses 1.08% 1.22%
Fee Waiver None (0.22%)
Net Expenses 1.08% 1.00%(2)
(1) For each fund, this item includes a 0.25% shareholder servicing fee.
(2) KAM has contractually agreed to waive its fee and/or reimbursed expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses of Class A Shares of the Fund for Income at a maximum of 1.00%
until at least February 28, 2001.
-6-
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Ohio Regional Stock Fund Ohio Regional Stock Fund - Established Value
Expenses - Class A Class B Fund(1)
-------- --------- ------- -------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.51%
Distribution (Rule 12b-1) Fees 0.00% 0.25% 0.00%
Other Expenses(2) 0.73% 2.26% 0.50%
Total Fund Operating Expenses 1.48% 3.76% 1.01%
Fee Waiver None None (0.13)
Net Operating Expenses 1.48% 3.76% 0.88%(3)
</TABLE>
(1) The expenses shown are based on historical expenses of the Class G
shares of Established Value Fund for the fiscal year ended October 31,
1999. Class A shares were established on January __, 2000 and will
incur no expenses until the reorganization.
(2) For each fund, this item includes a 0.25% shareholder servicing fee.
(3) KAM has contractually agreed to waive its management fee or reimburse
expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class A shares at a maximum of 0.88% until at
least February 28, 2001.
Example
This Example is intended to help you compare the cost of investing in
the Funds with the cost of investing in the Acquiring Funds and other mutual
funds.
The Example assumes that you invest $10,000 in each Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same.* Although your actual
costs or returns may be higher or lower, based on these assumptions, your costs
would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Government Mortgage Fund 679 899 1136 1816
Fund for Income - Class A 692 940 1207 1967
Ohio Regional Stock Fund - Class A 717 1016 1336 2242
Ohio Regional Stock Fund - Class B 878 1149 1393 3205
Established Value Fund 660 866 1090 1735
* This Example assumes that Total Annual Fund Operating Expenses for each Fund's
Class A shares will not exceed the net expense amounts indicated in the notes to
the Annual Fund Operating Expense tables shown above until the termination dates
of the contractual waivers (or waivers required by law), and thereafter will
equal the amount indicated as the Fund's Total Fund Operating Expenses, before
fee waivers.
Information About Each Reorganization
This section describes some information you should know about the
reorganization of your Fund.
Description of transaction. The Plan of Reorganization provides that
your Fund will transfer its assets to the corresponding Acquiring Fund, as
described in the chart on page ____ above, in exchange for shares of the
Acquiring Fund. The Acquiring Fund also will assume all of your Fund's
liabilities. After this transaction, your Fund will give you shares of the
corresponding Acquiring Fund. The total value of the shares you receive will be
equal to the net
-7-
<PAGE>
asset value of the Fund shares you owned at the end of business on the day the
transaction occurs.
Please see a copy of the form of the Plan of Reorganization for a
more detailed description of the reorganization. You can find a copy of the form
of the Plan of Reorganization in Part 6 of this Combined Proxy Statement and
Prospectus.
The reorganization will be "tax-free." We expect each reorganization
to be "tax-free." That is, each Fund will obtain an opinion of counsel saying,
in effect, that neither you nor the Fund will have to pay any federal income
taxes solely as a result of the reorganization. Some Funds, however, may pay a
dividend or distribute a taxable gain prior to the reorganization. You may be
liable for taxes on those distributions.
Conditions of the reorganization. Before the reorganization can
occur, the Trust must satisfy certain conditions. For example:
- --> The Trust, on behalf of your Funds, must receive an opinion of counsel
stating, in effect, that neither you nor the Fund will pay any federal
income taxes solely as a result of the reorganization;
- --> The Trust must receive an opinion of counsel certifying to certain
matters concerning the legal existence of each Fund;
- --> Shareholders of the Funds must approve each reorganization; and
- --> The Trust must receive an exemptive order from the SEC, if required.
Why We Want to Reorganize the Funds
KAM believes that the reorganization will benefit the shareholders of
all of the Funds. Among other things, KAM believes that:
o The Government Mortgage Fund is so similar to the Fund for Income that
by merging the two funds, the Fund for Income could become a more
economically efficient investment vehicle than each Fund individually.
The merger would also eliminate confusion caused by maintaining similar
fixed income managed portfolios.
o Despite the distributor's best efforts, the Ohio Regional Stock Fund
has not grown to a sufficient size to be an economically efficient
fund, and shareholders would be better served economically by merging
the Ohio Regional Stock Fund into the Established Value Fund.
o The merger will also allow the Funds to operate a similar investment
portfolio at lower expense levels.
o By combining the Funds, Fund for Income and the Established Value Fund
will have larger asset bases, which may attract additional investors.
-8-
<PAGE>
Considerations by the Board of Trustees
The Board of Trustees of the Trust unanimously approved the proposed
Plan of Reorganization on December 1, 1999. The Trustees concluded that the
reorganization of each of your Funds
o was in the best interests of the Funds' shareholders, and
o would not result in any dilution of the value of your
investment.
In approving the Plan of Reorganization, the Trustees (including a
majority of the Trustees who are not "interested persons") considered that,
among other things:
o The relatively small size of the Ohio Regional Stock Fund and its
lack of growth.
o The similarity between the Government Mortgage Fund and the Fund for
Income.
o The relative performance of your Funds and the Acquiring Funds.
o You will not pay a sales charge to become a shareholder of the
Acquiring Funds.
o Shareholders will not have to pay any federal income tax solely as a
result of the reorganization.
The Government Mortgage Fund is very similar to the Fund for Income.
By merging into the Fund for Income, the Government Mortgage Fund would benefit
from having a larger asset base and the economies of scale that accompany a
larger fund, while having the same investment goals. The Ohio Regional Stock
Fund has not accumulated sufficient assets, despite the best efforts of KAM and
the distributors, to permit it to be operated economically. By merging into the
Established Value Fund, the Ohio Regional Stock Fund would benefit from having a
similar investment objective, but expenses could be reduced through economies of
scale.
How Your Funds Compare to the Acquiring Funds
For complete information about your Funds, please refer to your
Fund's prospectus. You also can call us at 800-539-3863 for a free copy of your
Fund's prospectus. The information contained in your Fund's prospectus is
incorporated by reference into this Combined Proxy Statement and Prospectus.
For complete information about the Acquiring Funds, please refer to
the prospectus included with this Combined Proxy Statement and Prospectus.
Comparison of Investment Objectives.
The following tables compare the investment objectives of your Funds
and their corresponding Acquiring Funds.
Government Mortgage Fund Fund for Income
- ------------------------ ---------------
Seeks to provide a high level of Seeks to provide a high level of
current income consistent with current income consistent with
safety of principal preservation of shareholders'
capital
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<PAGE>
Ohio Regional Stock Fund Established Value Fund
- ------------------------ ----------------------
Seeks to provide capital appreciation Seeks to provide long-term capital
growth by investing primarily in
common stocks
Comparison of Investment Policies and Strategies.
The following tables compare the principal investment policies and
strategies of your Funds and their corresponding Acquiring Funds:
Government Mortgage Fund Fund for Income
- ------------------------ ---------------
The Government Mortgage Fund invests The Fund for Income invests
exclusively in obligations issued or guaranteed primarily in securities
by the U.S. Government or its agencies or issued by the U.S. Government
instrumentalities. and its agencies and
instrumentalities. The Fund
Under normal market conditions, at least for Income currently invests
80% of the total assets of the Government only in securities that are
Mortgage Fund will be invested in U.S. guaranteed by the full faith
Government mortgage-backed securities. and credit of the U.S.
Government and repurchase
Important characteristics of the Government agreements collateralized by
Mortgage Fund's investments: such securities.
o Quality: Securities purchased by the Under normal market
Government Mortgage Fund are conditions, the Fund
considered to be of the highest quality. for Income primarily invests
in:
o Maturity: The dollar-weighted effective o Mortgage-backed obligations
average maturity of the and collateralized mortgage
Government Mortgage Fund generally obligations (CMOs) issued by
will not exceed 12 years. the Government National
Under certain market Mortgage Association (GNMA).
conditions, the portfolio The Fund for Income will
manager may go outside these boundaries. invest at least 65% of its
total assets in GNMA
securities.
o Obligations issued or
guaranteed by the U.S.
Government or by its
agencies or
instrumentalities with
maturities years. Generally
in the range of 2 to 30
years.
o The Government Mortgage Fund's high portfolio
turnover may result in higher expenses and
taxable gain distributions.
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<PAGE>
Ohio Regional Stock Fund Established Value Fund
- ------------------------ ----------------------
The Ohio Regional Stock Fund pursues its The Established Value Fund
objective by investing at least 80% of its pursues its investment
total assets in equity securities issued objective by investing
by companies headquartered in the State primarily in equity securities
of Ohio. of companies with market
capitalization of $1 billion
In making investment decisions, KAM or more. The companies are
analyzes cash flow, book value, usually selected from those in
dividend growth potential, quality of the Standard & Poor's
management, earnings, and capitalization. Composite Stock Price Index
The Ohio Regional Stock Fund looks at (S&P 500).
any information that reflects the
potential for future earnings growth. In making investment
The Ohio Regional Stock invests decisions, KAM looks for
in nationally recognized companies and companies whose stock is
that may have smaller capitalization, but trading at prices below what
also the potential for growth. KAM believes represent their
true value. When selecting
Under normal market conditions, the Ohio investments for the
Regional Stock Fund will invest at least 80% Established Value Fund's
of its total assets in common stocks and portfolio, KAM looks for the
securities convertible into common stocks. following characteristics,
among others: consistent
earnings growth;
risk-adjusted growth combined
earnings; with dividend
yield; rising earnings; price-
to-book ratios and price-to-
earnings ratios that
are generally lower than
those prevalent in the
market; and the rate at which
a stock's price is rising.
KAM uses a computer model to
select securities that appear
favorably priced.
Under normal market
conditions, the Fund:
o Will invest at least 80% of
its total assets in equity
securities of companies
with market capitalization
of $1 billion or more.
Comparison of Investment Restrictions. Shareholders of the Fund for
Income and the Established Value Fund are being asked to approve certain changes
to fundamental investment restrictions at a Special Meeting to be held on March
20, 2000. The proposed changes are summarized in a table in the Statement of
Additional Information dated January __, 2000. You can obtain a copy of the
Statement of Additional Information by calling the Trust at 800-539-3863. The
proposed changes will not materially impact the way the Acquiring Funds operate.
-11-
<PAGE>
Comparison of Principal Investment Risks. The following tables
compare the principal investment risks of investing in your Funds and the
corresponding Acquiring Funds:
Government Mortgage Fund Fund for Income
- ------------------------ ---------------
The Government Mortgage Fund is subject Same as Government Mortgage
to the following principal risks. The Fund.
Fund's net asset value, yield and/or
total return may be adversely affected
if any of the following occurs:
o The market value of securities
acquired by the Government Mortgage
Fund declines.
o A particular strategy does not
produce the intended result or the
portfolio manager does not execute the
strategy effectively.
o Interest rates rise.
o An issuer's credit quality is downgraded.
o The Government Mortgage Fund must reinvest
interest or sale proceeds at lower rates.
o The rate of inflation increases.
o The average life of a mortgage-related
security is shortened or lengthened.
Ohio Regional Stock Fund Established Value Fund
- ------------------------ ----------------------
The Ohio Regional Stock Fund is subject The Established Value
to the following principal principal risks. Fund is subject to the
The Fund's net asset value, yield and/or following principal risks.
total return may be risks. The Fund's net The Fund's net assets value,
assets value, yield and/or total return yield and/or total return
adversely affected if any of the following may be adversely affected
occurs: may be adversely affected if any of if any of the following
the following occurs: occurs:
o The market value of securities acquired o The market value of
by the Fund declines. securities acquired by
the Fund declines.
o Growth stocks fall out of favor because
the companies' earnings growth does not o Value stocks decline in
meet expectations. price faster than
growth stocks.
o Value stocks fall out of favor relative
to growth stocks. o A particular strategy does
not produce the
o A particular strategy does not produce the intended result or the
intended result or the portfolio manager portfolio manager does not
does not execute the strategy effectively. execute the strategy
effectively.
o A company's earnings do not increase as
expected. o A company's earnings do not
increase as expected.
Since the Ohio Regional Stock Fund
concentrates its investments in the
State of Ohio, its assets may be at
greater risk because of economic,
political, or regulatory risks
associated with the state.
Comparison of Potential Risks and Rewards.
Each of the Victory Funds has its own risks and potential rewards.
The bar charts and tables below compare the potential risks and rewards of
investing in your Fund and the Fund into which your Fund would merge.
-12-
<PAGE>
Each bar chart provides an indication of the risks of investing in
each Fund by showing changes in the Fund's performance from year to year, for
the last ten years or since the inception of the Fund. Sales loads are not
reflected on the bar chart and if they were reflected, returns would be lower
than those shown. The table shows how each Fund's average annual returns for one
year, five years and ten years (or since inception) compare to the returns of a
broad-based securities market index. The figures shown assume reinvestment of
dividends and distributions.
The information shown below reflects the performance of the Class A
shares of Fund for Income and Class G shares of Established Value Fund, as
presently there are no Class A shares of the Established Value Fund outstanding.
Returns for the Class A shares of Established Value Fund would be similar to
returns for Class G shares because both classes of shares will be invested in
the same portfolio of securities. The annual returns would differ only to the
extent that each class has a different expense ratio.
Keep in mind that past performance does not indicate future results.
Government Mortgage Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
40.00%
-------------------------------------------------------------------------------------------------------------
30.00%
-------------------------------------------------------------------------------------------------------------
20.00%
15.04% 15.21%
-------------------------------------------------------------------------------------------------------------
10.00% *
6.25% 8.18% 4.19% 8.76% 6.70%
-------------------------------------------------------------------------------------------------------------
0.00%
-2.06%
-------------------------------------------------------------------------------------------------------------
-10.00%
-------------------------------------------------------------------------------------------------------------
-20.00%
-------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
Fund for Income
----------------------------------------------------------------------------------------------------------------------
40.00%
----------------------------------------------------------------------------------------------------------------------
30.00%
----------------------------------------------------------------------------------------------------------------------
20.00%
14.07% 17.19%
----------------------------------------------------------------------------------------------------------------------
10.00%
8.76% 6.29% 7.58% 3.50% 8.35% 7.37%
----------------------------------------------------------------------------------------------------------------------
0.00%
-3.67%
----------------------------------------------------------------------------------------------------------------------
-10.00%
----------------------------------------------------------------------------------------------------------------------
-20.00%
----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
-13-
<PAGE>
Ohio Regional Stock Fund
----------------------------------------------------------------------------------------------------------------------
60.00%
58.65%
----------------------------------------------------------------------------------------------------------------------
50.00%
----------------------------------------------------------------------------------------------------------------------
40.00%
----------------------------------------------------------------------------------------------------------------------
30.00% 29.66%
26.43% 20.85%
----------------------------------------------------------------------------------------------------------------------
20.00%
10.88%
----------------------------------------------------------------------------------------------------------------------
10.00%
0.05%
----------------------------------------------------------------------------------------------------------------------
0.00% -1.76% *
----------------------------------------------------------------------------------------------------------------------
-10.00%
----------------------------------------------------------------------------------------------------------------------
-20.00%
-17.24% -18.50%
----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Established Value Fund
40.00%
----------------------------------------------------------------------------------------------------------------------
30.00% 26.44%
22.23% 20.78% 22.65%
----------------------------------------------------------------------------------------------------------------------
20.00% 19.32%
10.20%
----------------------------------------------------------------------------------------------------------------------
10.00% 6.12%
0.32%
----------------------------------------------------------------------------------------------------------------------
0.00%
-8.11%
----------------------------------------------------------------------------------------------------------------------
-10.00%
----------------------------------------------------------------------------------------------------------------------
-20.00%
----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
The Funds' highest and lowest quarterly returns are as follows:
Fund Highest Quarterly Return Lowest Quarterly Return
Government Mortgage Fund 5.54% in 4th Quarter 1991 (2.37)% in 1st Quarter 1994
Fund for Income 5.57% in 2nd Quarter 1989 (3.04)% in 1st Quarter 1994
Ohio Regional Stock Fund 26.20% in 1st Quarter 1991 (25.47)% in 3rd Quarter 1990
Established Value Fund 14.12% in 4th Quarter 1998 (13.22)% in 3rd Quarter 1998
</TABLE>
-14-
<PAGE>
The Average Annual Total Returns for the Class A Shares of the
Government Mortgage Fund and Fund for Income, and Ohio Regional Stock Fund and
Class G shares of Established Value Fund, including the effects of sales
charges, for the periods ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Average Annual Total Returns Past One Year Past 5 Years Past 10 Years
(for the period ended December 31, 1999)
<S> <C> <C> <C>
Government Mortgage Fund -- Class A % % %+
Fund for Income* -- Class A % % %
Lehman GNMA Index** % % %
+ Reflects performance since the Government Mortgage Fund's inception on May
18, 1990.
* After a reorganization with the Gradison Government Income Fund that was
completed on March 26, 1999 , the Fund for Income assumed the performance
information of the Gradison Government Income Fund.
** The Lehman GNMA Index is a broad-based unmanaged index that represents the
general performance of GNMA securities.
Average Annual Total Returns Past One Year Past 5 Years Past 10 Years
(for the period ended December 31, 1999)
<S> <C> <C> <C>
Ohio Regional Stock Fund % % %+
- -- Class A
- -- Class B
Established Value Fund* -- Class A % % %
S & P 500 Index** % % %
+ Reflects performance since the Ohio Regional Stock Fund's inception on
October 20, 1989.
* Performance results are shown for Class G Shares. Returns for Class A
Shares would be similar because both classes of shares will be invested in
the same portfolio of securities. The annual returns would differ only to
the extent that each class has a different expense ratio.
** The S & P 500 Index is a broad-based unmanaged index that represents the
general performance of domestically traded common stocks of mid- to
large-sized companies.
</TABLE>
Comparison of Operations.
Investment Advisory Agreements
All of the Funds in the Trust are presently managed under the same
investment advisory agreement between the Trust and KAM. KAM is a registered
investment adviser with the SEC and is a wholly-owned subsidiary of KeyCorp.
Subject to the authority of the Board of Trustees, KAM manages the investment
and reinvestment of the assets of the Funds, and provides its employees to act
as the officers of the Funds, who are responsible for the overall management of
the Funds. Affiliates of KAM manage approximately $79 billion for individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114.
In executing brokerage trades, KAM will seek best execution, but may
pay more than the lowest amount of commission if KAM requires research or other
services that benefit its managed accounts. KAM may allocate brokerage
commissions to its affiliates.
-15-
<PAGE>
Distribution and Service Plans
The Trust on behalf of the Funds has adopted a shareholder servicing
plan, under which the Funds pay an annual service fee of up to 0.25% of each
Fund's average daily net assets. These fees are paid monthly. The shareholder
servicing agent performs a number of services for customers who are
shareholders, including establishing and maintaining accounts and records,
processing dividend payments, arranging for bank wires, assisting in
transactions, and changing account information.
The Trust on behalf of each Fund and the Class A shares of both the
Fund for Income and Established Value Fund has adopted a defensive distribution
plan pursuant to Rule 12b-1 under which no fees are paid. Rather, the plan
contemplates that KAM, the administrator or the distributor may use its past
profits and other resources to pay amounts for goods or services that could be
construed as intended primarily for the distribution to the public of the Fund's
shares. The Plan also recognizes that KAM, the administrator or distributor may
make payments from these sources to securities dealers and other third parties
who engage in the sale of shares or who render shareholder services. The Plan
provides that, to the extent that the Fund's payment of management fees to KAM,
or administration fees to BISYS might be considered to constitute "indirect"
financing of activities primarily intended to result in the sale of shares, such
payment is expressly authorized.
Administrator and Distributor
BISYS Fund Services ("BISYS") serves as the administrator,
distributor, and fund accountant for the Victory Funds pursuant to
administration, distribution and accounting agreements with Victory. For
expenses incurred and services provided as administrator of the Victory Funds,
BISYS receives a fee at the following annual rate based on each Victory Fund's
average daily net assets: 0.15% for portfolio assets up to $300 million; 0.12%
for the next $300 million of portfolio assets; and 0.10% for portfolio assets in
excess of $600 million.
BISYS also serves as the distributor of the Victory Funds. BISYS does
not charge the Victory Funds a fee for its services as distributor, but receives
sales charges paid by shareholders. Under its distribution agreement with
Victory, BISYS may provide sales support, including cash or other compensation
to dealers for selling shares of the Victory Funds. BISYS does this at its own
expense and not at the expense of any Fund or its shareholders.
Sub-Administrator
KAM serves as sub-administrator of the Victory Funds. For its
services as sub-administrator of the Victory Funds, BISYS pays KAM an annual fee
of up to 0.05% of the average daily net assets of the Victory Funds.
Dividends and Other Distributions
Ordinarily, Government Mortgage Fund and Fund for Income declare and
pay dividends monthly while Ohio Regional Stock Fund and Established Value Fund
declare and pay dividends quarterly. Generally, each Fund pays realized capital
gains, if any, at least once a year. Each class of shares declares and pays
dividends, if any, separately. Each Fund pays no federal
-16-
<PAGE>
income tax on the earnings it distributes to shareholders. Ordinary dividends
from the Fund are taxable as ordinary income; dividends from the Fund's
long-term capital gains are taxable as long-term capital gain.
Purchase Procedures
There are no differences in purchase procedures between the Funds and
the Acquiring Funds.
All Class A shares of the Victory Portfolios, except the LifeChoice
Funds, have a front-end sales charge, although they may differ in amount. There
are ways to reduce this charge (more fully explained in the various Funds'
prospectuses, which are incorporated by reference). Fund for Income currently
offers two classes of shares, Class A and Class G, which have different sales
charges and ongoing fees. Established Value Fund currently offers only Class G
Shares, but will begin offering Class A Shares after the reorganization, if it
is approved.
Exchange Rights
There are no differences in exchange rights between the Funds and the
Acquiring Funds. You may exchange shares of a Victory Fund, generally without a
sales charge, for shares of any other series of The Victory Portfolios that are
of the same class as the shares being exchanged. For more information on
exchange rights, please refer to the enclosed prospectuses for the Fund for
Income and the Established Value Fund.
Redemption Procedures
There are no differences in redemption procedures between the Funds
and the Acquiring Funds.
Trustees
Victory's Board of Trustees is responsible for the management of the
Victory Funds.
Shareholder Rights.
There are no differences between rights of shareholders of the Trust.
Capitalization of the Funds.
The tables below show existing capitalization as of October 31, 1999,
as well as pro forma capitalization as of that date, which reflects the impact
of any corporate actions, including stock splits and accounting adjustments,
required to facilitate the reorganization. For these reasons, the total pro
forma combined Total Net Assets may differ from the combined net assets of the
Funds prior to the reorganization.
-17-
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets (000) Shares Outstanding (000)
---------------------- ------------------------
<S> <C> <C>
Government Mortgage Fund - Class A $99,326 9,364
Fund for Income - Class A 232,692 18,201
Pro Forma Combined 332,018 25,966
Total Net Assets (000) Shares Outstanding (000)
---------------------- ------------------------
Ohio Regional Stock Fund
Class A $23,529 1,384
Class B 734 44
Established Value Fund - Class A 469,288 13,678
Pro Forma Combined 493,551 14,385
</TABLE>
Required Vote
Approval of Proposal 1 requires a vote of a simple majority of each
Fund's outstanding shares. A simple majority of outstanding shares of a Fund
means one more than half of the number of shares of that Fund that were issued
and outstanding as of the record date, voting at the meeting in person or by
proxy. Approval of Proposal 1 by the shareholders of one Fund is not contingent
upon the approval of Proposal 1 by the shareholders of the other Fund.
Should Proposal 1 not be approved by the shareholders of a Fund, the
Board of Trustees would determine what if any further action should be taken
including continuing that Fund or liquidating it.
Board Recommendation
THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" PROPOSAL 1.
PROPOSAL 2.
ELECTION OF TRUSTEES
The Trust proposes that each Fund's shareholders elect as Trustees
the individuals (the "Nominees") listed below, each to serve until his or her
successor has been elected and shall have qualified. The Board of Trustees
presently consists of seven Trustees (five of whom are Independent Trustees) and
three Advisory Trustees (two of whom are Independent Advisory Trustees). If
authority is granted on the accompanying proxy to vote in the election of
Trustees, the persons named as proxies will vote for the election of the
Nominees named below, each of whom has consented to serve if elected. If any of
the Nominees is unable to serve for any reason, the persons named as proxies
will vote for such other Nominee or Nominees selected by the Board of Trustees
or the Board may reduce the number of Trustees as provided in the Trust's
Bylaws. Any other Nominee or Nominees who would serve as Independent Trustees
will be selected by the Independent Trustees currently serving on the Board. The
Trust knows of no reason why any of the Nominees listed below would be unable to
serve if elected.
-18-
<PAGE>
A. Why You Should Vote for This Proposal
1940 Act Requirements
The Board of Trustees of the Trust presently consists of seven
Trustees, four of whom have been elected by shareholders, and three Advisory
Trustees who have been appointed or elected by the Board to fill vacancies
either after the resignation of elected Trustees or because the Trustees have
voted to increase the size of the Board. The Investment Company Act of 1940, as
amended (the "1940 Act") generally provides that at all times, a majority of
trustees must be elected by shareholders, and that new trustees cannot be
appointed to fill vacancies unless, after such appointments, two-thirds of the
trustees have been elected by shareholders. At their regular meeting on December
11, 1998, the Trustees elected Donald E. Weston and Theodore Emmerich as
Advisory Trustees. At their meeting on December 1, 1999, the Trustees elected
Frankie D. Hughes as an Advisory Trustee. The 1940 Act did not permit the
appointment of Mr. Weston, Mr. Emmerich and Ms. Hughes as Trustees, because
fewer than two-thirds of the Trustees then on the Board would have been elected
by shareholders. Additionally, if any present Trustee were to resign, under the
1940 Act the Trust would be required to call a special meeting for the election
of trustees within 60 days. Accordingly, you are being asked to elect all of the
current Trustees, plus Mr. Weston, Mr. Emmerich and Ms. Hughes to the Board of
Trustees.
B. Nominees for Election to the Board of Trustees
The nominees for election to the Board of Trustees are:
o Theodore H. Emmerich
o Dr. Harry Gazelle
o Frankie D. Hughes
o Eugene J. McDonald
o Dr. Thomas F. Morrissey
o Roger Noall
o H. Patrick Swygert
o Frank A. Weil
o Donald E. Weston
o Leigh A. Wilson
The following tables summarizes information about the Trustees, their
positions with the Trust, and their principal occupations.
Position(s)
Held With Principal Occupation
Name, Age and Address the Trust During Past 5 Years
- --------------------- --------- -----------------------------------
Theodore H. Emmerich, 74 Advisory Retired; until 1986, managing
1201 Edgecliff Place Trustee partner (Cincinnati office) Ernst &
Apt. 1052 Whinney (now Ernst & Young LLP);
Cincinnati, Ohio 45206 Director of Carillon Fund, Inc.
(investment company); American
Financial Group (insurance) and
Cincinnati Milacron Commercial
Corporation (financing); Trustee of
Summit Investment Trust (investment
company).
-19-
<PAGE>
Dr. Harry Gazelle, 72 Trustee Retired radiologist, Drs. Hill and
17822 Lake Road Thomas Corporation.
Lakewood, OH 44107
Frankie D. Hughes, 48 Advisory Since 1993, Principal and Chief
Hughes Capital Management, Inc. Trustee Investment Officer of Hughes
315 Cameron Street, 2nd Floor Capital Management, Inc. (fixed
Alexandria, VA 22314 income asset management firm).
Eugene J. McDonald, 67 Trustee Since 1990, Executive Vice
Duke Management Company President and Chief Investment
2200 West Main Officer for Asset Management of
Suite 1000 Duke University and President and
Durham, NC 27705 CEO of Duke Management Company;
Street Director of CCB Financial
Corporation, Flag Group of Mutual
Funds, Greater Triangle Community
Foundation, and North Carolina Bar
Association Investment Committee.
Dr. Thomas F. Morrissey, 66 Trustee Since 1970, Professor, Weatherhead
Weatherhead School of School of Management, Case Western
Management Reserve University; from 1989 to
Case Western Reserve University 1995, Associate Dean of Weatherhead
10900 Euclid Avenue School of Management.
Cleveland, OH 44106-7235
Roger Noall, * 64 Chairman Since 1996, Executive of KeyCorp;
c/o Brighton Apt. 1603 and Trustee from 1995 to 1996, General Counsel
8231 Bay Colony Drive and Secretary of KeyCorp; from 1994
Naples, FL 34108 to 1996, Senior Executive Vice
President and Chief Administrative
Officer of KeyCorp.
H. Patrick Swygert, 56 Trustee Since 1995, President, Howard
Howard University University; from 1990 to 1995,
2400 6th Street, N.W. President, State University of New
Suite 402 York at Albany; Director of
Washington, DC 20059 Hartford Financial Services Group,
Hartford Life Insurance and Federal
National Mortgage Association;
Chairman, Community Business
Partnership, Greater Washington
Board of Trade.
Frank A. Weil, 68 Trustee Since 1984, Chairman and Chief
Abacus & Associates Executive Officer of Abacus &
147 E. 48th Street Associates, Inc. (private
New York, NY 10017 investment firm); Director and
President of the Hickrill
Foundation.
Donald E. Weston,* 64 Advisory Since October 1998, Chairman of
McDonald Investments Inc. Trustee Gradison McDonald Investments, a
580 Walnut Street division of McDonald Investments
Cincinnati, Ohio 45202 Inc.; until October 1998, Chairman
of the Gradison Division of
McDonald & Company Securities, Inc.
and a Director of McDonald &
Company Investments Inc.; Director
of Cincinnati Milacron Commercial
Corporation.
- -------------------
* Mr. Noall and Mr. Weston are "interested persons" and an "affiliated
persons" of the Trust.
-20-
<PAGE>
Leigh A. Wilson,** 54 President Since 1989, Chairman and Chief
New Century Care, Inc. and Executive Officer, New Century
53 Sylvan Road North Trustee Care, Inc. (merchant bank); since
Westport, CT 06880 1995, Principal of New Century
Living, Inc.; since 1989, Director
of Chimney Rock Vineyard and
Chimney Rock Winery.
C. Information About the Board of Trustees
The Board currently has an Investment Committee, a Business, Legal,
and Audit Committee, and a Board Process and Nominating Committee. The members
of the Investment Committee are Messrs. Weil (Chairman), Morrissey, Swygert,
Weston and Wilson. The function of the Investment Committee is to review the
existing investment policies of the Trust, including the levels of risk and
types of funds available to shareholders, and make recommendations to the
Trustees regarding the revision of such policies or, if necessary, the
submission of such revisions to the Trust's shareholders for their
consideration. The members of the Business, Legal and Audit Committee are Mr.
Gazelle (Chairman), Mr. Emmerich, Ms. Hughes, and Messrs. Swygert and Wilson.
The function of the Business, Legal, and Audit Committee is to recommend
independent auditors and monitor accounting and financial matters and to review
compliance and contract matters. Mr. Swygert is the Chairman of the Board
Process and Nominating Committee (consisting of all the Trustees and Advisory
Trustees), which nominates persons to serve as Independent Trustees and Trustees
to serve on committees of the Board. This Committee also reviews Trustee
performance and compensation issues. The Board Process and Nominating Committee
has a Nominating Subcommittee, composed of Messrs. Swygert, Emmerich, Gazelle,
McDonald, Morrissey and Weil. This Subcommittee makes recommendations to the
Board Process and Nominating Committee concerning candidates to serve as
trustees. Shareholder proposals should be sent to the Trust. See Part 3 -- "More
on Proxy Voting and Shareholder Meetings -- Future Shareholder Proposals."
Last year, the Board of Trustees held eight meetings, of which four
were regular meetings. Each of the Investment, Business, Legal and Audit, and
Board Process and Nominating Committees held four meetings. The Nominating
Subcommittee of the Board Process and Nominating Committee held two meetings.
D. Remuneration of Trustees
Each Trustee (including Advisory Trustees) (other than Mr. Wilson)
receives an annual fee of $31,500 for serving as Trustee of all the Funds of the
Trust, and an additional per meeting fee ($3,500 in person and $1,500 per
telephonic meeting). Mr. Wilson receives an annual fee of $37,500 for serving as
President and Trustee of the Trust, and an additional per meeting fee ($4,100 in
person and $1,800 per telephonic meeting). The Adviser pays the expenses of
Messrs. Noall and Weston.
- --------------------
** Mr. Wilson is deemed to be an "interested person" of the Trust under the
1940 Act solely by reason of his position as President.
-21-
<PAGE>
The following table indicates the estimated compensation received by
each Trustee from the Victory "Fund Complex"(1) for the fiscal year ended
October 31, 1999: <TABLE> <CAPTION>
Aggregate Compensation
Pension or Retirement Estimated Annual Aggregate Compensation from Victory "Fund
Benefits Accrued as Benefits Upon from Victory Portfolios Complex"
Portfolio Expenses Retirement
<S> <C> <C> <C> <C>
Edward P. Campbell*.................. -0- -0- $9,150 $10,275
Theodore H. Emmerich#................ -0- -0- 32,350 35,635
Harry Gazelle........................ -0- -0- 42,900 47,900
Frankie D. Hughes**.................. -0- -0- None None
Eugene J. McDonald................... -0- -0- 45,900 50,900
Thomas F. Morrissey.................. -0- -0- 45,900 50,900
Roger Noall.......................... -0- -0- None None
H. Patrick Swygert................... -0- -0- 41,400 46,400
Frank A. Weil........................ -0- -0- 45,900 50,650
Donald Weston#....................... -0- -0- None None
Leigh A. Wilson...................... -0- -0- 56,500 61,500
</TABLE>
(1) There are currently 41 mutual funds in the Victory "Fund Complex" for
which the above-named Trustees are compensated.
* Mr. Campbell resigned as of December 31, 1998.
# Mr. Emmerich and Mr. Weston commenced service as Advisory Trustees as
of January 1, 1999.
** Ms. Hughes commenced service as an Advisory Trustee as of January 1,
2000.
E. Required Vote
Trustees are elected by a plurality of the votes cast at the Special
Meeting in person and by proxy.
F. Does the Board of Trustees recommend the election of the nominees to
the Board of Trustees of the Trust?
Yes. The Board of Trustees recommends that shareholders vote to elect
the nominees for election to the Board of Trustees of the Trust.
PROPOSAL 3.
TO APPROVE AN AMENDED AND RESTATED TRUST INSTRUMENT
The Board of Trustees has approved an Amended and Restated Trust
Instrument for the Trust.
o The primary purpose of this proposal is to modernize the governing
document of the Trust and to allow the Trustees more flexibility in
overseeing the affairs of the Trust.
To adopt the Amended and Restated Trust Instrument, we need
shareholder approval.
-22-
<PAGE>
The next few pages of this proxy statement discuss some of the
details of the Amended and Restated Trust Instrument and how it will affect your
Fund.
A. Why we want to adopt the Amended and Restated Trust Instrument
The Trust was originally established as a business trust under the
laws of the Commonwealth of Massachusetts in 1984. In 1996, the Trust
reorganized as a business trust under Delaware law. The operations of the Trust
are governed by a Trust Instrument dated December 5, 1995, as amended on October
23, 1997.
The following summarizes some of the material changes that the
Amended and Restated Trust Instrument would contain, and summarizes the reasons
that the Board of Trustees believes that those changes would be in the best
interests of shareholders. This list does not contain certain non-material
changes which are also included in the Amended and Restated Trust Instrument.
Please refer to the complete Amended and Restated Trust Instrument, which
appears in Part 6 of this Proxy Statement and qualifies in its entirety the
description set forth herein, to review all of the proposed changes.
o Reorganizations. The amendments would clarify the ability of the Board of
Trustees to reorganize a Fund with another investment company or to
liquidate a Fund, if the Board determines that it would be in the best
interests of shareholders. The Trustees could take these actions without
shareholder approval, unless such approval is required by law. The
additional flexibility would save shareholders the expense of costly
special meetings. [Section 4.01(x)]. One situation where the Board of
Trustees might choose to reorganize a Fund without first obtaining
shareholder approval is where the acquiring fund is a shell created
specifically for the reorganization and which after the reorganization
will be identical to the acquired fund.
o Voting powers. The amendments would allow the Board of Trustees, in its
discretion, to make your voting rights "dollar-based," which is a
different voting rights system than your Fund uses now. Currently, all
Funds of the Trust provide shareholders with one vote for each whole share
that they own and a fractional vote for each fractional share that they
own. This share-based system treats shareholders equitably so long as all
shares of various Funds have the same share price. However, the share
prices of the Funds will vary significantly over time due to their
different investment programs. Similarly, the share prices of a Fund's
different share classes will deviate over time because of their different
expense structures. As a result, when issues are voted at the Trust level,
shareholders who acquired their shares at lower prices have relatively
greater voting power than shareholders who paid more for their shares.
Giving the Board of Trustees the option to change to dollar-based voting
will ensure that shareholders' voting rights remain proportionate to their
financial interests if the Board believes it to be in the best interests
of shareholders. [Section 7.01(c)]
o Required redemptions. The amendments would clarify the ability of the
Board of Trustees to allow the Trust to require shareholders to redeem
their shares under certain circumstances. The Board of Trustees may
determine that it is in the best interest of all shareholders to require
redemptions of small accounts, which are costly to maintain, or where a
shareholder fails to provide a Social Security number or taxpayer
identification number as required by
-23-
<PAGE>
law. This amendment could result in lower expenses to the Trust or
individual Funds. [Section 9.05]
o Record date. The amendments would change the maximum number of days for a
shareholder meeting to be held after the record date to 90 days from the
current 60-day requirement. This change would allow additional time to
solicit shareholder votes and avoid additional costs which can arise when
shareholder meetings are delayed. [Section 11.03]
o Master/Feeder structure. The amendments would allow the Trustees to
restructure one or more Funds into a "master/feeder" structure, in which
one Fund (a "feeder") would invest all of its assets in another "master"
Fund. Sometimes a master/feeder structure can benefit shareholders by
permitting a Fund to invest substantially all of its assets in another
investment company. Although there are no current plans to adopt this
structure, the Trustees would have the power to use the structure in the
future if they determined it would be in the best interests of
shareholders. [Section 11.05(e)]
o Derivative actions. Any Trustee who is also a trustee of an investment
company affiliated with the Trust would not be deemed to be an "interested
person" under state law solely because of such affiliation for purposes of
determining whether the Trust satisfies the notification provisions in the
event of a shareholder derivative action. This amendment is in response to
recent litigation addressing the issue. Whether a trustee is an
"interested person" under state and federal law depends on a number of
factual circumstances. This amendment merely clarifies that the fact that
a trustee is also a trustee of an affiliated investment company does not
make that trustee and "interested person" solely because of that
affiliation. [Section 11.08]
o Future amendments to the Trust Instrument. The amendments would clarify
the ability of the Trustees to amend the Trust Instrument in the future
without shareholder consent unless such consent is required by law or
shareholder rights would be adversely affected by the change. This change
would give the Board of Trustees greater flexibility in overseeing the
operations of the Trust without incurring the additional expense of
holding a special meeting of shareholders to approve amendments to the
Trust Instrument where shareholder approval is not required by law.
[Section 11.09]
B. Required Vote
Proposal 3 requires the approval of a majority of the outstanding
shares of the Trust voted in person or by proxy at the Special Meeting. If
shareholders of the Trust do not approve this Proposal, the existing Trust
Instrument will remain in effect and the Board of Trustees will consider
possible alternatives.
C. Has the Board of Trustees approved this new Amended and Restated
Trust Instrument?
Yes. The Board of Trustees of the Trust carefully considered this
proposal at its meeting on December 1, 1999. After full consideration, the
Board, including all of the Trustees who are not "interested persons" as defined
in the 1940 Act, unanimously approved this Amended and
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Restated Trust Instrument and recommended that it be submitted to shareholders
for approval. The Board recommends that shareholders vote "for" Proposal 3.
PROPOSAL 4
OTHER MATTERS
The Board of Trustees of the Trust does not know of any matters to be
presented at the Special Meeting other than those set forth in this Proxy
Statement. If any other business should come before the Special Meeting, the
persons named in the accompanying proxy will vote thereon in accordance with
their best judgment.
OTHER INFORMATION
Officers.
The officers of the Trust, their ages, and principal occupations
during the past five years, are as follows:
Position(s) Principal Occupation
Name and Age with the Trust During Past 5 Years
- ------------ --------- -------------------------------
Roger Noall, 64 Chairman See biographical information
Under "Board of Trustees" in
Proposal 2.
Leigh A. Wilson, 54 President and See biographical information
Trustee under "Board of Trustees"
in Proposal 2.
William B. Blundin, 60+ Vice President Senior Vice President of BISYS
Fund Services Inc. ("BISYS");
officer of other investment
companies administered by BISYS.
J. David Huber, 52 Vice President Managing Director, BISYS; officer
of BISYS since June 1987.
Robert D. Hingston, 46 Secretary Since November 1998, Vice
President of BISYS; from January
1995 to October 1998, founder and
principal of RDH Associates
(mutual fund management
consulting firm); from June 1980
to January 1995, Vice President
of Investors Bank & Trust
Company.
Joel B. Engle, 34 Treasurer Since September 1998, Vice
President of BISYS; from March
1995 to September 1998, Vice
President, Northern Trust
Company; from July 1994 to
February 1995, General
Accountant, Wanger Asset
Management; from September 1988
to June 1994, Audit Manager with
Ernst & Young LLP.
Gary Tenkman, 29 Assistant Since April 1998, Financial
Treasurer Services Director for BISYS; from
August 1997 to March 1998, Audit
Manager, Ernst & Young LLP; from
August 1994 to July 1997, Audit
Senior, Ernst & Young LLP; from
July 1993 to July 1994, Audit
Staff, Ernst & Young LLP.
Jay Baris, 45 Assistant Since September 1994, Partner,
Secretary Kramer Levin Naftalis & Frankel
LLP.
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Richard F. Baxt, 46 Assistant Since March 1996, Senior Vice
Secretary President of BISYS; from March
1994 to March 1996, President of
First Fidelity Brokers; from June
1984 to March 1994, President of
Citicorp Investment Services.
+ Mr. Blundin was an officer of the Trust during the fiscal year ending October
31, 1999. He resigned from BISYS and as an officer of the Trust effective
- --------.
The mailing address of each officer of the Trust is 3435 Stelzer Road, Columbus,
Ohio 43219-3035.
The officers of the Trust (other than Mr. Wilson) receive no compensation
directly from the Trust for performing the duties of their offices. BISYS
receives fees from the Trust as Administrator.
PART 3 - MORE ON PROXY VOTING AND SHAREHOLDER MEETINGS
General information about proxy voting. The Board of Trustees of the
Trust is soliciting your proxy to vote on the matters described in this combined
proxy statement and prospectus. We expect to solicit proxies primarily by mail,
but representatives of KAM or its affiliates or others may communicate with you
by mail or by telephone or other electronic means to discuss your vote. We have
also retained Shareholders Communication Corporation as an outside proxy
solicitor to assist us in this solicitation. Representatives of Shareholders
Communication Corporation may contact you if we do not receive your ballot. We
estimate the cost of the outside proxy solicitor to be approximately $1300.00
which will be paid by the Trust on behalf of the Funds. We will ask
broker-dealers and other institutions that hold shares for the benefit of their
customers to send the proxy materials to the beneficial owners and to obtain
authorization to vote on their behalf.
You may vote directly over the telephone by calling (800) 786-8764.
You may also fax your ballot to (800) 733-1885 or return it by mail. In
addition, internet voting is available at www.proxyvote.com.
Only shareholders of record of the Funds at the close of business on
the record date, January 21, 2000, may vote at the Special Meeting. As of the
record date, each of the Funds had the number of shares issued and outstanding
listed below, each share being entitled to one vote:
Fund Name Total Shares Outstanding
Government Mortgage Fund
Ohio Regional Stock Fund
As of January 21, 2000, the record date, the Trustees and officers of
the Trust, as a group, owned less than 1% of the outstanding shares of each
Fund. To the best of the knowledge of the Trust, the following shareholders
beneficially owned 5% or more of the outstanding shares of a Fund as of January
21, 2000:
Percent of Fund
Percent of Fund Owned of Record
Fund Name and Address Owned of Record and Beneficially
---- ---------------- --------------- ----------------
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You may cast one vote for each proposal for each whole share that you
own of a Fund. We count your fractional shares as fractional votes. If we
receive your proxy before the Special Meeting date, we will vote your shares as
you instruct the proxies. If you sign and return your proxy, but do not specify
instructions, we will vote your shares in favor of each proposal. You may revoke
your proxy at any time before the Special Meeting if you notify us in writing,
or if you attend the Special Meeting in person and vote in person.
If a broker or nominee returns a proxy indicating that it did not
receive voting instructions from the beneficial owner, or if the beneficial
owner marked an abstention, we will count those shares when we determine if a
quorum is present, but those proxies, in effect, will count as a vote "against".
Quorum and adjournments. Each Fund will vote separately on Proposal
1. All shareholders of the Trust will vote together on Proposals 2 and 3, and
shareholders of other funds in the Trust will receive a separate Proxy Statement
for that purpose. Each Fund requires that a quorum at the Special Meeting be
present, in person or by proxy, to conduct the Special Meeting. A simple
majority of all of the shares outstanding on the record date will be a quorum.
If a quorum is not present at the special meeting, the persons named as proxies
may propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies. An affirmative vote of a majority of the shares of each
Fund present at the Special Meeting may adjourn the Special Meeting without
further notice, until the Fund obtains a quorum. In the event a quorum is
present but sufficient votes to approve a proposal are not received, the persons
named as proxies may propose one or more adjournments to permit further
solicitation of proxies. If this should occur, we will vote proxies for or
against a motion to adjourn in the same proportion to the votes received in
favor or against the proposal.
Future shareholder proposals. The Trust is not required to hold
annual meetings, unless required to do so by law. If you have a proposal you
wish to be considered by shareholders, send your proposal to the Trust at 3435
Stelzer Road, Columbus, Ohio 43219-3035. We must receive your proposal in
sufficient time before the next meeting of shareholders for it to be included.
We do not guarantee that we will be able to include any proposal in a proxy
statement.
Recommendation of Board of Trustees. After carefully considering all
of the issues involved, the Board of Trustees of the Trust has unanimously
concluded that each proposal is in the best interests of shareholders.
PART 4 - FUND INFORMATION
The Victory Portfolios is a business trust established under Delaware
law. The operations of the Trust are governed by a Trust Instrument dated
December 5, 1995, as amended.
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Each Victory Fund is a separate series of the Trust and, as such, has
similar rights under the Trust Instrument of The Victory Portfolios and
applicable Delaware law. You should be aware of the following features of the
Victory Funds:
o Shares of each class of the Victory Funds participate
equally in dividends and other distributions attributable
to that class, including any distributions in the event of
a liquidation.
o Each share of each Victory Fund is entitled to one vote for
all purposes.
o Shares of all series of the Trust vote for the election of
Trustees and on any other matter that affects each Victory
Fund in substantially the same manner, except as otherwise
required by law.
o As to matters that affect each Fund differently, such as
approval of an investment advisory agreement, shares of
each series vote as a separate series.
o On matters that affect the classes of a series differently,
shares of each class vote separately.
o Delaware law does not require registered investment
companies, such as the Trust or its series, to hold annual
meetings of shareholders and it is anticipated that
shareholder meetings will be held only when specifically
required by federal or state law.
o Shareholders have available certain procedures for the
removal of Trustees.
o The Trust indemnifies trustees and officers to the fullest
extent permitted under federal and Delaware law.
Financial Statements. PricewaterhouseCoopers LLP, independent
auditors of the Trust, has audited the financial statements for the fiscal year
ended October 31, 1999 that are incorporated by reference in the Statement of
Additional Information dated January ___, 2000.
PART 5 - PROSPECTUS FOR CLASS A SHARES OF THE ACQUIRING FUNDS
These prospectuses can be found under separate cover provided with
your proxy materials.
PART 6 - FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
VICTORY ESTABLISHED VALUE FUND
VICTORY FUND FOR INCOME
VICTORY GOVERNMENT MORTGAGE FUND
VICTORY OHIO REGIONAL STOCK FUND
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of December __, 1999, between The Victory Portfolios, a
Delaware business trust ("Victory"), on behalf of Fund for Income and
Established Value Fund, segregated portfolios of assets ("series") thereof
(each, an "Acquiring Fund"), and Victory, on behalf of Government Mortgage Fund
and Ohio Regional Stock Fund, segregated portfolios of assets ("series") thereof
(each, a "Target"). (Each Acquiring Fund and Target are sometimes referred to
herein individually as a "Fund" and collectively as the "Funds," and Victory is
sometimes referred to herein as the "Investment Company.")
All agreements, representations, and obligations described herein
made or to be taken or undertaken by any Fund are made or shall be taken or
undertaken by Victory on the Fund's behalf.
Government Mortgage Fund and Fund for Income are corresponding Target
and Acquiring Funds, respectively, with respect to each other and Ohio Regional
Stock Fund and Established Value Fund are corresponding Target and Acquiring
Funds, respectively, with respect to each other.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that each Target transfer its assets to the
corresponding Acquiring Fund in exchange solely for voting shares of beneficial
interest of each comparable Class in the corresponding Acquiring Fund,
("Acquiring Fund's Shares") and the assumption by the corresponding Acquiring
Fund of the Target's liabilities, and that each Target distribute the
corresponding Acquiring Fund's Shares pro rata to the holders of shares of
beneficial interest in Target ("Target's Shares") in liquidation of Target. All
such transactions with respect to a Target and its corresponding Acquiring Fund
are referred to herein collectively as a "Reorganization."
It is intended by the parties hereto that each Reorganization
constitute a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Treasury Regulation Sections 1.368-2(g) and 1.368-3(a).
Shares of Fund for Income are currently divided into two classes,
designated Class A Shares and Class G Shares. Government Mortgage Fund currently
has only one class of shares, designated Class A Shares. Established Value Fund
currently has only one class of shares, designated Class G Shares. An amendment
to Victory's registration statement on Form N-1A will be filed to register Class
A Shares for Established Value Fund. Shares of Ohio Regional Stock Fund are
currently divided into two classes, designated Class A Shares and Class B
Shares. Class A Shares of Fund for Income will be distributed to holder of Class
A Shares of Government Mortgage Fund in the Reorganization of that Fund. Class A
Shares of Established
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Value Fund will be distributed to holders of Class A and Class B Shares of Ohio
Regional Stock Fund in the Reorganization of those Funds.
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGETS
1.1. At the Effective Time (as defined in paragraph 3.1), each Target
agrees to assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to the
corresponding Acquiring Fund. Each Acquiring Fund agrees in
exchange therefor
(a) to issue and deliver to its corresponding Target the number of
full and fractional Acquiring Fund's Shares determined by
dividing the net value of such Target (computed as set forth in
paragraph 2.1) by the NAV (computed as set forth in paragraph
2.2) of the Acquiring Fund's Shares; and
(b) to assume all of such Target's liabilities described in
paragraph 1.3 ("Liabilities").
1.2. Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on
Target's books, and other property owned by Target at the
Effective Time.
1.3. Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of
whatever kind or nature, whether absolute, accrued, contingent,
or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and
whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses
described in paragraph 7.2 and the liabilities to which the
transferred Assets are subject. Notwithstanding the foregoing,
each Target agrees to use its best efforts to discharge all of
its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, each Target shall
declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have
distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed without
regard to any deduction for dividends paid) and substantially
all of its realized net capital gain, if any, for the current
taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), each Target shall distribute the corresponding
Acquiring Fund's Shares received by it pursuant to paragraph 1.1 to
such Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Shareholder"),
in exchange for such Target's Shares and in liquidation of such
Target. To accomplish this distribution, the corresponding Acquiring
Fund's transfer agent ("Transfer Agent") shall open accounts on such
Acquiring Fund's share transfer books in the
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<PAGE>
Shareholders' names and transfer such Acquiring Fund's Shares
thereto. Each Shareholder's account shall be credited with the pro
rata number of full and fractional (rounded to the third decimal
place) Acquiring Fund's Shares due that Shareholder. All outstanding
Shares of such Target, including any represented by certificates,
shall simultaneously be canceled on such Target's share transfer
books. An Acquiring Fund shall not issue certificates representing
such Acquiring Fund's Shares in connection with its Reorganization.
However, certificates representing each Target's Shares shall
represent the corresponding Acquiring Fund's Shares after each
Reorganization.
1.6. As soon as reasonably practicable after distribution of an Acquiring
Fund's Shares pursuant to paragraph 1.5, the corresponding Target
shall be terminated and any further actions shall be taken in
connection therewith as required by applicable law. Each Target shall
file such instruments and shall take all other steps necessary to
effect a complete liquidation and dissolution of such Target.
1.7. Any reporting responsibility of a Target to a public authority is and
shall remain its responsibility up to and including the date on which
it is terminated.
1.8. Any transfer taxes payable upon issuance of an Acquiring Fund's
Shares in a name other than that of the registered holder on the
corresponding Target's books of such Target's Shares exchanged
therefor shall be paid by the person to whom such Acquiring Fund's
Shares are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), each Target's net value shall be
(a) the value of the Assets computed as of the close of regular
trading on the New York Stock Exchange ("NYSE") on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth
in such Target's then current prospectus and statement of additional
information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of each Acquiring Fund's
Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then current
prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Key Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. Each Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal
offices on _____________, 2000, or at such other place and/or on such
other date upon which the parties may agree. All acts taking place at
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time upon
which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or
trading thereon is restricted or (b) trading or the reporting of
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trading on the NYSE or elsewhere is disrupted, so that accurate
appraisal of the net value of each Target and the NAV per share for
each Acquiring Fund is impracticable, the Effective Time shall be
postponed until the first business day after the day when such
trading shall have been fully resumed and such reporting shall have
been restored.
3.2. Each Target shall deliver to Victory at the Closing a schedule of its
Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax bases and
holding periods by lot. Each Target's custodian shall deliver at the
Closing a certificate of an authorized officer stating that (a) the
Assets held by the custodian will be transferred to the corresponding
Acquiring Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made.
3.3. The Transfer Agent shall deliver at the Closing a certificate as to
the opening on each Acquiring Fund's share transfer books of accounts
in the names of the corresponding Target's Shareholders. Victory
shall issue and deliver a confirmation to each Target evidencing the
Acquiring Fund's Shares to be credited to such Target at the
Effective Time or provide evidence satisfactory to such Target that
the corresponding Acquiring Fund's Shares have been credited to such
Target's account on such Acquiring Fund's books. At the Closing, each
party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
3.4. Victory, on behalf of each Target and Acquiring Fund, respectively,
shall deliver at the Closing a certificate executed in its name by
its President or a Vice President and dated as of the Effective Time,
to the effect that the representations and warranties it made in this
Agreement are true and correct in all material respects at the
Effective Time, with the same force and effect as if made at and as
of the Effective Time, except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Each Target represents and warrants as follows:
4.1.1. At the Closing, Target will have good and marketable title to its
Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other
encumbrances; and upon delivery and payment for the Assets, the
corresponding Acquiring Fund will acquire good and marketable title
thereto;
4.1.2. The corresponding Acquiring Fund's Shares are not being acquired for
the purpose of making any distribution thereof, other than in
accordance with the terms hereof;
4.1.3. Target's current prospectus and statement of additional information
conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act
and the rules and regulations thereunder
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<PAGE>
and do not include any untrue statement of a material fact or omit
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading;
4.1.4. Target is not in violation of, and the execution and delivery of this
Agreement and consummation of the transactions contemplated hereby
will not (a) conflict with or violate, Delaware law or any provision
of Victory's Certificate of Declaration of Trust or Trust Instrument
or By-laws or of any agreement, instrument, lease, or other
undertaking to which Target is a party or by which it is bound or (b)
result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target
is a party or by which it is bound, except as previously disclosed in
writing to and accepted by Victory;
4.1.5. Except as otherwise disclosed in writing to and accepted by Victory,
all material contracts and other commitments of or applicable to
Target (other than this Agreement and investment contracts, including
options and futures) will be terminated, or provision for discharge
of any liabilities of Target thereunder will be made, at or prior to
the Effective Time, without Target incurring any liability or penalty
with respect thereto and without diminishing or releasing any rights
Target may have had with respect to actions taken or not taken by any
other party thereto prior to the Closing;
4.1.6. Except as otherwise disclosed in writing to and accepted by Victory
on behalf of the corresponding Acquiring Fund, no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is presently pending or (to Target's knowledge)
threatened against Target or any of its properties or assets that, if
adversely determined, would materially and adversely affect Target's
financial condition or the conduct of its business; Target knows of
no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.1.7. The execution, delivery, and performance of this Agreement has been
duly authorized as of the date hereof by all necessary action on the
part of Victory's board of trustees on behalf of Target, which has
made the determinations required by Rule 17a-8(a) under the 1940 Act;
and, subject to approval by Target's shareholders and receipt of any
necessary exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff with respect
to Sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
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<PAGE>
4.1.8. At the Effective Time, the performance of this Agreement shall have
been duly authorized by all necessary action by Target's
shareholders;
4.1.9. No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Target, except for (a) the filing
with the SEC of a registration statement by Victory on Form N-14
relating to the corresponding Acquiring Fund's Shares issuable
hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), (b) receipt of the exemptive relief or no-action
assurances referenced in subparagraph 4.1.7, and (c) such consents,
approvals, authorizations, and filings as have been made or received
or as may be required subsequent to the Effective Time;
4.1.10. On the effective date of the Registration Statement, at the time of
the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder and
(b) not contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading. This provision shall not apply
to statements in or omissions from the Proxy Statement made in
reliance on and in conformity with information furnished by Victory
for use therein;
4.2. Each Acquiring Fund represents and warrants as follows:
4.2.1. No consideration other than Acquiring Fund's Shares (and Acquiring
Fund's assumption of the Liabilities) will be issued in exchange for
the corresponding Target's Assets in the Reorganization;
4.2.2. Acquiring Fund's Shares to be issued and delivered to the
corresponding Target hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein,
will be duly and validly issued and outstanding shares of Acquiring
Fund, fully paid and nonassessable by Victory (except as disclosed in
Victory's then current prospectus and statement of additional
information). Except as contemplated by this Agreement, Acquiring
Fund does not have outstanding any options, warrants, or other rights
to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible into any of its shares;
4.2.3. Acquiring Fund's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a
material fact or omit any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
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4.2.4. Acquiring Fund is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated
hereby (a) will not conflict with or violate, Delaware law or any
provision of Victory's Certificate of Trust or Trust Instrument or
By-laws or any provision of any agreement, instrument, lease, or
other undertaking to which Acquiring Fund is a party or by which it
is bound or (b) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree
to which Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Victory;
4.2.5. Except as otherwise disclosed in writing to and accepted by Victory
on behalf of its corresponding Target, no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is presently pending or (to Acquiring Fund's knowledge)
threatened against Victory with respect to Acquiring Fund or any of
its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that
might form the basis for the institution of any such litigation,
proceeding, or investigation and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business
or its ability to consummate the transactions contemplated hereby;
4.2.6. The execution, delivery, and performance of this Agreement has been
duly authorized as of the date hereof by all necessary action on the
part of Victory's board of trustees on behalf of Acquiring Fund,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary exemptive relief
or no-action assurances requested from the SEC or its staff with
respect to Sections 17(a) and 17(d) of the 1940 Act, this Agreement
will constitute a valid and legally binding obligation of Acquiring
Fund, enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.7. No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the 1934 Act, or the 1940 Act for the
execution or performance of this Agreement by Victory, except for (a)
the filing with the SEC of the Registration Statement and a
post-effective amendment to Victory's registration statement on Form
N-1A, (b) receipt of the exemptive relief or no-action assurances
referenced in subparagraph 4.2.6, and (c) such consents, approvals,
authorizations, and filings as have been made or received or as may
be required subsequent to the Effective Time;
4.2.8. On the effective date of the Registration Statement, at the time of
the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder and
(b) not contain any untrue statement of a material fact
-7-
<PAGE>
or omit any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading; provided that the
foregoing shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by the corresponding Target for use therein;
4.3. Victory, on behalf of each Fund, represents and warrants as follows:
4.3.1. Victory is a business trust that is duly organized, validly existing,
and in good standing under the laws of the State of Delaware; and a
copy of its Certificate of Trust is on file with the Secretary of the
State of Delaware;
4.3.2. Victory is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full
force and effect at the Effective Time;
4.3.3. Each Fund is a duly established and designated series of Victory.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring and
paying customary dividends and other distributions and such changes
in operations as are contemplated by each Fund's normal business
activities and (b) each Fund will retain exclusive control of the
composition of its portfolio until the Closing; provided that no
Target shall dispose of more than an insignificant portion of its
historic business assets during such period without the corresponding
Acquiring Fund's prior consent.
5.2. Each Target covenants to call a special meeting of shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated hereby.
5.3. Each Target covenants that its corresponding Acquiring Fund's Shares
to be delivered hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the
terms hereof.
5.4. Each Target covenants that it will assist Victory in obtaining such
information as Victory reasonably requests concerning the beneficial
ownership of its Shares.
5.5. Each Target covenants that its books and records (including all books
and records required to be maintained under the 1940 Act and the
rules and regulations thereunder) will be turned over to Victory at
the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
-8-
<PAGE>
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the corresponding Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments,
and will take or cause to be taken such further action, as the
corresponding Fund may deem necessary or desirable in order to vest
in, and confirm to, (a) each Acquiring Fund, title to and possession
of all corresponding Target's Assets, and (b) each Target, title to,
and possession of the corresponding Acquiring Fund's Shares to be
delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Each Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act, and such state securities laws as it may deem appropriate in
order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and
effectuate the transactions contemplated hereby.
5.10. Victory covenants to file an amendment to its registration statement
on Form N-1A to register Class A Shares of Established Value Fund.
5.11. Victory, on behalf of Ohio Regional Stock Fund, covenants that it
will take all reasonable action to ensure that comparable classes of
shares exist between it and Established Value Fund.
6. CONDITIONS PRECEDENT
6.1. Each Fund's obligations hereunder shall be subject to (a) performance
by its corresponding Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the corresponding Fund contained herein being true
and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as
if made at and as of the Effective Time, and (c) the following
further conditions that, at or before the Effective Time:
6.1.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by Victory's board of trustees on
behalf of Target and Acquiring Fund and shall have been approved by
each Target's shareholders in accordance with applicable law.
6.1.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been
received that any other or further action is required to permit the
parties to carry out the transactions contemplated hereby. The
Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have
been issued, and the SEC shall not have issued an unfavorable report
with respect to the Reorganization under section 25(b) of the 1940
Act nor instituted any proceedings seeking to enjoin consummation of
the transactions contemplated
-9-
<PAGE>
hereby under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities
(including the SEC and state securities authorities) deemed necessary
by any Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except
where failure to obtain the same would not involve a risk of a
material adverse effect on the assets or properties of any Fund,
provided that any Fund may for itself waive any of such conditions.
6.1.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or to obtain damages or other relief in
connection with, the transactions contemplated hereby.
6.1.4. The amendment to the Fund's registration statement on Form N-1A filed
by Victory on behalf of Established Value Fund registering Class A
Shares shall have become effective.
6.1.5. Each Target shall have received an opinion of Kramer Levin Naftalis &
Frankel LLP, counsel to Victory, substantially to the effect that:
6.1.5.1. Its corresponding acquiring Fund is a duly established series of
Victory, a business trust duly organized and validly existing under
the laws of the State of Delaware with the power under its Trust
Instrument to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
6.1.5.2. This Agreement (a) has been duly authorized, executed, and delivered
by Victory on behalf of its corresponding Acquiring Fund and (b)
assuming due authorization, execution, and delivery of this Agreement
by Target, is a valid and legally binding obligation of Victory with
respect to the corresponding Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and remedies by general principles of equity, and principles
of course of dealing or course of performance and standards of good
faith, fair dealing, materiality or reasonablenesss that may be
applied by a court to the exercise of rights and remedies;
6.1.5.3. Each Acquiring Fund's Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly
issued and outstanding and fully paid and nonassessable (except as
disclosed in Victory's then current prospectus and statement of
additional information);
6.1.5.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
materially violate Victory's Trust Instrument or By-laws or any
provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Victory (with respect
to the corresponding Acquiring Fund) is a party or by which it is
bound or (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Victory (with respect to the
corresponding
-10-
<PAGE>
Acquiring Fund) is a party or by which it (with respect to the
corresponding Acquiring Fund) is bound, except as set forth in such
opinion or as previously disclosed in writing to and accepted by
Victory;
6.1.5.5. To the knowledge of such counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
Victory on behalf of the corresponding Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
6.1.5.6. Victory is registered with the SEC as an investment company, and to
the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.1.5.7. To the knowledge of such counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending
or threatened as to Victory (with respect to the corresponding
Acquiring Fund) or any of its properties or assets attributable or
allocable to the corresponding Acquiring Fund and (b) Victory (with
respect to the corresponding Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially and adversely affects the
corresponding Acquiring Fund's business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by
Victory.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion of
competent Delaware counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then
with such firm who have devoted substantive attention to matters
directly related to this Agreement and each Reorganization; and (v)
rely on certificates of officers or trustees of Victory, in each case
reasonably acceptable to Victory.
6.1.6. Each Acquiring Fund shall have received an opinion of Kramer Levin
Naftalis & Frankel LLP, counsel to Victory, substantially to the
effect that:
6.1.6.1. Its corresponding Target is an established series of Victory, a
business trust duly organized and validly existing under the laws of
the State of
-11-
<PAGE>
Delaware with power under its Trust Instrument to own all of its
properties and assets and, to the knowledge of such counsel, to carry
on its business as presently conducted;
6.1.6.2. This Agreement (a) has been duly authorized, executed, and delivered
by Victory on behalf of its corresponding Target and (b) assuming due
authorization, execution, and delivery of this Agreement by Victory
on behalf of the Acquiring Fund, is a valid and legally binding
obligation of each corresponding Target, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and remedies,
by general principles of equity, and principles of course of dealing
or course of performance and standards of good faith fair dealing,
materiality or reasonableness that may be applied by a court to the
exercise of rights and remedies.
6.1.6.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (a)
materially violate Victory's Trust Instrument or By-laws or any
provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Victory (with respect
to the corresponding Target) is a party or by which it is bound or
(b) (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Victory (with respect to the
corresponding Target) is a party or by which it (with respect to the
corresponding Target) is bound, except as set forth in such opinion
or as previously disclosed in writing to and accepted by Victory;
6.1.6.4. To the knowledge of such counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
Victory on behalf of the corresponding Target of the transactions
contemplated hereby, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be required under
state securities laws;
6.1.6.5. Victory is registered with the SEC as an investment company, and to
the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.1.6.6. To the knowledge of such counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending
or threatened as to Victory (with respect to the corresponding
Target) or any of its properties or assets attributable or allocable
to the corresponding Target and (b) Victory (with respect to the
corresponding
-12-
<PAGE>
Target) is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially
and adversely affects the corresponding Target's business, except as
set forth in such opinion or as otherwise disclosed in writing to and
accepted by Victory.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion of
competent Delaware counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then
with such firm who have devoted substantive attention to matters
directly related to this Agreement and each Reorganization, and (v)
rely on certificates of officers or trustees of Target; in each case
reasonably acceptable to Victory.
6.1.7. Victory, on behalf of each Target and its corresponding Acquiring
Fund, shall have received an opinion of Kramer Levin Naftalis &
Frankel LLP addressed to and in form and substance reasonably
satisfactory to it, as to the federal income tax consequences of each
Reorganization ("Tax Opinion"). In rendering the Tax Opinion, such
counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this
Agreement (and/or in separate letters addressed to such counsel) and
each Fund's separate covenants. Each party agrees to make reasonable
covenants and representations as to factual matters as of the
Effective Time in connection with the rendering of such opinion. The
Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein and conditioned on consummation
of each Reorganization in accordance with this Agreement, for federal
income tax purposes:
6.1.7.1. Each Reorganization will constitute a reorganization within the
meaning of section 368(a)(1) of the Code, and each Fund will be "a
party to a reorganization" within the meaning of section 368(b) of
the Code;
6.1.7.2. No gain or loss will be recognized by Target on the transfer to the
corresponding Acquiring Fund of Assets in exchange solely for the
Acquiring Fund's Shares and Acquiring Fund's assumption of
Liabilities or on the subsequent distribution of those shares to the
Shareholders in liquidation of such Target;
6.1.7.3. No gain or loss will be recognized by the Acquiring Fund on its
receipt of Assets in exchange solely for Acquiring Fund's Shares and
its assumption of Liabilities;
6.1.7.4. Each Acquiring Fund's adjusted tax basis in the Assets acquired will
be equal to the basis thereof in the corresponding Target's hands
immediately before such Reorganization, and each Acquiring Fund's
holding period for the Assets will include the corresponding Target's
holding period therefor;
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<PAGE>
6.1.7.5. A Shareholder will recognize no gain or loss on the exchange of its
Target Shares solely for the corresponding Acquiring Fund's Shares
pursuant to a Reorganization; and
6.1.7.6. A Shareholder's aggregate tax basis in any Acquiring Fund's Shares
received by it in a Reorganization will equal its aggregate tax basis
in its Target Shares surrendered in exchange therefor, and its
holding period for such Acquiring Fund Shares will include its
holding period for such Target Shares, provided such Target Shares
are held as capital assets by the Shareholder at the Effective Time.
6.2. At any time before the Closing, each Fund may waive any of the
foregoing conditions if, in the judgment of Victory's board of
trustees, such waiver will not have a material adverse effect on its
shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Victory, on behalf of each Fund, represents and warrants that there
are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
7.2. Each Fund will be responsible for its own expenses incurred in
connection with each Reorganization, as agreed to by the parties.
8. ENTIRE AGREEMENT; SURVIVAL
8.1. Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement
between the parties. The representations, warranties, and covenants
contained herein or in any document delivered pursuant hereto or in
connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
9.1. This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by each Target's
Shareholders:
9.1.1. By any Fund (a) in the event of a material breach of any
representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to
its obligations has not been met and it reasonably appears that such
condition will not or cannot be met, or (c) if the Closing has not
occurred on or before March 30, 2000; or
9.1.2. By the parties' mutual agreement.
9.2. In the event of termination under paragraphs 9.1.1(c) or 9.1.2, there
shall be no liability for damages on the part of either Fund affected
by the termination, or the trustees or officers of Victory, to its
corresponding Fund.
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<PAGE>
10. AMENDMENT
10.1. This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by each Target's Shareholders, in
such manner as may be mutually agreed upon in writing by the parties;
provided that following such approval no such amendment shall have a
material adverse effect on such Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the
case of any conflict between such laws and the federal securities
laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
11.3. The parties acknowledge that Victory is a business trust. Notice is
hereby given that this instrument is executed on behalf of Victory's
trustees solely in their capacity as trustees, and not individually,
and that Victory's obligations under this instrument on behalf of
each Fund are not binding on or enforceable against any of its
trustees, officers, or shareholders, but are only binding on and
enforceable against the respective Funds' assets and property. Each
Fund agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the corresponding Fund's assets and
property in settlement of such rights or claims and not to such
trustees or shareholders.
11.4. Victory agrees to indemnify and hold harmless each trustee of Victory
at the time of the execution of this Agreement against expenses,
including reasonable attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by such trustee
in connection with any claim that is asserted against such trustee
arising out of such person's service as a trustee of Victory,
provided that such indemnification shall be limited to the full
extent of the indemnification that is available to the trustees of
Victory pursuant to the provisions of Victory's Trust Instrument and
applicable law.
11.5. For the period beginning at the time of the Reorganization and ending
not less than three years thereafter, Victory shall provide for
liability coverage for the actions of each trustee of Victory on
behalf of each Target at the time of the execution of this Agreement
for the period they served as such.
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<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: THE VICTORY PORTFOLIOS, on behalf
of its series:
Fund for Income
Established Value Fund
___________________________________ _____________________________________
___________________________________ By: ________________________________
Secretary Vice President
ATTEST: THE VICTORY PORTFOLIOS, on behalf
of its series:
Government Mortgage Fund
Ohio Regional Stock Fund
___________________________________ _____________________________________
___________________________________ By: ________________________________
Secretary Vice President
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January __, 2000
Acquisition of the Assets of
THE VICTORY PORTFOLIOS
Government Mortgage Fund
Ohio Regional Stock Fund
by and in exchange for all the shares of
THE VICTORY PORTFOLIOS
Fund for Income
Established Value Fund
This Statement of Additional Information dated January __, 2000, is not a
prospectus, but should be read in conjunction with the Combined Proxy Statement
and Prospectus dated January __, 2000. This Statement of Additional Information
is incorporated by reference in its entirety into the Combined Proxy Statement
and Prospectus. Copies of the Combined Proxy Statement and Prospectus may be
obtained by writing The Victory Portfolios at P.O. Box 8527, Boston, MA
02266-8527 or by calling toll free 800-539-FUND (800-539-3863).
<PAGE>
TABLE OF CONTENTS
1. Statement of Additional Information of Fund for Income a portfolio
of The Victory Portfolios, dated December 15, 1999.
2. Statement of Additional Information of Established Value Fund, a
portfolio of The Victory Portfolios, dated April 5, 1999, as
Supplemented July 28, 1999.
3. Statements of Additional Information of Government Mortgage Find and
Ohio Regional Stock Fund, portfolios of The Victory Portfolios, dated
December 15, 1999.
4. Financial Statements of Fund for Income, Established Value Fund,
Government Mortgage Fund and Ohio Regional Stock Fund, portfolios of
The Victory Portfolios, dated October 31, 1999.
<PAGE>
ADDITIONAL INFORMATION ABOUT THE REGISTRANT
The Statement of Additional Information dated December 15, 1999, of
Fund for Income, a portfolio of The Victory Portfolios, as filed with the
Securities and Exchange Commission (SEC) on December 20, 1999, pursuant to Rule
497(c), is hereby incorporated by reference. A copy may be obtained by writing
The Victory Portfolios, P.O. Box 8527, Boston MA 02266-8527 or by calling toll
free 800-539-3863.
The Statement of Additional Information dated April 5, 1999, of
Established Value Fund, a portfolio of The Victory Portfolios, is incorporated
by reference to Post-Effective Amendment No. 50 to The Victory Portfolio's
Registration Statement on Form N-1A (File No. 33-08982). A copy may be obtained
by writing The Victory Portfolios, P.O. Box 8527, Boston MA 02266-8527 or by
calling toll free 800-539-3863.
The Statements of Additional Information dated December 15, 1999, of
Government Mortgage Fund and Ohio Regional Stock Fund, portfolios of The Victory
Portfolios, as filed with the Securities and Exchange Commission (SEC) on
December 20, 1999, pursuant to Rule 497(c), is hereby incorporated by reference.
A copy may be obtained by writing The Victory Portfolios, P.O. Box 8527, Boston
MA 02266-8527 or by calling toll free 800-539-3863.
Fund Policies. Shareholders of the Fund for Income and Established
Value Fund are being asked to approve certain changes to fundamental investment
restrictions at a Special Meeting of shareholders to be held on March 20, 2000
(the "Special Meting"). The charts on the next few pages show the restrictions
of the Government Mortgage Fund and Ohio Regional Stock Fund and the
restrictions of the Fund for Income and the Established Value Fund, first as
they are currently, and second, as they will be if shareholders of those Funds
approve certain investment restriction changes at the Special Meeting.
<TABLE>
<CAPTION>
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<S> <C> <C>
Government Mortgage Fund Fund for Income - Present Fund for Income - Proposed
- -----------------------------------------------------------------------------------------------------------------------------------
Concentration:
- -----------------------------------------------------------------------------------------------------------------------------------
The Government Mortgage Fund has no The Fund may not: The Fund may not:
separately stated concentration restriction
because it invests at least 80% of its invest more than 25% of the Fund's total purchase the securities of any issuer
total assets in obligations issued or assets in securities whose interest (other than the securities issued or
guaranteed by the United States government payments are derived from revenue from guaranteed by the U.S. government or any
or its agencies or instrumentalities. A similar projects. of its agencies or instrumentalities, or
fund "concentrates" if it invests 25% or repurchase agreements secured thereby)
more of its total assets, excluding As a matter of non-fundamental policy, if, as a result, 25% or more of the
obligations issued or guaranteed by the the Fund for Income may not, with respect Fund's total assets would be invested in
United States government or its agencies or to non-municipal bond investments, the securities of companies whose
instrumentalities, in a single industry. purchase securities (other than securities principal business activities are in the
of the United States government, its same industry. This restriction shall
agencies or instrumentalities), if as a not prevent the Fund from investing
result of such purchase 25% or more of all of its assets in a "master" fund that
the total Fund's assets would be invested has adopted similar investment
in any one industry. objectives, any policies and
restrictions.
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowing
- -----------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund may not:
borrow money, except that (a) the Fund may borrow money, except for temporary or borrow money, except that the Fund may
enter into commitments to purchase emergency purposes and not for investment (a) enter into commitments to purchase
securities in accordance with its purposes, and then only in an amount not securities and instruments in accordance
investment program, including exceeding 5% of the value of its total with its investment program, including
delayed-delivery and when-issued securities assets at the time of the borrowing. when-issued and delayed-delivery
and reverse repurchase agreements, provided transactions, reverse repurchase
that the total amount of any such borrowing agreements and "dollar roll"
does not exceed 33 1/3 % of the Fund's transactions, provided that the total
total assets; and (b) the Fund may borrow amount of any borrowing does not exceed
money for temporary or emergency purposes 33 1/3% of the Fund's total assets at the
in an amount not exceeding 5% of the value time of the transaction; (b) borrow money
of its total assets at the time when the in an amount not to exceed 33 1/3% of the
loan is made. Any borrowings representing value of its total assets at the time the
more than 5% of the Fund's total assets loan is made; and (c) borrow money on a
must be repaid before the Fund may make short-term basis from investment
additional investments. companies that are part of the same group
of investment companies to the extent
allowed by applicable laws, rules or
regulatory orders in an amount not to
exceed 33 1/3% of the value of its total
assets at the time the loan is made.
Borrowings representing more than 33 1/3%
of the Fund's total assets must be repaid
before the Fund may make additional
investments.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Securities
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: Same as the Government Mortgage Fund The Fund may not:
issue any senior security (as defined in issue any senior security (as defined in
the Investment Company Act of 1940, as the 1940 Act), except that (a) the Fund
amended (the "1940 Act")), except that (a) may engage in transactions that may
the Fund may engage in transactions that result in the issuance of senior
may result in the issuance of senior securities to the extent permitted under
securities to the extent permitted under applicable regulations and
applicable regulations and interpretations interpretations of the 1940 Act, an
of the 1940 Act or an exemptive order; exemptive order or interpretation of the
(b) the Fund may acquire other securities, staff of the SEC; (b) the Fund may
the acquisition of which may result in the acquire other securities, the acquisition
issuance of a senior security, to the of which may result in the issuance of a
extent permitted under applicable senior security, to the extent permitted
regulations or interpretations of the 1940 under applicable regulations or
Act; (c) subject to the restrictions set interpretations of the 1940 Act; (c)
forth above, the Fund may borrow money as subject to the restrictions described in
authorized by the 1940 Act. the Statement of Additional Information,
the Fund may borrow money as authorized by
the 1940 Act; and (d) the Fund may issue
multiple classes of shares in accordance
with regulations of the SEC.
- ------------------------------------------------------------------------------------------------------------------------------------
Lending:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund may not:
lend any security or make any other loan make loans to other persons except make loans, except as follows: The Fund,
if, as a result, more than 33 1/3% of its through the use of repurchase agreements consistent with its investment program,
total assets would be lent to other parties, or the purchase of commercial paper. For may (a) purchase bonds, debentures, other
but this limitation does not apply to these purposes, the purchase of a debt securities and hybrid instruments,
purchases of publicly issued debt securities portion of an issue of debt securities including short-term obligations; (b)
or to repurchase agreements. which is part of an issue to the public enter into repurchase transactions; and
shall not be considered the making of (c) make short-term loans to other
a loan. investment companies that are part of the
same group of investment companies, as
part of an interfund loan program, as
allowed by applicable laws, rules and
regulatory orders.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Joint Trading Accounts:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not participate on a joint or No fundamental restriction. No change is proposed.
joint and several basis in any securities
trading account. A specific joint trading account
restriction is not required under any
applicable law. If the Fund for Income
wanted to participate in a joint trading
account or arrangement, it would have to
obtain exemptive relief from the SEC.
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriting:
- ------------------------------------------------------------------------------------------------------------------------------------
The Funds may not: Same as Government Mortgage Fund The Fund may not:
underwrite securities issued by others, underwrite securities issued by others,
except to the extent that a Fund may be except to the extent that the Fund may be
considered an underwriter within the considered an underwriter within the
meaning of the Securities Act of 1933, as meaning of the Securities Act when the
amended (the "Securities Act"), in reselling securities held in its own
disposition of restricted securities. portfolio.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: The Fund is diversified.
with respect to 75% of its total assets, purchase the securities of any issuer Under the 1940 Act, a fund is
purchase the securities of any issuer (except the U.S. government, its agencies "diversified" if with respect to 75% of
(other than securities issued or guaranteed and instrumentalities), with regard to its assets, no more than 5% can be
by the U.S. government or any of its 75% of its total assets, if as a result invested in any one issuer (other than
agencies or instrumentalities) if, as a more than 5% of its total assets would be U.S. Government Securities), and no more
result, (a) more than 5% of its total invested in the securities of such than 10% of the outstanding voting
assets would be invested in the securities issuer. In determining the issuer of a securities of any issuer can be held by a
of that issuer, or (b) the Fund would hold tax-exempt security, each state and each fund.
more than 10% of the outstanding voting political subdivision, agency, and
securities of that issuer. instrumentality of each state and each
multi-state agency of which such state is
a member is a separate issuer. Where
securities are backed only by assets and
revenues of a particular instrumentality,
facility or subdivision, such entity is
considered the issuer.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: No fundamental restriction. The Fund may not:
purchase or sell real estate unless purchase or sell real estate unless
acquired as a result of ownership of acquired as a result of direct ownership
securities or other instruments (but this of securities or other instruments. This
shall not prevent the Fund from investing restriction shall not prevent the Fund
in securities or other instruments backed from investing in securities or other
by real estate or securities of companies instruments backed by real estate or
engaged in the real estate business). securities of companies engaged in the
Investments by the Fund in securities real estate business, including real
backed by mortgages on real estate or in estate investment trusts. This
marketable securities of companies engaged restriction does not preclude the Fund
in such activities are not hereby precluded. from buying securities backed by
mortgages on real estate or securities of
companies engaged in such activities. This
restriction shall not prevent a Fund from
investing in real estate operating
companies and shares of companies engaged
in other real estate related businesses.
- ------------------------------------------------------------------------------------------------------------------------------------
Pledging:
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund may not: No fundamental restriction.
pledge, mortgage, or hypothecate its The restriction on pledging was based on
assets, except that, to secure borrowings state law requirements that are no longer
permitted by its fundamental restriction applicable.
on borrowing, it may pledge securities
having a market value at the time of
pledge not exceeding 10% of the value of
its total assets.
- ------------------------------------------------------------------------------------------------------------------------------------
Commodities:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund may not: No change is proposed.
purchase or sell physical commodities purchase or sell commodities or
unless acquired as a result of ownership commodity contracts, oil, gas or other
of securities or other instruments (but this mineral exploration or development
shall not prevent the Fund from purchasing programs.
or selling options and futures contracts
or from investing in securities or other
instruments backed by physical commodities).
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Ohio Regional Stock Fund Established Value - Current Established Value - Proposed
- ------------------------------------------------------------------------------------------------------------------------------------
Concentration:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund will not: The Fund will not concentrate more than The Fund may not:
25% of its total assets in any one
purchase the securities of any issuer industry. purchase the securities of any issuer
(other than securities issued or guaranteed (other than the securities issued or
by the U.S. government or any of its guaranteed by the U.S. government or any
agencies or instrumentalities, or of its agencies or instrumentalities, or
repurchase agreements secured thereby) if, repurchase agreements secured thereby)
as a result, more than 25% of its total if, as a result, 25% or more of its total
assets would be invested in the securities assets would be invested in the
of companies whose principal business securities of companies whose principal
activities are in the same industry. In business activities are in the same
the utilities category, the industry shall industry. This restriction shall not
be determined according to the service prevent the Fund from investing all of
provided. For example, gas, electric, its assets in a "master" fund that has
water and telephone will be considered as adopted similar investment objections,
separate industries. policies and restrictions.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not borrow money, except as The Fund may not:
a temporary measure for extraordinary or
borrow money, except that (a) the Fund may emergency purposes, and then only in borrow money, except that the Fund may
enter into commitments to purchase amounts not exceeding 5% of the total (a) enter into commitments to purchase
securities in accordance with its assets of the Fund, taken at the lower of securities and instruments in accordance
investment program, including acquisition cost or market value. with its investment program, including
delayed-delivery and when-issued securities when-issued and delayed-delivery
and reverse repurchase agreements, provided transactions, reverse repurchase
that the total amount of any such borrowing agreements and "dollar roll"
does not exceed 33 1/3 % of the Fund's transactions, provided that the total
total assets; and (b) the Fund may borrow amount of any borrowing does not exceed
money for temporary or emergency purposes 33 1/3% of the Fund's total assets at the
in an amount not exceeding 5% of the value time of the transaction; (b) borrow money
of its total assets at the time when the in an amount not to exceed 33 1/3% of the
loan is made. Any borrowings representing value of its total assets at the time the
more than 5% of the Fund's total assets loan is made; and (c) borrow money on a
must be repaid before the Fund may make short-term basis from investment
additional investments. companies that are part of the same group
of investment companies to the extent
allowed by applicable laws, rules or
regulatory orders in an amount not to
exceed 33 1/3% of the value of its total
assets at the time the loan is made.
Borrowings representing more than 33 1/3%
of the Fund's total assets must be repaid
before the Fund may make additional
investments.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Securities
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: No fundamental restriction. The Fund may not:
issue any senior security (as defined in issue any senior security (as defined in
the 1940 Act), except that (a) the Fund may the 1940 Act), except that (a) the Fund
engage in transactions that may result in may engage in transactions that may
the issuance of senior securities to the result in the issuance of senior
extent permitted under applicable securities to the extent permitted under
regulations and interpretations of the 1940 applicable regulations and
Act or an exemptive order; (b) the Fund may interpretations of the 1940 Act, an
acquire other securities, the acquisition exemptive order or interpretation of the
of which may result in the issuance of a staff of the SEC; (b) the Fund may
senior security, to the extent permitted acquire other securities, the acquisition
under applicable regulations or of which may result in the issuance of a
interpretations of the 1940 Act; and (c) senior security, to the extent permitted
subject to the restrictions set forth under applicable regulations or
above, the Fund may borrow money as interpretations of the 1940 Act; (c)
authorized by the 1940 Act. subject to the restrictions described in
the Statement of Additional Information,
the Fund may borrow money as authorized by
the 1940 Act; and (d) the Fund may issue
multiple classes of shares in accordance
with regulations of the SEC.
- ------------------------------------------------------------------------------------------------------------------------------------
Lending:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not make loans, except (a) The Fund may not:
through the purchase of publicly
lend any security or make any other loan distributed corporate securities, U.S. make loans, except as follows: the Fund,
if, as a result, more than 33 1/3% of its government obligations, certificates of consistent with its investment program,
total assets would be lent to other deposit, high-grade commercial paper may (a) purchase bonds, debentures, other
parties, but this limitation does not and other money market instruments, debt securities and hybrid instruments,
apply to purchases of publicly issued debt and (b) loans of portfolio securities to including short-term obligations; (b)
securities or to repurchase agreements. persons unaffiliated with the Trust not enter into repurchase transactions; (c)
in excess of 20% of the value of the lend portfolio securities, provided that
Fund's total assets (taken at market the value of loaned securities does not
value) made in accordance with the exceed 33 1/3% of the Fund's total assets;
guidelines of the SEC and with any and (d) make short-term loans to other
standards established from time to time investment companies that are part of the
by the Trust's Board of Trustees, same group of investment companies, as
including the maintenance of part of an interfund loan program, as
collateral from the borrower at all allowed by applicable laws, rules and
times in an amount at least equal to regulatory orders."
the current market value of the
securities loaned.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Joint Trading Accounts:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not participate on a joint, No fundamental restriction.
or a joint and several, basis in any
participate on a joint or joint and several securities trading account. A specific joint trading account
basis in any securities trading account. restriction is not required under any
applicable law. If the Established Value
Fund wanted to participate in a joint
trading account or arrangement, it would
have to obtain exemptive relief from the
SEC.
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriting:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not underwrite the The Fund may not:
securities of other issuers, except
underwrite securities issued by others, insofar as it may technically be deemed underwrite securities issued by others,
except to the extent that the Fund may be an underwriter under the Securities Act except to the extent that the Fund may be
considered an underwriter within the in connection with the disposition of considered an underwriter within the
meaning of the Securities Act in the portfolio securities. meaning of the Securities Act when
disposition of restricted securities. reselling securities held in its own
portfolio.
- ------------------------------------------------------------------------------------------------------------------------------------
Diversification:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase any securities The Established Value Fund is diversified.
(other than obligations issued or
with respect to 75% of its total assets, guaranteed by the U.S. government or its Under the 1940 Act, a fund is
purchase the securities of any issuer agencies or instrumentalities) if "diversified" if with respect to 75% of
(other than securities issued or guaranteed immediately after such purchase, more these assets, no more than 5% can be
by the U.S. government or any of its than 5% of its total assets would be invested in any one issuer (other than
agencies or instrumentalities) if, as a invested in securities of any one issuer U.S. government securities), and no more
result, (a) more than 5% of its total or more than 10% of the outstanding than 10% of the outstanding voting
assets would be invested in the securities securities of any one issuer would be securities of any issuer can be held by a
of that issuer, or (b) the Fund would hold owned by the Trust and held by the Fund. fund.
more than 10% of the outstanding voting
securities of that issuer.
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate:
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase or sell real The Fund may not:
estate, except that it is permissible to
purchase or sell real estate unless purchase securities secured by real purchase or sell real estate unless
acquired as a result of ownership of estate or real estate interests or issued acquired as a result of direct ownership
securities or other instruments (but this by companies that invest in real estate of securities or other instruments. This
shall not prevent the Fund from investing or real estate interests. restriction shall not prevent the Fund
in securities or other instruments backed from investing in securities or other
by real estate or securities of companies instruments backed by real estate or
engaged in the real estate business). securities of companies engaged in the
Investments by the Fund in securities real estate business, including real
backed by mortgages on real estate or in estate investment trusts. This
marketable securities of companies engaged restriction does not preclude the Fund
in such activities are not hereby precluded. from buying securities backed by
mortgages on real estate or securities of
companies engaged in such activities. This
restriction shall not prevent a Fund from
investing in real estate operating
companies and shares of companies engaged
in other real estate related businesses.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Pledging:
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not mortgage, pledge or No fundamental restriction.
hypothecate securities, except in
connection with a permissible borrowing This restriction is being eliminated as
and then only in amounts not exceeding unnecessary. The restriction was based
10% of the value of its assets (taken at on state law requirements that are no
the lower of acquisition cost or market longer applicable.
value).
- ------------------------------------------------------------------------------------------------------------------------------------
Short Sales, Margin:
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not make short sales of No fundamental restriction.
securities, or purchase securities on
As a matter of non-fundamental policy, the margin, except for short-term credit as This restriction is being eliminated as
Fund may not: is necessary for the clearance of unnecessary. Eliminating this restriction
transactions. will not change the Established Value
make short sales of securities, other Fund's present investment practices.
than short sales "against the box," or
purchase securities on margin except for
short-term credits necessary for clearance
of portfolio transactions, provided that
this restriction will not be applied to
limit the use of options, futures
contracts and related options, in the
manner otherwise permitted by the
investment restrictions, policies and
investment program of the Fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Investing for Control
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not invest in companies for No fundamental restriction.
the purpose of exercising control or
management. This restriction was based on state law
requirements that are no longer
applicable. Because the Established Value
Fund invests in securities with a market
capitalization of $1 billion, this
restriction is unnecessary.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Established Value Fund will not No fundamental restriction.
purchase securities subject to
As a matter of non-fundamental policy, the restrictions on disposition under the The amount of restricted securities that
Fund may not: Securities Act. the Fund could acquire would be limited
by its ability to acquired illiquid
invest more than 15% of its net assets in securities, up to 5% of the value of its
illiquid securities, which may include portfolio..
restricted securities
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid Securities
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase securities for No fundamental restriction.
which no readily available market
As a matter of non-fundamental policy, the quotation exists, if at the time of This restriction is no longer required by
Fund may not: acquisition more than 5% of its total state law or the 1940 Act. Removing this
assets would be invested in such restriction gives the Trustees greater
Invest more than 15% of its net assets in securities (repurchase agreements flexibility to respond to developing
illiquid securities. Illiquid securities maturing in more than seven days are markets for restricted, but liquid,
are securities that are not readily included within this restriction). securities and regulatory changes
marketable or cannot be disposed of concerning the permitted levels of
promptly within seven days and in the usual investment in such securities.
course of business at approximately the
price at which the Fund has valued them.
Such securities include, but are not
limited to, time deposits and repurchase
agreements with maturities longer than
seven days. Securities that may be resold
under Rule 144A, securities offered pursuant
to Section 4(2) of, or securities otherwise
subject to restrictions or limitations on
resale under the Securities Act ("Restricted
Securities") shall not be deemed illiquid
solely by reason of being unregistered.
The Adviser determines whether a particular
security is deemed to be liquid based on
the trading markets for the specific security
and other factors.
- ------------------------------------------------------------------------------------------------------------------------------------
Options
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not write, purchase or sell No change is proposed.
puts, calls or combinations thereof.
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Other Investment Companies
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase the securities None. Instead, the Established Value
of other investment companies, except in Fund will adopt the Victory Portfolios'
connection with a merger, consolidation, standard non-fundamental investment
As a matter of non-fundamental policy, the reorganization or acquisition of assets, restriction:
Fund may: and except by purchase in the open market
of securities of closed-end investment The Fund may:
invest up to 5% of its total assets in the companies involving only customary
securities of any one investment company, broker's commissions, and then only invest up to 5% of its total assets in the
but may not own more than 3% of the if immediately after such purchase, no securities of any one investment company,
securities of any one investment company or more than 10% of the value of the but may not own more than 3% of the
invest more than 10% of its total assets in total assets f the Fund would be securities of any one investment company
the securities of other investment invested in such securities. or invest more than 10% of its total
companies. Pursuant to an exemptive order assets in the securities of other
received by the Trust from the SEC, the investment companies. Pursuant to an
Fund may invest in the other money market exemptive order received by the Trust from
funds of the Trust. Each Fund will waive the SEC, the Fund may invest in the other
the portion of its fee attributable to the money market funds of the Trust. Each Fund
assets of each Fund invested in such money will waive the portion of its fee
market funds to the extent required by the attributable to the assets of each Fund
laws of any jurisdiction in which shares of invested in such money market funds to the
the Funds are registered for sale. extent required by the laws of any
However, the Fund may not purchase the jurisdiction in which shares of the Funds
securities of any registered open-end are registered for sale. In addition, the
investment company or registered unit Fund may not: Purchase the securities of
investment trust in reliance on Section any registered open-end investment company
12(d)(1)(G) or Section 12(d)(1)(F) of or registered unit investment trust in
the 1940 Act, which permits operation reliance on Section 12(d)(1)(G) or Section
as a "fund of funds." 12(d)(1)(F) of the 1940 Act, which permits
operation as a "fund of funds."
- ------------------------------------------------------------------------------------------------------------------------------------
Commodities
- ------------------------------------------------------------------------------------------------------------------------------------
The Fund may not: The Fund will not purchase or sell No change is proposed.
commodities, commodity contracts, or
interests in oil, gas or other mineral
purchase or sell physical commodities exploration or development programs,
unless acquired as a result of ownership except that it is permissible to purchase
of securities or other instruments (but securities issued by companies that
this shall not prevent the Fund from hold interests in oil, gas or other mineral
purchasing or selling options and futures exploration or development programs.
contracts or from investing in securities
or other instruments backed by physical
commodities).
- ------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Ownership of Portfolio Securities by Trustees or Officers
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase or retain the No change is proposed.
securities of any issuer if any Trustee
or officer of the Trust is or becomes a
director or officer of such issuer and
owns beneficially more than 1/2 of 1% of
the securities of such issuer, or if
those directors, trustees and officers of
the Trust and its investment adviser who
are directors or officers of such issuer
together own or acquire more than 5% of
the securities of such issuer.
- ------------------------------------------------------------------------------------------------------------------------------------
Unseasoned Issuers
- ------------------------------------------------------------------------------------------------------------------------------------
No fundamental restriction. The Fund will not purchase any securities No change is proposed.
of companies which have (with their
predecessors) a record of less than three
years of continuous operation, if at the
time of acquisition more than 5% of its
total assets would be invested in such
securities.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
The audited Financial Statements of Fund for Income, a portfolio of The
Victory Portfolios, are incorporated by reference to the Annual Report of the
predecessor to Fund for Income, Gradison Government Income Fund, a portfolio of
Gradison Custodian Trust (File No. 811-5198) dated December 31, 1998.
The audited Financial Statements of Established Value Fund, a portfolio
of The Victory Portfolios, are incorporated by reference to the Annual Report of
The Victory Portfolios (File No. 811-4852) dated March 31, 1999.
The audited Financial Statements of Government Mortgage Fund and Ohio
Regional Stock Fund, portfolios of The Victory Portfolio, are incorporated by
reference to the Annual Report of The Victory Portfolios (File No.
811-4852) dated October 31, 1998.
Pro forma financial statements as of October 31, 1999, which give
effect to the Reorganization of Government Mortgage Fund into Fund for Income
and Ohio Regional Stock Fund and Established Value Fund follow.
<PAGE>
<TABLE>
<CAPTION>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Assets and Liabilities
October 31, 1999
(Amounts in thousands, except per share amounts)
(Unaudited) Victory Victory
Government Fund for Combined
Mortgage Fund Income Adjustments Pro Forma Totals
------------- ------ ----------- ----------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (Cost $99,860 & $235,810) $ 98,709 $ 230,775 $ -- $ 329,484
Cash 51 -- -- 51
Interest receivable 624 2,129 -- 2,753
Receivable for capital shares issued -- 2 -- 2
Receivable from brokers for investments sold 13 -- -- 13
Receivabli from affiliates -- 9 -- 9
Prepaid expenses and other assets 7 26 -- 33
--------- --------- ------------- ---------
Total Assets 99,404 232,941 -- 332,345
--------- --------- ------------- ---------
LIABILITIES:
Dividends payable -- -- -- --
Payable to brokers for investments purchased -- -- -- --
Payable for capital shares redeemed -- 13 -- 13
Accrued expenses and other payables:
Investment advisory fees 42 85 -- 127
Administration fees 2 2 -- 4
Custodian fees 7 14 -- 21
Accounting fees 2 -- -- 2
Transfer agent fees 3 26 -- 29
Shareholder service fees - Class A 20 23 -- 43
Shareholder service fees - Class G -- 49 -- 49
Other 2 37 -- 39
--------- --------- ------------- ---------
Total Liabilities 78 249 -- 327
--------- --------- ------------- ---------
NET ASSETS:
Capital 103,722 245,144 -- 348,866
Undistributed (distributions in excess) net investment income 107 192 -- 299
Net unrealized appreciation/depreciation from investments (1,151) (5,035) -- (6,186)
Accumulated undistributed net realized -- --
losses from investment transactions (3,352) (7,609) (10,961)
--------- --------- ------------- ---------
Net Assets $ 99,326 $ 232,692 $ -- $ 332,018
========= ========= ============= =========
Net Assets
Class A $ 99,326 $ 40,270 $ -- $ 139,596
Class G -- 192,422 -- 192,422
--------- --------- ------------- ---------
Total $ 99,326 $ 232,692 $ -- $ 332,018
========= ========= ============= =========
Outstanding units of beneficial interest (shares)
Class A 9,364 -- (9,364)
Class A -- 3,149 7,765 10,914
Class G -- 15,052 -- 15,052
--------- --------- ------------- ---------
Total 9,364 18,201 (1,599) 25,966
========= ========= ============= =========
Net asset value
Redemption price per share - Class A $ 10.61 -- $ 2.18
Redemption price per share - Class A -- $ 12.79 -- $ 12.79
========= ========= ============= =========
Redemption price per share - Class G $ -- $ 12.78 $ -- $ 12.78
========= ========= ============= =========
Maximum sales charge - Class A 5.75% 2.00% -- 2.00%
========= ========= ============= =========
Maximum offering price per share (100%/(100%-maximum sales charge) of
net asset value adjusted to nearest cent) - Class A $ 11.26 $ 13.05 -- $ 13.05
========= ========= ============= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Operations
For the Ten Months Ended October 31, 1999
Victory Victory
Government Fund for
Mortgage Fund Income Adjustments Combined Pro Forma Tot
------------- ------ ----------- ----------------------
For the Ten For the Ten For the Ten For the Ten
Months Ended Months Ended Months Ended Months Ended
October 31, October 31, October 31, October 31,
1999 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 5,730 $ 11,622 $ -- $ 17,352
-------- -------- -------- --------
Total Income 5,730 11,622 -- 17,352
-------- -------- -------- --------
Expenses:
Investment advisory fees 428 827 -- 1,255
Administration fees 128 206 -- 334
Shareholder service fees - Class A 210 56 -- 266
Shareholder service fees and 12b-1 fees - Class G -- 363 -- 363
Accounting fees 67 68 -- 135
Custodian fees 63 52 -- 115
Legal and audit fees 6 47 -- 53
Trustees' fees and expenses 2 7 -- 9
Transfer agent fees 10 83 -- 93
Registration and filing fees 11 16 -- 27
Printing fees 2 23 -- 25
Other 6 13 -- 19
-------- -------- -------- --------
Total Expenses 933 1,761 -- 2,694
-------- -------- -------- --------
Expenses voluntarily reduced (76) (264) -- (340)
-------- -------- -------- --------
Expenses before reimbursement from distributor 857 1,497 -- 2,354
Expenses reimbursed by the distributor -- (16) -- (16)
-------- -------- -------- --------
Net Expenses 857 1,481 -- 2,338
-------- -------- -------- --------
Net Investment Income 4,873 10,141 -- 15,014
-------- -------- -------- --------
Realized/Unrealized Gains (losses) from Investments:
Net realized gains (losses) from investment transactions (2,731) (1,816) -- (4,547)
Change in unrealized appreciation/depreciation from invest(1,662) (1,662) (7,522) -- (9,184)
-------- -------- -------- --------
Net realized/unrealized gains (losses) from investments (4,393) (9,338) -- (13,731)
-------- -------- -------- --------
Change in net assets
resulting from operations $ 480 $ 803 $ -- $ 1,283
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Victory Government Mortgage Fund and Victory Fund for Income
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares) Shares or
(Unaudited) Principal Amount Market Value
Gov't Fund for Gov't Fund for
Mortgage Income Combined Mortgage Income Combined
<S> <C> <C> <C> <C> <C>
Collateralized Mortgage Obligations (17.8%)
Federal National Mortgage Assoc., Series 1988-4, Class Z,$9.25%, $ 321 $ 321 $ 329 $ 329
3/25/18, CMO
Federal National Mortgage Assoc., Series 1999-28, Class ZA, 517 517 438 438
6.00%, 8/25/27, CMO
Federal Home Loan Mortgage Corp., Series 2152, Class AC, 1,817 1,817 1,834 1,834
7.50%, 1/15/26, CMO
Federal Home Loan Mortgage Corp., Series 2116, Class D, 1,659 1,659 1,450 1,450
6.00%, 7/15/26, CMO
Federal National Mortgage Assoc., Series 1997-49, Class B 1,065 1,065 1,161 1,161
10.00%, 6/17/27, CMO
Federal National Mortgage Assoc., Series 1999-15, Class LA 1,299 1,299 1,274 1,274
6.50%, 4/25/29, CMO
Government National Mortgage Assoc., Series 1998-16, Class $ 3,000 3,000 $ 2,951 2,951
VB, 6.75%, 10/20/07
Government National Mortgage Assoc., Series 1996-21, Class J, 2,147 2,147 2,090 2,090
7.00%, 7/16/13
Government National Mortgage Assoc., Series 1999-22, Class 3,000 3,000 2,940 2,940
VB, 7.00%, 11/20/14
Government National Mortgage Assoc., Series 1998-19, Class 1,904 1,904 1,916 1,916
DB, 8.50%, 6/20/16
Government National Mortgage Assoc., Series 1994-4, Class PG, 3,000 3,000 3,021 3,021
7.50%, 8/16/19
Government National Mortgage Assoc., Series 1997-20, Class B, 1,277 1,277 1,306 1,306
9.50%, 8/20/21
Government National Mortgage Assoc., Series 1998-4, Class P, 1,581 1,581 1,652 1,652
9.00%, 3/20/22
Government National Mortgage Assoc., Series 1998-13, Class 1,352 1,352 1,433 1,433
DB, 9.00%, 4/20/22
Government National Mortgage Assoc., Series 1996-25, Class H, 5,301 5,301 5,358 5,358
7.50%, 7/16/22
Government National Mortgage Assoc., Series 1996-20, Class C, 2,000 2,000 2,021 2,021
7.50%, 5/16/23
Government National Mortgage Assoc., Series 1996-11, Class 3,500 3,500 3,502 3,502
PC, 7.00%, 5/20/23
Government National Mortgage Assoc., Series 1999-36, Class 3,000 3,000 2,967 2,967
HA, 7.50%, 6/20/23
Government National Mortgage Assoc., Series 1998-12, Class 2,200 2,200 2,262 2,262
GA, 9.00%, 12/20/23
Government National Mortgage Assoc., Series 1997-8, Class PL, 5,000 5,000 4,884 4,884
7.00%, 1/16/25
Government National Mortgage Assoc., Series 1995-7, Class CQ, 3,000 3,000 2,981 2,981
7.50%, 9/16/25
Government National Mortgage Assoc., Series 1996-9, Class PE, 3,261 3,261 3,193 3,193
7.00%, 10/20/25
Government National Mortgage Assoc., Series 1999-33, Class H, 2,000 2,000 1,991 1,991
7.50%, 1/20/26
Government National Mortgage Assoc., Series 1999-24, Class D, 2,480 2,480 2,414 2,414
7.00%, 7/20/26
Government National Mortgage Assoc., Series 1997-2, Class E, 735 735 721 721
7.50%, 2/20/27
Government National Mortgage Assoc., Series 1999-6, Class AB, 2,863 2,863 2,926 2,926
8.00%, 3/16/28
GovernmentNational Mortgage Assoc., Series 1995-8, Class B, 246 246 247 247
7.50%, 8/20/20
-----------------------------------------
Total Collateralized Mortgage Obligations (Cost $60,805) 6,486 52,776 59,262
Investment Companies (0.0%)
Federated U.S. Treasury Cash Reserve Fund 178,270 178,270 178 178
-----------------------------------------
Total Investment Companies (Cost $178) 178 178
U.S. Government Agencies (1.8%)
Federal Farm Credit Bank (1.0%)
5.16%, 11/1/99 3,359 3,359 3,358 3,358
Federal Home Loan Bank (0.8%)
5.68%, 12/3/07 2,575 2,575 2,546 2,546
-----------------------------------------
Total U.S. Government Agencies (Cost $5,932) 5,904 - 5,904
U.S. Government Mortgage Backed (69.3%)
Federal Home Loan Mortgage Corp. (7.8%)
6.00%, 4/1/26-2/1/29 5,608 5,608 5,258 5,258
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Victory Government Mortgage Fund and Victory Fund for Income
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares) Shares or
(Unaudited) Principal Amount Market Value
Gov't Fund for Gov't Fund for
Mortgage Income Combined Mortgage Income Combined
<S> <C> <C> <C> <C> <C> <C>
6.50%, 5/1/26-4/1/29 8,266 8,266 7,940 7,940
7.00%, 7/1/28-7/1/29 5,979 5,979 5,879 5,879
7.50%, 9/1/17-3/1/29 4,866 4,866 4,883 4,883
8.00%, 10/1/28-1/1/29 333 333 340 340
8.50%, 1/1/29-5/1/29 1,491 1,491 1,543 1,543
9.50%, 8/1/19-8/1/21 130 130 137 137
12.00%, 10/1/10 4 4 4 4
25,984 - 25,984
Federal National Mortgage Assoc. (12.4%)
6.00%, 12/1/28-7/1/29 2,879 2,879 2,686 2,686
6.50%, 11/1/13-7/1/29 17,871 17,871 17,245 17,245
7.00%, 10/1/26-7/1/29 5,721 5,721 5,612 5,612
7.50%, 4/1/29/5/1/29 1,584 1,584 1,587 1,587
8.00%, 5/1/17-9/1/29 3,191 3,191 3,251 3,251
8.50%, 8/1/14-8/1/19 8,392 8,392 8,692 8,692
9.00%, 8/1/14 948 948 989 989
9.50%, 1/1/19 6 6 6 6
10.00%, 5/1/13 4 4 4 4
10.50%, 1/1/09 989 989 1,046 1,046
12.00%, 8/1/13 3 3 4 4
13.00%, 12/1/12 32 32 36 36
------------ -------------
41,158 - 41,158
Government National Mortgage Assoc. (49.0%)
6.50%, 1/15/13-1/15/29 4,607 26,697 31,304 4,438 25,681 30,119
6.63%, 1/15/27 2,964 2,964 2,870 2,870
7.00%, 2/15/17-7/20/29 10,521 30,979 41,500 10,370 30,379 40,749
7.50%, 9/15/10-7/15/31 2,671 34,577 37,248 2,679 34,658 37,337
7.75%, 8/15/29-11/15/38 6,417 6,417 6,577 6,577
8.00%, 9/15/06-10/20/29 661 19,707 20,368 675 20,133 20,808
8.13%, 7/15/38 3,479 3,479 3,675 3,675
8.25%, 11/15/26-9/15/29 3,451 3,451 3,558 3,558
8.50%, 3/15/05-7/15/29 891 7,135 8,026 924 7,418 8,342
8.75%, 3/20/17-4/15/22 2,891 2,891 3,096 3,096
9.00%, 10/15/09-8/15/25 1,846 1,846 1,940 1,940
9.50%, 10/15/02-6/15/21 85 1,886 1,971 91 2,015 2,106
10.00%, 6/15/17-8/15/25 1,469 1,469 1,595 1,595
10.25%, 6/15/19 12 12 13 13
10.50%, 2/15/16 13 13 14 14
-------------------------------------
19,177 143,622 162,799
Total U.S. Government Mortgage Backed (Cost $233,082) 86,319 143,622 229,941
U.S. Treasury Obligations (10.3%)
U.S. Treasury Bills (0.4%)
11/26/99 1,305 1,305 1,301 1,301
U.S. Treasury Bonds (6.7%)
7.63%, 2/15/07 11,000 11,000 11,339 11,339
8.75%, 11/15/08 10,000 10,000 10,892 10,892
------------------------ ------------
- 22,231 22,231
U.S. Treasury Notes (3.2%)
7.75%, 2/15/01 2,000 2,000 2,050 2,050
7.88%, 11/15/04 8,000 8,000 8,617 8,617
------------------------ ------------
- 10,667 10,667
Total U.S. Treasury Obligations (Cost $34,867) - 34,199 34,199
Total Investments (Cost $335,670) (a) - 99.2% $ 98,709 $ 230,775 $ 329,484
Other assets in excess of liabilities - 0.8% 2,534
------------
============
TOTAL NET ASSETS - 100.0% $ 332,018
============
- ------------
</TABLE>
<PAGE>
THE VICTORY PORTFOLIOS
Pro Forma Combining
Statements of Assets and Liabilities
October 31, 1999
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Victory Victory
Ohio Regional Established Combined
Stock Fund Value Fund Adjustments Pro Forma Totals
---------- ---------- ----------- ----------------
ASSETS:
<S> <C> <C> <C> <C>
Investments, at value (Cost $13,652 & $302,859) $ 24,403 $ 468,942 $ - $ 493,345
Cash - - - -
Interest and dividends receivable 33 219 - 252
Receivable from affiliates 1 - - 1
Receivable for capital shares issued - 32 - 32
Receivable from brokers for investments sold 7 754 - 761
Prepaid expenses and other assets 6 25 - 31
------------ ---------- --------- -------------
Total Assets 24,450 469,972 - 494,422
------------ ---------- --------- -------------
LIABILITIES:
Payable to Custodian 150 - -
Payable for capital shares redeemed - 183 - 183
Payable to brokers for investments purchased - - - -
Accrued expenses and other payables:
Investment advisory fees 14 157 - 171
Administration fees - 3 - 3
Custodian fees 2 15 - 17
Accounting fees 1 2 - 3
Transfer agent fees 11 69 - 80
Shareholder service fees - Class A 5 - - 5
Shareholder service and 12b-1fees - Class B 1 - - 1
12b-1 fees - Class G - 222 - 222
Other 3 33 - 36
------------ ---------- --------- -------------
Total Liabilities 187 684 - 721
------------ ---------- --------- -------------
NET ASSETS:
Capital 5,025 247,619 - 252,644
Undistributed net investment income 11 - - 11
Net unrealized appreciation/depreciation from
investments 10,751 166,083 - 176,834
Accumulated undistributed net realized gains
(losses) from investment transactions 8,476 55,586 - 64,062
------------ ---------- --------- -------------
Net Assets $ 24,263 $ 469,288 $ - $ 493,551
============ ========== ========= =============
Net Assets
Class A $ 23,529 $ - $ 734 $ 24,263
Class B 734 - (734) -
Class G - 469,288 - 469,288
------------ ---------- --------- -------------
Total $ 24,263 $ 469,288 $ - $ 493,551
============ ========== ========= =============
Outstanding units of beneficial interest (shares)
Class A 1,384 - (677) 707
Class B 44 - (44) -
Class G - 13,678 13,678
------------ ---------- --------- -------------
Total 1,428 13,678 (721) 14,385
============ ========== ========= =============
Net asset value
Redemption price per share - Class A $ 17.00 $ - $ 17.31 $ 34.31
Offering and redemption price per share - Class B* 16.60 - (16.60) -
============ ========== ========= =============
Redemption price per share - Class G $ - $ 34.31 $ - $ 34.31
============ ========== ========= =============
Maximum sales charge - Class A 5.75% - - 5.75%
============ ========== ========= =============
<PAGE>
Maximum offering price per share (100%/(100%-
maximum sales charge) of net asset value adjusted
to nearest cent) - Class A $ 18.04 $ - $ - $ 36.40
============ ========== ========= =============
* Redemption price per Class B Share varies based on length of time held.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Victory Victory
Ohio Regional Established Combined Pro
Stock Fund Value Fund Adjustments Forma Totals
---------- ---------- ----------- ------------
For the Seven For the Seven For the Seven For the Seven
Months Ended Months Ended Months Ended Months Ended
October 31, October 31, October 31, October 31,
1999 1999 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investment Income:
Interest income $ 2 $ 378 $ -- $ 380
Dividend income 395 2,868 -- 3,263
Securities Lending 4 -- 4
-------- -------- -------- ---------
Total Income 401 3,246 -- 3,647
-------- -------- -------- ---------
Expenses:
Investment advisory fees 133 1,471 (18)(a) 1,586
Administration fees 27 391 -- 418
Shareholder service fees - Class A 42 -- -- 42
Shareholder service fees and 12b-1 fees - Class B 5 -- (5)(b) --
Shareholder service fees and 12b-1 fees - Class G -- 1,439 -- 1,439
Accounting fees 26 54 -- 80
Custodian fees 11 60 -- 71
Legal and audit fees 2 47 -- 49
Trustees' fees and expenses -- 3 -- 3
Transfer agent fees 22 115 -- 137
Registration and filing fees 7 5 -- 12
Printing fees -- 56 -- 56
Other 2 6 -- 8
-------- -------- -------- ---------
Total Expenses 277 3,647 (23) 3,901
-------- -------- -------- ---------
Expenses voluntarily reduced (12) (419) -- (431)
Expenses before reimbursement from distributor 265 3,228 (23) 3,470
Expenses reimbursed by the distributor (5) (65) (70)
-------- -------- -------- ---------
Net Expenses 260 3,163 (23) 3,400
-------- -------- -------- ---------
Net Investment Income 141 83 -- 247
-------- -------- -------- ---------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions 3,582 30,682 -- 34,264
Change in unrealized appreciation/depreciation from
investments (3,528) 14,949 -- 11,421
-------- -------- -------- ---------
Net realized/unrealized gains (losses) from investments 54 45,631 -- 45,685
Change in net assets
-------- -------- -------- ---------
resulting from operations $ 195 $ 45,714 $ -- $ 45,932
======== ======== ======== =========
(a) Adjustments to reflect the Established Value Fund contractual fee structure for Investment advisory Fees
(see notes to Pro Forma Financial Statements)
(b) Adjustment to reflect the dissolution of the Class B Shares upon reorganization date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial Paper (1.8%)
General Electric Capital Corp., 5.33%, 11/1/99 $ 9,116 $ 9,116 $ 9,116 $ 9,116
-------------------------------
Total Commercial Paper (Cost $9,116) 9,116 9,116
Common Stocks (98.1%)
Aerospace/Defense (3.2%)
B.F. Goodrich Co. 180,000 180,000 4,264 4,264
Boeing Co. 140,000 140,000 6,449 6,449
Litton Industries, Inc. (b) 105,000 105,000 4,928 4,928
-------------------------------
15,641 15,641
Agriculture & Livestock (0.0%)
Andersons, Inc. 20,000 20,000 159 159
-------------------------------
Airlines (1.1%)
Comair Holdings, Inc. 16,000 16,000 369 369
Southwest Airlines Co. 300,000 300,000 5,044 5,044
-------------------------------
369 5,044 5,413
Amusement & Recreation Services (0.1%)
Cedar Fair L.P. 20,000 20,000 399 399
-------------------------------
Automotive Parts (0.1%)
Dana Corp. 17,000 17,000 503 503
-------------------------------
Banks (0.7%)
BancFirst Ohio Corp. 14,000 14,000 310 310
Charter One Financial, Inc. 18,165 18,165 446 446
First Merit Corp. 16,000 16,000 423 423
Huntington Bancshares, Inc. 11,000 11,000 326 326
National City Corp. 20,000 20,000 590 590
Park National Corp. 5,000 5,000 495 495
Provident Financial Group 17,500 17,500 751 751
Second Bancorp 4,470 4,470 114 114
United Community Financial Corp. 1,000 1,000 10 10
-------------------------------
3,465 3,465
Beverages (2.0%)
Adolph Coors Co. 175,000 175,000 9,713 9,713
-------------------------------
Brokerage Services (2.9%)
Morgan Stanley Dean Witter 70,000 70,000 7,722 7,722
Paine Webber Group, Inc. 160,000 160,000 6,520 6,520
-------------------------------
14,242 14,242
Building Materials (2.5%)
Armstrong World Industries, Inc. 100,000 100,000 3,738 3,738
Centex Corp. 160,000 160,000 4,290 4,290
Owens Corning Fiberglas Corp. 15,000 15,000 308 308
Pulte Corp. 200,000 200,000 4,025 4,025
-------------------------------
308 12,053 12,361
Chemicals (1.9%)
Air Products & Chemicals, Inc. 180,000 180,000 4,950 4,950
Englehard Corp. 255,000 255,000 4,494 4,494
-------------------------------
9,444 9,444
Chemicals-General (0.3%)
A. Schulman, Inc. 17,500 17,500 272 272
Ferro Corp. 10,000 10,000 204 204
OM Group, Inc. 15,000 15,000 563 563
RPM, Inc. 25,000 25,000 298 298
-------------------------------
1,337 1,337
Commercial Services (0.1%)
Convergys Corp. (b) 30,000 30,000 587 587
-------------------------------
Computers & Peripherals (7.7%)
Computer Sciences Corp. (b) 115,000 115,000 7,899 7,899
Diebold, Inc. 25,000 25,000 656 656
Sun Microsystems, Inc. (b) 275,000 275,000 29,099 29,099
-------------------------------
656 36,998 37,654
Conglomerates (3.0%)
Crane Co. 210,000 210,000 4,292 4,292
Lancaster Colony Corp. 21,000 21,000 734 734
Myers Industries Inc. 18,000 18,000 253 253
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Textron, Inc. 125,000 125,000 9,648 9,648
-------------------------------
987 13,940 14,927
Consumer Products (1.7%)
American Greetings Corp. 11,000 11,000 285 285
Fortune Brands, Inc. 220,000 220,000 7,796 7,796
Gibson Greetings, Inc. (b) 21,000 21,000 102 102
-------------------------------
387 7,796 8,183
Electronic & Electrical-General (3.8%)
Honeywell, Inc. 90,000 90,000 9,489 9,489
Johnson Controls, Inc. 148,000 148,000 8,991 8,991
Pioneer-Standard Electronics, Inc. 15,000 15,000 196 196
-------------------------------
196 18,480 18,676
Electronics (0.3%)
Keithley Instruments, Inc. 35,000 35,000 556 556
Parker Hannifin Corp. 19,400 19,400 888 888
-------------------------------
1,444 1,444
Engineering, Industrial Construction (0.0%)
Corrpro Cos., Inc. (b) 12,500 12,500 86 86
-------------------------------
Entertainment (0.9%)
Brunswick Corp. 190,000 190,000 4,299 4,299
-------------------------------
Financial & Insurance (2.5%)
AMBAC Financial Group, Inc. 110,000 110,000 6,573 6,573
MBIA, Inc. 100,000 100,000 5,706 5,706
-------------------------------
12,279 12,279
Financial Services (13.5%)
Citigroup, Inc. 337,500 337,500 18,267 18,267
Countrywide Credit Industries, Inc. 150,000 150,000 5,091 5,091
Fannie Mae 95,000 95,000 6,721 6,721
Household International, Inc. 450,000 450,000 20,081 20,081
Providian Financial Corp. 150,000 150,000 16,350 16,350
-------------------------------
66,510 66,510
Food Distributors, Supermarkets
& Wholesalers (2.4%)
Albertsons, Inc. 201,600 201,600 7,321 7,321
Kroger Co. (b) 15,000 15,000 312 312
SUPERVALU, Inc. 200,000 200,000 4,200 4,200
-------------------------------
312 11,521 11,833
Food Processing & Packaging (0.0%)
J.M. Smucker Co., Class A 5,000 5,000 99 99
-------------------------------
Food Products (0.8%)
Earthgrains Co. 180,000 180,000 4,106 4,106
-------------------------------
Forest Products-Lumber & Paper (1.1%)
Georgia Pacific Corp. 130,000 130,000 5,159 5,159
Mead Corp. 10,000 10,000 360 360
-------------------------------
360 5,159 5,519
Health Care (1.1%)
Gliatech, Inc. (b) 10,500 10,500 86 86
Invacare Corp. 25,000 25,000 521 521
Omnicare, Inc. 16,000 16,000 148 148
Steris Corp. (b) 2,000 2,000 27 27
WellPoint Health Networks (b) 80,000 80,000 4,640 4,640
-------------------------------
782 4,640 5,422
Heavy Machinery (1.7%)
Ingersoll Rand Co. 165,000 165,000 8,621 8,621
-------------------------------
Household Goods-Appliances,
Furnishings & Electronics (3.7%)
Premark International, Inc. 185,000 185,000 10,129 10,129
Whirlpool Corp. 115,000 115,000 8,014 8,014
-------------------------------
18,143 18,143
Insurance (0.2%)
Ohio Casualty Corp. 29,000 29,000 484 484
State Auto Financial Corp. 48,000 48,000 552 552
-------------------------------
1,036 1,036
Insurance-Multi-Line (4.3%)
Aegon NV 100,538 100,538 9,243 9,243
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
CIGNA Corp. 93,000 93,000 6,952 6,952
Cincinnati Financial Corp. 9,450 9,450 338 338
Hartford Financial Services Group, Inc. 84,000 84,000 4,352 4,352
Progressive Corp. 6,000 6,000 556 556
-------------------------------
894 20,547 21,441
Insurance-Property, Casualty, Health (0.7%)
UnumProvident Corp. 109,500 109,500 3,607 3,607
-------------------------------
Leisure-Recreation, Gaming (2.2%)
Royal Caribbean Cruises Ltd. 200,000 200,000 10,613 10,613
-------------------------------
Machine Tools (0.8%)
Genesis Worldwide, Inc. 5,000 5,000 28 28
Lincoln Electric Holdings 24,000 24,000 537 537
Milacron, Inc. 17,000 178,500 195,500 279 2,934 3,213
-------------------------------
844 2,934 3,778
Manufacturing - Capital Goods (0.3%)
Commercial Intertech Corp. 16,000 16,000 203 203
Gorman-Rupp Co. 25,000 25,000 378 378
Robbins & Myers, Inc. 14,000 14,000 227 227
Thor Industries, Inc. 21,000 21,000 530 530
-------------------------------
1,338 1,338
Manufacturing-Miscellaneous (2.0%)
Cooper Industries, Inc. 118,000 118,000 5,081 5,081
Eaton Corp. 2,000 2,000 151 151
Trinity Industries 160,000 160,000 4,770 4,770
-------------------------------
151 9,851 10,002
Media (0.1%)
Scripps (E.W.) Co., Class A 15,000 15,000 693 693
-------------------------------
Metals-Fabrication (0.1%)
Brush Wellman, Inc. 4,000 4,000 53 53
RTI International Metals (b) 10,000 10,000 73 73
Timken Co. 12,000 12,000 215 215
Worthington Industries, Inc. 8,000 8,000 133 133
-------------------------------
474 474
Mining (0.1%)
Cleveland Cliffs, Inc. 5,500 5,500 164 164
Oglebay Norton Co. 10,000 10,000 195 195
-------------------------------
359 359
Newspapers (1.5%)
Gannett Co., Inc. 97,000 97,000 7,481 7,481
-------------------------------
Oil & Gas Exploration, Production
& Services (5.3%)
Coastal Corp. 290,000 290,000 12,217 12,217
El Paso Energy Corp. 200,000 200,000 8,200 8,200
Transocean Offshore, Inc. 210,000 210,000 5,709 5,709
-------------------------------
26,126 26,126
Oil-Integrated Companies (0.1%)
USX - Marathon Group, Inc. 22,000 22,000 641 641
-------------------------------
Paint, Varnishes, Enamels (1.1%)
Sherwin-Williams Co. 20,000 225,000 245,000 448 5,034 5,482
-------------------------------
Real Estate Investment Trusts (0.1%)
Developers Divers Realty 16,000 16,000 228 228
Health Care REIT, Inc. 14,000 14,000 250 250
-------------------------------
478 478
Restaurants (2.5%)
Bob Evans Farms, Inc. 9,000 9,000 124 124
Brinker International, Inc. (b) 250,000 250,000 5,828 5,828
Wendy's International, Inc. 12,000 254,000 266,000 286 6,064 6,350
-------------------------------
410 11,892 12,302
Retail (4.2%)
Dayton Hudson Corp. 250,000 250,000 16,156 16,156
KMart Corp. (b) 450,000 450,000 4,528 4,528
Too, Inc. (b) 2,000 2,000 32 32
-------------------------------
32 20,684 20,716
Retail-Department Stores (1.0%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merger Ohio Regional Stock Fund and Established Value Fund
Pro Forma Combining Schedule of Portfolio Investments
October 31, 1999
(Amounts in thousands, except shares)
(Unaudited) Shares or
Principal Amount Market Value
Ohio Ohio
Regional Established Regional Established
Stock Value Combined Stock Value Combined
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Federated Department Stores (b) 110,000 110,000 4,696 4,696
-------------------------------
Retail-Specialty Stores (1.8%)
Jo-Ann Stores Inc., Class A (b) 8,000 8,000 112 112
Jo-Ann Stores Inc., Class B (b) 8,000 8,000 102 102
Limited, Inc. 14,000 14,000 575 575
Lowe's Cos., Inc. 140,000 140,000 7,700 7,700
OfficeMax, Inc. (b) 20,000 20,000 101 101
Value City Department Stores, Inc. (b) 10,000 10,000 154 154
-------------------------------
1,044 7,700 8,744
Rubber & Rubber Products (0.1%)
Cooper Tire & Rubber Co. 13,000 13,000 219 219
Goodyear Tire & Rubber Co. 9,000 9,000 371 371
-------------------------------
590 590
Software & Computer Services (0.1%)
Reynolds & Reynolds Co., Class A 33,000 33,000 600 600
-------------------------------
Staffing (0.7%)
Interim Services, Inc. (b) 218,000 218,000 3,583 3,583
-------------------------------
Steel (0.0%)
Shiloh Industries, Inc. 25,000 25,000 234 234
-------------------------------
Telecommunications (4.5%)
Qualcomm, Inc. (b) 100,000 100,000 22,275 22,275
-------------------------------
Tools & Hardware Manufacturing (1.1%)
Black & Decker Corp. 125,000 125,000 5,375 5,375
-------------------------------
Transportation (1.3%)
FDX Corp. (b) 145,000 145,000 6,244 6,244
-------------------------------
Utilities-Electric (1.4%)
CINergy Corp. 16,000 16,000 452 452
DPL, Inc. 36,000 36,000 729 729
Duke Energy Corp. 105,000 105,000 5,933 5,933
-------------------------------
1,181 5,933 7,114
Utilities-Telecommunications (1.4%)
Cincinnati Bell, Inc. (b) 25,000 25,000 520 520
SBC Communications, Inc. 130,000 130,000 6,622 6,622
-------------------------------
520 6,622 7,142
Total Common Stocks (Cost $307,395) 24,403 459,826 484,229
-------------------------------
Total Investments (Cost $316,511) (a) - 99.9% $ 24,403 $ 468,942 $ 493,345
Liabilities in excess of other assets - 0.1% 206
----------
==========
TOTAL NET ASSETS - 100.0% $ 493,551
==========
- ------------
</TABLE>
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements
October 31, 1999
(Unaudited)
1. Organization Prior to Proposed Reorganization
The Victory Government Mortgage Fund, the Victory Fund for Income, the
Victory Ohio Regional Stock Fund and the Victory Established Value Fund (the
Victory Funds), each are separate investment portfolios offered by The Victory
Portfolios (the "Trust").
The Trust is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"). The
investment objective of the Victory Government Mortgage Fund is to seek a high
level of current income consistent with safety of principal. The investment
objective of the Victory Fund for Income is to provide a high level of current
income consistent with preservation of shareholders' capital. The investment
objective of the Victory Ohio Regional Stock Fund is to provide a capital
appreciation. The investment objective of the Victory Established Value Fund is
to provide long-term capital growth by investing primarily in common stocks
The Victory Government Mortgage Fund currently issues one class of
shares: Class A shares. The Victory Fund for Income issues two classes of
shares: Class A shares and Class G shares. The Victory Ohio Regional Stock Fund
issues two classes of shares: Class A shares and Class B shares. The Victory
Established Value Fund currently issues one class of shares: Class G shares. The
Victory Established Value Fund has filed an amendment to the Trust's
registration statement on Form N-1A to register Class A shares. The Trust
expects the Class A shares to become effective on January 21, 2000. Each class
of shares has substantially identical rights and privileges except with respect
to sales charges, fees paid under shareholder servicing or distribution plans,
expenses allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, and the exchange privilege of each class of
shares.
2. Basis of Combination:
The Agreement and Plan of Reorganization and Termination provides that
at the time the reorganization becomes effective (the "Effective Time of the
Reorganization"), all assets and liabilities will be transferred such that at
and after the Effective Time of Reorganization, the assets and liabilities of
the Victory Government Mortgage Fund will become the assets and liabilities of
the Victory Fund for Income, and the assets and liabilities of the Victory Ohio
Regional Stock Fund will become the assets and liabilities of the Victory
Established Value Fund
The unaudited Pro Forma combining Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of the Victory Government Mortgage Fund and Victory Fund for Income as
if the proposed reorganization occurred as of and for the ten months ended
October 31, 1999, and of the Victory Ohio Regional Stock Fund
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
and Victory Established Value Fund as if the proposed reorganization occurred as
of and for the seven months ended October 31, 1999. The accompanying statements
give effect to the proposed transfer described below and have been derived from
the books and records of the Funds utilized in calculating daily net asset value
at October 31, 1999.
For accounting purposes, the historical basis of assets and liabilities
of the Victory Fund for Income and the Victory Established Value Fund will
survive this reorganization. Those Victory Funds for which the basis of assets
and liabilities will survive the reorganization are hereafter referred to as the
"Survivor Funds," and the Survivor Funds will continue as separate investment
portfolios of the Trust. The Victory Government Mortgage Fund and the Victory
Ohio Regional Stock Fund are hereafter referred to as the "non-Survivor Funds".
The Survivor Funds, at the Effective Time of the Reorganization, will issue
additional Class A shares for the net assets of each non-Survivor Fund in
connection with the reorganization.
In exchange for the transfer of assets and liabilities, the Trust will
issue to the non-Survivor Funds full and fractional Class A shares of the
corresponding Survivor Funds, and the non-Survivor Funds will make a liquidating
distribution of such Class A shares to its shareholders. The number of Class A
shares of the Survivor Funds so issued will be equal in value to the full and
fractional shares of the non-Survivor Funds that are outstanding immediately
prior to the Effective Time of the Reorganization. At and after the Effective
Time of the Reorganization, all debts, liabilities and obligations of the
non-Survivor Funds will attach to the Survivor Funds and may thereafter be
enforced against the Survivor Funds to the same extent as if they had been
incurred by it.
Under generally accepted accounting principles, the Survivor Funds'
basis, for purposes of determining net asset value, of the assets and
liabilities of the non-Survivor Funds will be the fair market value of such
assets and liabilities on the closing date of the transaction. The Trust and,
accordingly, the Survivor Funds, will recognize no gain or loss for federal tax
purposes on its issuance of Class A shares in the reorganization.
The accompanying pro forma financial statements represent the Survivor
Funds, and reflect the combined results of operations of the four Victory Funds.
However, should such reorganization be effected, the statements of operations of
the Survivor Funds will not be restated for pre-combination period results of
the corresponding non-Survivor Funds. The Pro Forma combining Statements of
Assets and Liabilities, Statements of Operations, and Schedules of Portfolio
Investments should be read in conjunction with the historical financial
statements of the Victory Funds.
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
Expenses:
Key Asset Management Inc. ("KAM"), a subsidiary of KeyCorp, serves as
the investment adviser to the Trust. Affiliates of KAM and other financial
institutions serve as shareholder servicing agents for the Trust. BISYS Fund
Services Ohio, Inc. ("BISYS") and BISYS Fund Services Limited Partnership, each
an indirect, wholly-owned subsidiary of The BISYS Group, Inc., serve as the
administrator and distributor, respectively, for the Trust. BISYS also serves as
mutual fund accountant for the Trust.
Under the terms of the investment advisory agreement, KAM is entitled to
receive fees computed at the annual rate of 0.50%, 0.50% and 0.75% of average
net assets of the Victory Government Mortgage Fund, the Victory Fund for Income
and the Victory Ohio Regional Stock Fund, respectively. For the Victory
Established Value Fund, KAM is entitled to receive fees computed at the annual
rate of 0.65% of average net assets up to $100 million, 0.55% of average net
assets between $100 million and $200 million and 0.45% of average net assets
over $200 million. Such fees, net of voluntary fee waivers as applicable, are
accrued daily and paid monthly. For the periods ended October 31, 1999, total
KAM investment advisory fees incurred by the Victory Funds, and advisory fees
waived, were as follows:
Total Fees Waiver
---------- ------
Victory Government Mortgage Fund $ 428,000 $ 76,000
Victory Fund for Income 827,000 264,000
Victory Ohio Regional Stock Fund 133,000 12,000
Victory Established Value Fund 1,471,000 419,000
Under the terms of the administration agreement, BISYS' fees are
computed at the annual rate of 0.15% of each Victory Funds' average daily net
assets of $300 million and less, 0.12% of each Victory Funds' average daily net
assets between $300 million and $600 million and 0.10% of each Victory Funds'
average daily net assets greater than $600 million. For the periods ended
October 31, 1999, BISYS' fees, and amounts waived, were as follows:
Total Fees
----------
Victory Government Mortgage Fund $ 128,000
Victory Fund for Income 206,000
Victory Ohio Regional Stock Fund 27,000
Victory Established Value Fund 391,000
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
Pro Forma Adjustments and Pro Forma Combined Columns
The pro forma adjustments and pro forma combined columns of the
statements of operations reflect the adjustments necessary to show expenses at
the contractual rates that would have been in effect if the non-Survivor Funds
were included in the Survivor Funds for the periods ended October 31, 1999. The
investment advisory fees and, for Class A shares, the shareholder service fees,
and for Class G shares, the 12b-1 fees, as applicable, disclosed in the pro
forma combined column are calculated at the rates in effect for the Survivor
Funds based upon the combined net assets of the Victory Funds.
The pro forma schedules of portfolio investments give effect to the
proposed transfer of such assets as if the reorganization had occurred at
October 31, 1999.
The pro forma combined accumulated undistributed net realized gains
(losses) from investment transactions in the accompanying statements of assets
and liabilities may include amounts identified as capital loss carryforwards as
of each Funds' most recent fiscal year end date prior to the Effective Date of
the Reorganization. The following Funds have capital loss carryforwards for
Federal income tax purposes as of October 31, 1999 of approximately (amounts in
thousands):
Amount Expires
------ -------
Fund for Income $ 585 2001
Fund for Income 5,491 2002
Fund for Income 864 2003
Fund for Income 62 2004
Fund for Income 606 2007
Government Mortgage Fund 698 2002
Government Mortgage Fund 109 2005
Government Mortgage Fund 2,523 2007
Utilization of capital loss carryforwards of the Victory Government Mortgage
Fund subsequent to the Effective Date of the Reorganization may be limited under
the provisions of the Internal Revenue Code of 1986, as amended.
3. Portfolio Valuation, Securities Transactions and Related Income:
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal and foreign government bonds, U.S. government securities and
securities of U.S. government agencies are valued at their market values
determined on the basis of the latest
<PAGE>
The Victory Portfolios
Notes to Pro Forma Financial Statements - Continued
October 31, 1999
(Unaudited)
available bid prices in the principal market (closing sales prices if the
principal market is an exchange) in which such securities are normally traded on
or the basis of valuation procedures approved by the Board of Trustees of the
Trust. Investments in investment companies are valued at their respective net
asset values as reported by such companies. The differences between the cost and
market values of investments are reflected as either unrealized appreciation or
depreciation.
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium or
accretion of discount. Dividend income is recorded on the ex-dividend date, net
of foreign taxes withheld. Gains or losses realized from sales of securities are
determined by comparing the identified cost of the security lot sold with the
net sales proceeds.
4. Capital Shares:
In connection with the reorganization, the Survivor Funds, each a
separate investment portfolio of the Trust, will each issue additional Class A
shares.
The pro forma net asset values per share assume the impact of any
required corporate actions relating to shares of the Trust that would have
occurred at October 31, 1999 in connection with the proposed reorganization of
the non-Survivor Funds into the Survivor Funds as described above. The pro forma
number of shares outstanding consists of the following:
Additional
Shares Shares Issued Pro forma
Outstanding at in the Shares at
October 31, 1999 Reorganization October 31, 1999
(000) (000) (000)
----- ----- -----
Victory Fund for Income 18,201 7,765 25,966
Victory Established Value
Fund 13,678 707 14,385
<PAGE>
THE VICTORY PORTFOLIOS
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
The response to this item is incorporated by reference to Item 25 of
Part C of Post-Effective Amendment No. 57 to the Registrant's Registration
Statement on Form N-1A as filed December 14, 1999, accession number
0000922423-99-001480.
ITEM 16. Exhibits.
(1) Certificate of Trust.(1)
(2)(a) Delaware Trust Instrument dated December 6, 1995, as amended.(2)
(b) Schedule A to Trust Instrument dated December 6, 1995, as amended
August 17, 1999.(3)
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization and Termination
between Registrant, on behalf of the Government Mortgage Fund and
Ohio Regional Stock Fund; and Fund for Income and Established
Value Fund.
(5) Bylaws, Amended and Restated as of August 28, 1998.(4)
(6)(a) Investment Advisory Agreement dated as of March 1, 1997, between
Registrant and Key Asset Management Inc. ("KAM"), with Schedule A
amended as of March 1, 1997, March 2, 1998, and May 29, 1998.(5)
- ----------
(1) Filed as an Exhibit to Post Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A filed
electronically on December 28, 1995, accession number
0000950152-95-003085.
(2) Filed as an Exhibit to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A filed
electronically on February 26, 1998, accession number
000922423-98-000264.
(3) Filed as an Exhibit to Post-Effective Amendment No. 54 to
Registrant's Registration Statement on Form N-1A filed
electronically on October 15, 1999, accession number
000922423-99-001196.
(4) Filed as an Exhibit to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A filed
electronically on November 19, 1998, accession number
0000922423-98-001315.
(5) Filed as an Exhibit to Post-Effective Amendment No. 42 to
Registrant's Registration Form N-1A filed electronically on July
29, 1998, accession number 0000922423-98-000725.
C-1
<PAGE>
(b) Schedule A to Investment Advisory Agreement dated as of March 1,
1997, as revised December 11, 1998.(3)
(c) Investment Advisory Agreement dated March 1, 1997, between
Registrant and KAM regarding Lakefront Fund and Real Estate
Investment Fund.(6)
(d) Schedule A to the Investment Advisory Agreement between
Registrant and KAM regarding the Lakefront Fund and Real Estate
Investment Fund, as amended December 11 1998, to include the
Gradison Government Reserves Fund and Established Value Fund, as
revised December 11, 1998.(3)
(e) Investment Advisory Agreement dated June 1 1998, between
Registrant and KAM regarding the International Growth Fund.(5)
(f) Investment Sub-Advisory Agreement dated March 1, 1997, between
KAM and Lakefront Capital Investors, Inc. regarding the Lakefront
Fund.(6)
(g) Portfolio Management Agreement dated June 1, 1998, between
Registrant, KAM and Indocam International Investment Services,
S.A. regarding the International Growth Fund.(7)
(7)(a) Distribution Agreement dated June 1, 1996, between Registrant and
BISYS Fund Services Limited Partnership, with Schedule I amended
as of March 2, 1998, and May 29, 1998.(5)
(b) Schedule I to the Distribution Agreement, as revised August 17,
1999.(3)
(8) Not applicable.
(9)(a) Amended and Restated Mutual Fund Custody Agreement dated August
1, 1996, between Registrant and Key Trust of Ohio, Inc., with
Schedule A revised as of March 1998, and May 29, 1998, and
Attachment B revised as of March 2, 1998.(5)
(b) Schedule A to the Mutual Fund Custody Agreement, as revised
August 17, 1999.(3)
(c) Schedule I to the Amended and Restated Custody agreement dated
August 1, 1996, between the Victory Portfolios and Key Trust
Company of Ohio, Inc. amended as of December 11, 1998.(8)
(d) Custody Agreement dated May 31, 1996, between Morgan Stanley
Trust Company and Key Trust Company of Ohio.(7)
(10)(a) Amended and Restated Rule 18f-3 Multi-Class Plan as of December
1, 1999.(9)
- ----------
(6) Filed as an Exhibit to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A filed
electronically on December 12, 1997, accession number
0000922423-97-001015.
(7) Filed as an Exhibit to Post-Effective No. 30 to Registrant's
Registration Statement on Form N-1A filed electronically on June
12, 1998, accession number 0000922423-96-000344.
C-2
<PAGE>
(b) Shareholder Servicing Plan dated June 5, 1995, with Schedule I
amended as of March 1, 1997, March 2, 1998, and May 29, 1998.(5)
(c) Schedule I to the Shareholder Servicing Plan, dated June 5, 1995,
as revised August 17, 1999.(3)
(d) Form of Shareholder Servicing Agreement.(1)
(e) Distribution Plan dated June 5, 1995, for Class B Shares of
Registrant with Schedule I amended as of February 1, 1996.(8)
(f) Distribution and Service Plan dated June 5, 1995, for the Class A
Shares of Registrant with Schedule I amended as of February 19,
1997, March 2, 1998, and May 29, 1998.(5)
(g) Schedule I to the Distribution and Service Plan dated December
11, 1998, as revised August 17, 1999.(3)
(h) Distribution and Service Plan dated December 11, 1998, for Class
G Shares of Registrant.(8)
(i) Schedule A to Distribution and Service Plan dated December 11,
1998, for Class G shares of Registrant, as revised August 17,
1999, to be filed by amendment.
(11)(a) Opinions and Consent of Kramer Levin Naftalis & Frankel LLP
("Kramer Levin"), relating to the Government Mortgage Fund and
Ohio Regional Stock Fund; and Fund for Income and Established
Value Fund, dated ______, 2000, to be filed by amendment.
(b) Opinion of Morris, Nichols, Arsht & Tunnell, Delaware counsel to
Registrant, relating to the Government Mortgage Fund and Ohio
Regional Stock Fund; and Fund for Income and Established Value
Fund, dated ____________, 2000, to be filed by amendment.
(12) Tax Opinion of Kramer Levin Naftalis & Frankel LLP relating to
the Government Mortgage Fund and Ohio Regional Stock Fund; and
Fund for Income and Established Value Fund, dated _______, 2000,
to be filed by amendment.
(13)(a) Administration Agreement dated October 1, 1999, between
Registrant and BISYS.(3)
(b) Sub-Administration Agreement dated October 1, 1999, between BISYS
and KAM.(3)
(c) Administration Agreement dated October 1, 1997, between
Registrant and BISYS, with Schedule II-B amended as of March 2,
1998.(5)
- ----------
(8) Filed as an Exhibit to Post-Effective No.51 to Registrant's
Registration Statement on Form N-1A filed electronically on June
17, 1999, accession number 0000922423-99-000795.
(9) Filed as an Exhibit to Post-Effective Amendment No. 58 to
Registrant's Registration Statement on Form N-1A filed
electronically on December 30, 1999, accession number
0000922423-99-001542.
C-3
<PAGE>
(d) Schedule I to the Administration Agreement, as revised December
11, 1998.(7)
(e) Sub-Administration Agreement dated October 1, 1997, between BISYS
Fund Services Limited Partnership ("BISYS") and KAM, with
Schedule A amended as of March 2, 1998, and May 29, 1998.(5)
(f) Transfer Agency and Service Agreement dated July 12, 1996,
between Registrant and State Street Bank and Trust Company, with
Schedule A revised as of August 1, 1996, March 2, 1998, and May
29, 1998.(5)
(g) Schedule A to the Transfer Agency and Service Agreement, as
revised August 17, 1999.(3)
(h) Fund Accounting Agreement dated June 1, 1999, between Registrant
and BISYS Fund Services Ohio, Inc.(7)
(i) Fund Accounting Agreement dated May 31, 1995, between Registrant
and BISYS Fund Services Ohio, Inc., with Amended Schedule A as of
February 19, 1997, March 2, 1998, and May 29, 1998, and Schedule
B as of March 2, 1998.(5)
(j) Form of Broker-Dealer Agreement.(10)
(14)(a) Consent of Kramer Levin Naftalis &Frankel LLP.
(14)(b) Consent of PriceWaterhouseCoopers LLP
(15) Not Applicable.
(16)(a) Powers of Attorney of Roger Noall and Frank A. Weil.(11)
(b) Powers of Attorney of Leigh A. Wilson, Edward P. Campbell, Harry
Gazelle, Thomas F. Morrissey, H. Patrick Swygert and Eugene J.
McDonald.(2)
(17) Form of Proxy Cards.
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) under the Securities Act
of 1933, as amended (the "Securities Act"), 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.
- ----------
(10) Filed as an Exhibit to Post-Effective No. 27 to Registrant's
Registration Statement on Form N-1A filed electronically on
January 31, 1996, accession number 0000922423-96-000047.
(11) Filed as an Exhibit to Pre-Effective No. 2 to Registrant's
Registration Statement on For N-14 filed electronically on
February 3, 1998, accession number 0000922423-98-000095.
C-4
<PAGE>
(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 Securities 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
Pursuant to 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, State of New
York, on the 30th day of December, 1999.
The Victory Portfolios
(Registrant)
By:/s/ Leigh A. Wilson
------------------------------
Leigh A. Wilson
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Roger Noall Chairman of the Board December 30, 1999
- ------------------------ and Trustee
Roger Noall
/s/ Leigh A. Wilson Trustee December 30, 1999
- ------------------------
Leigh A. Wilson
/s/ Joel B. Engle Treasurer December 30, 1999
- ------------------------
Joel B. Engle
/s/ Harry Gazelle* Trustee December 30, 1999
- ------------------------
Harry Gazelle
/s/ Thomas F. Morrissey* Trustee December 30, 1999
- ------------------------
Thomas F. Morrissey
/s/ H. Patrick Swygert* Trustee December 30, 1999
- ------------------------
H. Patrick Swygert
/s/ Frank A. Weil* Trustee December 30, 1999
- ------------------------
Frank A. Weil
/s/ Eugene J. McDonald* Trustee December 30, 1999
- ------------------------
Eugene J. McDonald
*By: /s/ Carl Frischling
---------------------------
Carl Frischling
Attorney-in-Fact
<PAGE>
THE VICTORY PORTFOLIOS
INDEX TO EXHIBITS
Exhibit Number
Ex-99.B4 Form of Agreement and Plan of Reorganization and Termination
between Registrant, on behalf of the Government Mortgage Fund and
Ohio Regional Stock Fund; and Fund for Income and Established
Value Fund.
Ex-99.B14(a) Consent of Kramer Levin Naftalis & Frankel LLP.
Ex-99.B14(b) Consent of PricewaterhouseCoopers LLP.
Ex-99.B17 Form of Proxy Cards.
<PAGE>
Exhibit 99.B4
VICTORY ESTABLISHED VALUE FUND
VICTORY FUND FOR INCOME
VICTORY GOVERNMENT MORTGAGE FUND
VICTORY OHIO REGIONAL STOCK FUND
AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
("Agreement") is made as of December __, 1999, between The Victory Portfolios, a
Delaware business trust ("Victory"), on behalf of Fund for Income and
Established Value Fund, segregated portfolios of assets ("series") thereof
(each, an "Acquiring Fund"), and Victory, on behalf of Government Mortgage Fund
and Ohio Regional Stock Fund, segregated portfolios of assets ("series") thereof
(each, a "Target"). (Each Acquiring Fund and Target are sometimes referred to
herein individually as a "Fund" and collectively as the "Funds," and Victory is
sometimes referred to herein as the "Investment Company.")
All agreements, representations, and obligations described herein
made or to be taken or undertaken by any Fund are made or shall be taken or
undertaken by Victory on the Fund's behalf.
Government Mortgage Fund and Fund for Income are corresponding Target
and Acquiring Funds, respectively, with respect to each other and Ohio Regional
Stock Fund and Established Value Fund are corresponding Target and Acquiring
Funds, respectively, with respect to each other.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that each Target transfer its assets to the
corresponding Acquiring Fund in exchange solely for voting shares of beneficial
interest of each comparable Class in the corresponding Acquiring Fund,
("Acquiring Fund's Shares") and the assumption by the corresponding Acquiring
Fund of the Target's liabilities, and that each Target distribute the
corresponding Acquiring Fund's Shares pro rata to the holders of shares of
beneficial interest in Target ("Target's Shares") in liquidation of Target. All
such transactions with respect to a Target and its corresponding Acquiring Fund
are referred to herein collectively as a "Reorganization."
It is intended by the parties hereto that each Reorganization
constitute a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Treasury Regulation Sections 1.368-2(g) and 1.368-3(a).
Shares of Fund for Income are currently divided into two classes,
designated Class A Shares and Class G Shares. Government Mortgage Fund currently
has only one class of shares, designated Class A Shares. Established Value Fund
currently has only one class of shares, designated Class G Shares. An amendment
to Victory's registration statement on Form N-1A will be filed to register Class
A Shares for Established Value Fund. Shares of Ohio Regional Stock Fund are
currently divided into two classes, designated Class A Shares and Class B
Shares. Class A Shares of Fund for Income will be distributed to holder of Class
A Shares of Government Mortgage Fund in the Reorganization of that Fund. Class A
Shares of Established
-1-
<PAGE>
Value Fund will be distributed to holders of Class A and Class B Shares of Ohio
Regional Stock Fund in the Reorganization of those Funds.
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND TERMINATION OF TARGETS
1.1. At the Effective Time (as defined in paragraph 3.1), each Target
agrees to assign, sell, convey, transfer, and deliver all of its
assets described in paragraph 1.2 ("Assets") to the
corresponding Acquiring Fund. Each Acquiring Fund agrees in
exchange therefor
(a) to issue and deliver to its corresponding Target the number of
full and fractional Acquiring Fund's Shares determined by
dividing the net value of such Target (computed as set forth in
paragraph 2.1) by the NAV (computed as set forth in paragraph
2.2) of the Acquiring Fund's Shares; and
(b) to assume all of such Target's liabilities described in
paragraph 1.3 ("Liabilities").
1.2. Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on
Target's books, and other property owned by Target at the
Effective Time.
1.3. Liabilities shall include (except as otherwise provided herein)
all of Target's liabilities, debts, obligations, and duties of
whatever kind or nature, whether absolute, accrued, contingent,
or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable at the Effective Time, and
whether or not specifically referred to in this Agreement,
including without limitation Target's share of the expenses
described in paragraph 7.2 and the liabilities to which the
transferred Assets are subject. Notwithstanding the foregoing,
each Target agrees to use its best efforts to discharge all of
its known Liabilities prior to the Effective Time.
1.4. At or immediately before the Effective Time, each Target shall
declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have
distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed without
regard to any deduction for dividends paid) and substantially
all of its realized net capital gain, if any, for the current
taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), each Target shall distribute the corresponding
Acquiring Fund's Shares received by it pursuant to paragraph 1.1 to
such Target's shareholders of record, determined as of the Effective
Time (collectively "Shareholders" and individually a "Shareholder"),
in exchange for such Target's Shares and in liquidation of such
Target. To accomplish this distribution, the corresponding Acquiring
Fund's transfer agent ("Transfer Agent") shall open accounts on such
Acquiring Fund's share transfer books in the
-2-
<PAGE>
Shareholders' names and transfer such Acquiring Fund's Shares
thereto. Each Shareholder's account shall be credited with the pro
rata number of full and fractional (rounded to the third decimal
place) Acquiring Fund's Shares due that Shareholder. All outstanding
Shares of such Target, including any represented by certificates,
shall simultaneously be canceled on such Target's share transfer
books. An Acquiring Fund shall not issue certificates representing
such Acquiring Fund's Shares in connection with its Reorganization.
However, certificates representing each Target's Shares shall
represent the corresponding Acquiring Fund's Shares after each
Reorganization.
1.6. As soon as reasonably practicable after distribution of an Acquiring
Fund's Shares pursuant to paragraph 1.5, the corresponding Target
shall be terminated and any further actions shall be taken in
connection therewith as required by applicable law. Each Target shall
file such instruments and shall take all other steps necessary to
effect a complete liquidation and dissolution of such Target.
1.7. Any reporting responsibility of a Target to a public authority is and
shall remain its responsibility up to and including the date on which
it is terminated.
1.8. Any transfer taxes payable upon issuance of an Acquiring Fund's
Shares in a name other than that of the registered holder on the
corresponding Target's books of such Target's Shares exchanged
therefor shall be paid by the person to whom such Acquiring Fund's
Shares are to be issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), each Target's net value shall be
(a) the value of the Assets computed as of the close of regular
trading on the New York Stock Exchange ("NYSE") on the date of the
Closing ("Valuation Time"), using the valuation procedures set forth
in such Target's then current prospectus and statement of additional
information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of each Acquiring Fund's
Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then current
prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by
or under the direction of Key Asset Management Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. Each Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds' principal
offices on _____________, 2000, or at such other place and/or on such
other date upon which the parties may agree. All acts taking place at
the Closing shall be deemed to take place simultaneously as of the
close of business on the date thereof or at such other time upon
which the parties may agree ("Effective Time"). If, immediately
before the Valuation Time, (a) the NYSE is closed to trading or
trading thereon is restricted or (b) trading or the reporting of
-3-
<PAGE>
trading on the NYSE or elsewhere is disrupted, so that accurate
appraisal of the net value of each Target and the NAV per share for
each Acquiring Fund is impracticable, the Effective Time shall be
postponed until the first business day after the day when such
trading shall have been fully resumed and such reporting shall have
been restored.
3.2. Each Target shall deliver to Victory at the Closing a schedule of its
Assets as of the Effective Time, which shall set forth for all
portfolio securities included therein their adjusted tax bases and
holding periods by lot. Each Target's custodian shall deliver at the
Closing a certificate of an authorized officer stating that (a) the
Assets held by the custodian will be transferred to the corresponding
Acquiring Fund at the Effective Time and (b) all necessary taxes in
conjunction with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made.
3.3. The Transfer Agent shall deliver at the Closing a certificate as to
the opening on each Acquiring Fund's share transfer books of accounts
in the names of the corresponding Target's Shareholders. Victory
shall issue and deliver a confirmation to each Target evidencing the
Acquiring Fund's Shares to be credited to such Target at the
Effective Time or provide evidence satisfactory to such Target that
the corresponding Acquiring Fund's Shares have been credited to such
Target's account on such Acquiring Fund's books. At the Closing, each
party shall deliver to the other such bills of sale, checks,
assignments, stock certificates, receipts, or other documents as the
other party or its counsel may reasonably request.
3.4. Victory, on behalf of each Target and Acquiring Fund, respectively,
shall deliver at the Closing a certificate executed in its name by
its President or a Vice President and dated as of the Effective Time,
to the effect that the representations and warranties it made in this
Agreement are true and correct in all material respects at the
Effective Time, with the same force and effect as if made at and as
of the Effective Time, except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Each Target represents and warrants as follows:
4.1.1. At the Closing, Target will have good and marketable title to its
Assets and full right, power, and authority to sell, assign,
transfer, and deliver its Assets free of any liens or other
encumbrances; and upon delivery and payment for the Assets, the
corresponding Acquiring Fund will acquire good and marketable title
thereto;
4.1.2. The corresponding Acquiring Fund's Shares are not being acquired for
the purpose of making any distribution thereof, other than in
accordance with the terms hereof;
4.1.3. Target's current prospectus and statement of additional information
conform in all material respects to the applicable requirements of
the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act
and the rules and regulations thereunder
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and do not include any untrue statement of a material fact or omit
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading;
4.1.4. Target is not in violation of, and the execution and delivery of this
Agreement and consummation of the transactions contemplated hereby
will not (a) conflict with or violate, Delaware law or any provision
of Victory's Certificate of Declaration of Trust or Trust Instrument
or By-laws or of any agreement, instrument, lease, or other
undertaking to which Target is a party or by which it is bound or (b)
result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, judgment, or decree to which Target
is a party or by which it is bound, except as previously disclosed in
writing to and accepted by Victory;
4.1.5. Except as otherwise disclosed in writing to and accepted by Victory,
all material contracts and other commitments of or applicable to
Target (other than this Agreement and investment contracts, including
options and futures) will be terminated, or provision for discharge
of any liabilities of Target thereunder will be made, at or prior to
the Effective Time, without Target incurring any liability or penalty
with respect thereto and without diminishing or releasing any rights
Target may have had with respect to actions taken or not taken by any
other party thereto prior to the Closing;
4.1.6. Except as otherwise disclosed in writing to and accepted by Victory
on behalf of the corresponding Acquiring Fund, no litigation,
administrative proceeding, or investigation of or before any court or
governmental body is presently pending or (to Target's knowledge)
threatened against Target or any of its properties or assets that, if
adversely determined, would materially and adversely affect Target's
financial condition or the conduct of its business; Target knows of
no facts that might form the basis for the institution of any such
litigation, proceeding, or investigation and is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially or adversely affects its
business or its ability to consummate the transactions contemplated
hereby;
4.1.7. The execution, delivery, and performance of this Agreement has been
duly authorized as of the date hereof by all necessary action on the
part of Victory's board of trustees on behalf of Target, which has
made the determinations required by Rule 17a-8(a) under the 1940 Act;
and, subject to approval by Target's shareholders and receipt of any
necessary exemptive relief or no-action assurances requested from the
Securities and Exchange Commission ("SEC") or its staff with respect
to Sections 17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
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<PAGE>
4.1.8. At the Effective Time, the performance of this Agreement shall have
been duly authorized by all necessary action by Target's
shareholders;
4.1.9. No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act"), or the 1940 Act for the execution or
performance of this Agreement by Target, except for (a) the filing
with the SEC of a registration statement by Victory on Form N-14
relating to the corresponding Acquiring Fund's Shares issuable
hereunder, and any supplement or amendment thereto ("Registration
Statement"), including therein a prospectus/proxy statement ("Proxy
Statement"), (b) receipt of the exemptive relief or no-action
assurances referenced in subparagraph 4.1.7, and (c) such consents,
approvals, authorizations, and filings as have been made or received
or as may be required subsequent to the Effective Time;
4.1.10. On the effective date of the Registration Statement, at the time of
the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder and
(b) not contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading. This provision shall not apply
to statements in or omissions from the Proxy Statement made in
reliance on and in conformity with information furnished by Victory
for use therein;
4.2. Each Acquiring Fund represents and warrants as follows:
4.2.1. No consideration other than Acquiring Fund's Shares (and Acquiring
Fund's assumption of the Liabilities) will be issued in exchange for
the corresponding Target's Assets in the Reorganization;
4.2.2. Acquiring Fund's Shares to be issued and delivered to the
corresponding Target hereunder will, at the Effective Time, have been
duly authorized and, when issued and delivered as provided herein,
will be duly and validly issued and outstanding shares of Acquiring
Fund, fully paid and nonassessable by Victory (except as disclosed in
Victory's then current prospectus and statement of additional
information). Except as contemplated by this Agreement, Acquiring
Fund does not have outstanding any options, warrants, or other rights
to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible into any of its shares;
4.2.3. Acquiring Fund's current prospectus and statement of additional
information conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder and do not include any untrue statement of a
material fact or omit any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
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4.2.4. Acquiring Fund is not in violation of, and the execution and delivery
of this Agreement and consummation of the transactions contemplated
hereby (a) will not conflict with or violate, Delaware law or any
provision of Victory's Certificate of Trust or Trust Instrument or
By-laws or any provision of any agreement, instrument, lease, or
other undertaking to which Acquiring Fund is a party or by which it
is bound or (b) result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, judgment, or decree
to which Acquiring Fund is a party or by which it is bound, except as
previously disclosed in writing to and accepted by Victory;
4.2.5. Except as otherwise disclosed in writing to and accepted by Victory
on behalf of its corresponding Target, no litigation, administrative
proceeding, or investigation of or before any court or governmental
body is presently pending or (to Acquiring Fund's knowledge)
threatened against Victory with respect to Acquiring Fund or any of
its properties or assets that, if adversely determined, would
materially and adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows of no facts that
might form the basis for the institution of any such litigation,
proceeding, or investigation and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or
governmental body that materially or adversely affects its business
or its ability to consummate the transactions contemplated hereby;
4.2.6. The execution, delivery, and performance of this Agreement has been
duly authorized as of the date hereof by all necessary action on the
part of Victory's board of trustees on behalf of Acquiring Fund,
which has made the determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary exemptive relief
or no-action assurances requested from the SEC or its staff with
respect to Sections 17(a) and 17(d) of the 1940 Act, this Agreement
will constitute a valid and legally binding obligation of Acquiring
Fund, enforceable in accordance with its terms, except as the same
may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating to or affecting
creditors' rights and by general principles of equity;
4.2.7. No governmental consents, approvals, authorizations, or filings are
required under the 1933 Act, the 1934 Act, or the 1940 Act for the
execution or performance of this Agreement by Victory, except for (a)
the filing with the SEC of the Registration Statement and a
post-effective amendment to Victory's registration statement on Form
N-1A, (b) receipt of the exemptive relief or no-action assurances
referenced in subparagraph 4.2.6, and (c) such consents, approvals,
authorizations, and filings as have been made or received or as may
be required subsequent to the Effective Time;
4.2.8. On the effective date of the Registration Statement, at the time of
the shareholders' meeting referred to in paragraph 5.2, and at the
Effective Time, the Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933 Act, the 1934
Act, and the 1940 Act and the rules and regulations thereunder and
(b) not contain any untrue statement of a material fact
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or omit any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which such statements were made, not misleading; provided that the
foregoing shall not apply to statements in or omissions from the
Proxy Statement made in reliance on and in conformity with
information furnished by the corresponding Target for use therein;
4.3. Victory, on behalf of each Fund, represents and warrants as follows:
4.3.1. Victory is a business trust that is duly organized, validly existing,
and in good standing under the laws of the State of Delaware; and a
copy of its Certificate of Trust is on file with the Secretary of the
State of Delaware;
4.3.2. Victory is duly registered as an open-end management investment
company under the 1940 Act, and such registration will be in full
force and effect at the Effective Time;
4.3.3. Each Fund is a duly established and designated series of Victory.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it being
understood that (a) such ordinary course will include declaring and
paying customary dividends and other distributions and such changes
in operations as are contemplated by each Fund's normal business
activities and (b) each Fund will retain exclusive control of the
composition of its portfolio until the Closing; provided that no
Target shall dispose of more than an insignificant portion of its
historic business assets during such period without the corresponding
Acquiring Fund's prior consent.
5.2. Each Target covenants to call a special meeting of shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated hereby.
5.3. Each Target covenants that its corresponding Acquiring Fund's Shares
to be delivered hereunder are not being acquired for the purpose of
making any distribution thereof, other than in accordance with the
terms hereof.
5.4. Each Target covenants that it will assist Victory in obtaining such
information as Victory reasonably requests concerning the beneficial
ownership of its Shares.
5.5. Each Target covenants that its books and records (including all books
and records required to be maintained under the 1940 Act and the
rules and regulations thereunder) will be turned over to Victory at
the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy Statement in
compliance with applicable federal securities laws.
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<PAGE>
5.7. Each Fund covenants that it will, from time to time, as and when
requested by the corresponding Fund, execute and deliver or cause to
be executed and delivered all such assignments and other instruments,
and will take or cause to be taken such further action, as the
corresponding Fund may deem necessary or desirable in order to vest
in, and confirm to, (a) each Acquiring Fund, title to and possession
of all corresponding Target's Assets, and (b) each Target, title to,
and possession of the corresponding Acquiring Fund's Shares to be
delivered hereunder, and otherwise to carry out the intent and
purpose hereof.
5.8. Each Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940
Act, and such state securities laws as it may deem appropriate in
order to continue its operations after the Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or cause to be
taken all actions, and to do or cause to be done all things,
reasonably necessary, proper, or advisable to consummate and
effectuate the transactions contemplated hereby.
5.10. Victory covenants to file an amendment to its registration statement
on Form N-1A to register Class A Shares of Established Value Fund.
5.11. Victory, on behalf of Ohio Regional Stock Fund, covenants that it
will take all reasonable action to ensure that comparable classes of
shares exist between it and Established Value Fund.
6. CONDITIONS PRECEDENT
6.1. Each Fund's obligations hereunder shall be subject to (a) performance
by its corresponding Fund of all the obligations to be performed
hereunder at or before the Effective Time, (b) all representations
and warranties of the corresponding Fund contained herein being true
and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as
if made at and as of the Effective Time, and (c) the following
further conditions that, at or before the Effective Time:
6.1.1. This Agreement and the transactions contemplated hereby shall have
been duly adopted and approved by Victory's board of trustees on
behalf of Target and Acquiring Fund and shall have been approved by
each Target's shareholders in accordance with applicable law.
6.1.2. All necessary filings shall have been made with the SEC and state
securities authorities, and no order or directive shall have been
received that any other or further action is required to permit the
parties to carry out the transactions contemplated hereby. The
Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have
been issued, and the SEC shall not have issued an unfavorable report
with respect to the Reorganization under section 25(b) of the 1940
Act nor instituted any proceedings seeking to enjoin consummation of
the transactions contemplated
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<PAGE>
hereby under section 25(c) of the 1940 Act. All consents, orders, and
permits of federal, state, and local regulatory authorities
(including the SEC and state securities authorities) deemed necessary
by any Fund to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except
where failure to obtain the same would not involve a risk of a
material adverse effect on the assets or properties of any Fund,
provided that any Fund may for itself waive any of such conditions.
6.1.3. At the Effective Time, no action, suit, or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or to obtain damages or other relief in
connection with, the transactions contemplated hereby.
6.1.4. The amendment to the Fund's registration statement on Form N-1A filed
by Victory on behalf of Established Value Fund registering Class A
Shares shall have become effective.
6.1.5. Each Target shall have received an opinion of Kramer Levin Naftalis &
Frankel LLP, counsel to Victory, substantially to the effect that:
6.1.5.1. Its corresponding acquiring Fund is a duly established series of
Victory, a business trust duly organized and validly existing under
the laws of the State of Delaware with the power under its Trust
Instrument to own all of its properties and assets and, to the
knowledge of such counsel, to carry on its business as presently
conducted;
6.1.5.2. This Agreement (a) has been duly authorized, executed, and delivered
by Victory on behalf of its corresponding Acquiring Fund and (b)
assuming due authorization, execution, and delivery of this Agreement
by Target, is a valid and legally binding obligation of Victory with
respect to the corresponding Acquiring Fund, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws relating to or affecting creditors'
rights and remedies, by general principles of equity, and principles
of course of dealing or course of performance and standards of good
faith, fair dealing, materiality or reasonableness that may be
applied by a court to the exercise of rights and remedies;
6.1.5.3. Each Acquiring Fund's Shares to be issued and distributed to the
Shareholders under this Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly authorized and validly
issued and outstanding and fully paid and nonassessable (except as
disclosed in Victory's then current prospectus and statement of
additional information);
6.1.5.4. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
materially violate Victory's Trust Instrument or By-laws or any
provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Victory (with respect
to the corresponding Acquiring Fund) is a party or by which it is
bound or (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Victory (with respect to the
corresponding
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Acquiring Fund) is a party or by which it (with respect to the
corresponding Acquiring Fund) is bound, except as set forth in such
opinion or as previously disclosed in writing to and accepted by
Victory;
6.1.5.5. To the knowledge of such counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
Victory on behalf of the corresponding Acquiring Fund of the
transactions contemplated herein, except such as have been obtained
under the 1933 Act, the 1934 Act, and the 1940 Act and such as may be
required under state securities laws;
6.1.5.6. Victory is registered with the SEC as an investment company, and to
the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.1.5.7. To the knowledge of such counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending
or threatened as to Victory (with respect to the corresponding
Acquiring Fund) or any of its properties or assets attributable or
allocable to the corresponding Acquiring Fund and (b) Victory (with
respect to the corresponding Acquiring Fund) is not a party to or
subject to the provisions of any order, decree, or judgment of any
court or governmental body that materially and adversely affects the
corresponding Acquiring Fund's business, except as set forth in such
opinion or as otherwise disclosed in writing to and accepted by
Victory.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion of
competent Delaware counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then
with such firm who have devoted substantive attention to matters
directly related to this Agreement and each Reorganization; and (v)
rely on certificates of officers or trustees of Victory, in each case
reasonably acceptable to Victory.
6.1.6. Each Acquiring Fund shall have received an opinion of Kramer Levin
Naftalis & Frankel LLP, counsel to Victory, substantially to the
effect that:
6.1.6.1. Its corresponding Target is an established series of Victory, a
business trust duly organized and validly existing under the laws of
the State of
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<PAGE>
Delaware with power under its Trust Instrument to own all of its
properties and assets and, to the knowledge of such counsel, to carry
on its business as presently conducted;
6.1.6.2. This Agreement (a) has been duly authorized, executed, and delivered
by Victory on behalf of its corresponding Target and (b) assuming due
authorization, execution, and delivery of this Agreement by Victory
on behalf of the Acquiring Fund, is a valid and legally binding
obligation of each corresponding Target, enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors' rights and remedies,
by general principles of equity, and principles of course of dealing
or course of performance and standards of good faith, fair dealing,
materiality or reasonableness that may be applied by a court to the
exercise of rights and remedies.
6.1.6.3. The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, (a)
materially violate Victory's Trust Instrument or By-laws or any
provision of any agreement (known to such counsel, without any
independent inquiry or investigation) to which Victory (with respect
to the corresponding Target) is a party or by which it is bound or
(b) (to the knowledge of such counsel, without any independent
inquiry or investigation) result in the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
judgment, or decree to which Victory (with respect to the
corresponding Target) is a party or by which it (with respect to the
corresponding Target) is bound, except as set forth in such opinion
or as previously disclosed in writing to and accepted by Victory;
6.1.6.4. To the knowledge of such counsel (without any independent inquiry or
investigation), no consent, approval, authorization, or order of any
court or governmental authority is required for the consummation by
Victory on behalf of the corresponding Target of the transactions
contemplated hereby, except such as have been obtained under the 1933
Act, the 1934 Act, and the 1940 Act and such as may be required under
state securities laws;
6.1.6.5. Victory is registered with the SEC as an investment company, and to
the knowledge of such counsel no order has been issued or proceeding
instituted to suspend such registration; and
6.1.6.6. To the knowledge of such counsel (without any independent inquiry or
investigation), (a) no litigation, administrative proceeding, or
investigation of or before any court or governmental body is pending
or threatened as to Victory (with respect to the corresponding
Target) or any of its properties or assets attributable or allocable
to the corresponding Target and (b) Victory (with respect to the
corresponding
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<PAGE>
Target) is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially
and adversely affects the corresponding Target's business, except as
set forth in such opinion or as otherwise disclosed in writing to and
accepted by Victory.
In rendering such opinion, such counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion of
competent Delaware counsel, (ii) make assumptions regarding the
authenticity, genuineness, and/or conformity of documents and copies
thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then
with such firm who have devoted substantive attention to matters
directly related to this Agreement and each Reorganization, and (v)
rely on certificates of officers or trustees of Target; in each case
reasonably acceptable to Victory.
6.1.7. Victory, on behalf of each Target and its corresponding Acquiring
Fund, shall have received an opinion of Kramer Levin Naftalis &
Frankel LLP addressed to and in form and substance reasonably
satisfactory to it, as to the federal income tax consequences of each
Reorganization ("Tax Opinion"). In rendering the Tax Opinion, such
counsel may rely as to factual matters, exclusively and without
independent verification, on the representations made in this
Agreement (and/or in separate letters addressed to such counsel) and
each Fund's separate covenants. Each party agrees to make reasonable
covenants and representations as to factual matters as of the
Effective Time in connection with the rendering of such opinion. The
Tax Opinion shall be substantially to the effect that, based on the
facts and assumptions stated therein and conditioned on consummation
of each Reorganization in accordance with this Agreement, for federal
income tax purposes:
6.1.7.1. Each Reorganization will constitute a reorganization within the
meaning of section 368(a)(1) of the Code, and each Fund will be "a
party to a reorganization" within the meaning of section 368(b) of
the Code;
6.1.7.2. No gain or loss will be recognized by Target on the transfer to the
corresponding Acquiring Fund of Assets in exchange solely for the
Acquiring Fund's Shares and Acquiring Fund's assumption of
Liabilities or on the subsequent distribution of those shares to the
Shareholders in liquidation of such Target;
6.1.7.3. No gain or loss will be recognized by the Acquiring Fund on its
receipt of Assets in exchange solely for Acquiring Fund's Shares and
its assumption of Liabilities;
6.1.7.4. Each Acquiring Fund's adjusted tax basis in the Assets acquired will
be equal to the basis thereof in the corresponding Target's hands
immediately before such Reorganization, and each Acquiring Fund's
holding period for the Assets will include the corresponding Target's
holding period therefor;
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6.1.7.5. A Shareholder will recognize no gain or loss on the exchange of its
Target Shares solely for the corresponding Acquiring Fund's Shares
pursuant to a Reorganization; and
6.1.7.6. A Shareholder's aggregate tax basis in any Acquiring Fund's Shares
received by it in a Reorganization will equal its aggregate tax basis
in its Target Shares surrendered in exchange therefor, and its
holding period for such Acquiring Fund Shares will include its
holding period for such Target Shares, provided such Target Shares
are held as capital assets by the Shareholder at the Effective Time.
6.2. At any time before the Closing, each Fund may waive any of the
foregoing conditions if, in the judgment of Victory's board of
trustees, such waiver will not have a material adverse effect on its
shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. Victory, on behalf of each Fund, represents and warrants that there
are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
7.2. Each Fund will be responsible for its own expenses incurred in
connection with each Reorganization, as agreed to by the parties.
8. ENTIRE AGREEMENT; SURVIVAL
8.1. Neither party has made any representation, warranty, or covenant not
set forth herein, and this Agreement constitutes the entire agreement
between the parties. The representations, warranties, and covenants
contained herein or in any document delivered pursuant hereto or in
connection herewith shall survive the Closing.
9. TERMINATION OF AGREEMENT
9.1. This Agreement may be terminated at any time at or prior to the
Effective Time, whether before or after approval by each Target's
Shareholders:
9.1.1. By any Fund (a) in the event of a material breach of any
representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to
its obligations has not been met and it reasonably appears that such
condition will not or cannot be met, or (c) if the Closing has not
occurred on or before March 30, 2000; or
9.1.2. By the parties' mutual agreement.
9.2. In the event of termination under paragraphs 9.1.1(c) or 9.1.2, there
shall be no liability for damages on the part of either Fund affected
by the termination, or the trustees or officers of Victory, to its
corresponding Fund.
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10. AMENDMENT
10.1. This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by each Target's Shareholders, in
such manner as may be mutually agreed upon in writing by the parties;
provided that following such approval no such amendment shall have a
material adverse effect on such Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware; provided that, in the
case of any conflict between such laws and the federal securities
laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be construed
to confer upon or give any person, firm, trust, or corporation other
than the parties and their respective successors and assigns any
rights or remedies under or by reason of this Agreement.
11.3. The parties acknowledge that Victory is a business trust. Notice is
hereby given that this instrument is executed on behalf of Victory's
trustees solely in their capacity as trustees, and not individually,
and that Victory's obligations under this instrument on behalf of
each Fund are not binding on or enforceable against any of its
trustees, officers, or shareholders, but are only binding on and
enforceable against the respective Funds' assets and property. Each
Fund agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the corresponding Fund's assets and
property in settlement of such rights or claims and not to such
trustees or shareholders.
11.4. Victory agrees to indemnify and hold harmless each trustee of Victory
at the time of the execution of this Agreement against expenses,
including reasonable attorneys' fees, judgments, fines and amounts
paid in settlement, actually and reasonably incurred by such trustee
in connection with any claim that is asserted against such trustee
arising out of such person's service as a trustee of Victory,
provided that such indemnification shall be limited to the full
extent of the indemnification that is available to the trustees of
Victory pursuant to the provisions of Victory's Trust Instrument and
applicable law.
11.5. For the period beginning at the time of the Reorganization and ending
not less than three years thereafter, Victory shall provide for
liability coverage for the actions of each trustee of Victory on
behalf of each Target at the time of the execution of this Agreement
for the period they served as such.
-15-
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed by its duly authorized officer.
ATTEST: THE VICTORY PORTFOLIOS, on behalf
of its series:
Fund for Income
Established Value Fund
___________________________________ _____________________________________
___________________________________ By: ________________________________
Secretary Vice President
ATTEST: THE VICTORY PORTFOLIOS, on behalf
of its series:
Government Mortgage Fund
Ohio Regional Stock Fund
___________________________________ _____________________________________
___________________________________ By: ________________________________
Secretary Vice President
<PAGE>
Exhibit 99.B14(a)
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
TEL (212) 715-9100 47, Avenue Hoche
FAX (212) 715-8000 75008 Paris
France
December 29, 1999
The Victory Portfolios
3435 Stelzer Road
Columbus, Ohio 43219
Re: The Victory Portfolios
Registration Statement on Form N-14
Relating to the Fund for Income and the Established Value Fund
-------------------------------------------------------------------
Dear Ladies and Gentlemen:
We hereby consent to the reference of our firm as Counsel in
this Registration Statement on Form N-14.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
<PAGE>
Exhibit 99.B14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Combined Prospectus/Proxy
Statement filed with Form N-14 under the Securities Act of 1933 related to the
proposed combinations of the Victory Government Mortgage Fund with the Victory
Fund For Income and the Victory Ohio Regional Stock Fund with the Victory
Established Value Fund, of our report dated December 16, 1999 on our audits of
the financial statements and financial highlights of The Victory Portfolios
(comprising the Gradison Government Reserves Fund, Institutional Money Market
Fund, Federal 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,
Fund For Income, Government Mortgage Fund, Investment Quality Bond Fund,
National Municipal Bond Fund, New York Tax-Free Fund, Ohio Municipal Bond Fund,
Balanced Fund, Convertible Securities Fund, Real Estate Investment Fund, Value
Fund, Lakefront Fund, Established Value Fund, Diversified Stock Fund, Stock
Index Fund, Growth Fund, Special Value Fund, Ohio Regional Stock Fund, Small
Company Opportunity Fund, International Growth Fund, LifeChoice Conservative
Investor Fund, LifeChoice Moderate Investor Fund, and LifeChoice Growth Investor
Fund) which report is included in the Annual Report to Shareholders for the year
ended October 31, 1999. We also consent to the reference to our Firm under the
caption "Financial Statements" in the Combined Prospectus/Proxy Statement filed
with Form N-14 under the Securities Act of 1933 related to the proposed
combination of the Victory Government Mortgage Fund with the Victory Fund For
Income and the Victory Ohio Regional Stock Fund with the Victory Established
Value Fund.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
December 30, 1999
<PAGE>
Exhibit 99.B17(a)
LOGO
- ------------------------------------------------
IMPORTANT NOTICE: Please take a moment now to
vote your shares. You may vote directly over
the telephone by calling 800-786-8764.
Representatives are available from ______
to ______ Eastern Time. You may also fax
your ballot to 800-733-1885 or return it in
the enclosed postage paid envelope. Internet
voting is available at www.proxyvote.com.
Your vote is important. Thank you for your
prompt action.
- ------------------------------------------------
THE VICTORY PORTFOLIOS
GOVERNMENT MORTGAGE FUND
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 20, 2000
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The Victory Portfolios, on
behalf of Government Mortgage Fund (the "Fund"), for use at the Special Meeting
of shareholders to be held at the offices of The Victory Portfolios, 3435
Stelzer Road, Columbus, OH 43219-3035 on March 20, 2000 at 8:30 a.m. Eastern
time. The undersigned hereby appoints Karen Haber and Anne M. Dombrowski and
each of them, with full power of substitution, as proxies of the undersigned to
vote at the above stated Special Meeting, and at all adjournments thereof, all
shares of beneficial interest of the Fund that are held of record by the
undersigned on the record date for the Special Meeting, upon the matters
enumerated below:
IF THIS PROXY CARD IS RETURNED, AND NO
CHOICE IS INDICATED AS TO ANY MATTER,
THIS PROXY WILL BE VOTED AFFIRMATIVELY
ON THE MATTERS PRESENTED. THE BOARD OF
TRUSTEES RECOMMENDS THAT YOU VOTE
"FOR" THE FOLLOWING PROPOSALS.
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.
TO VOTE, MARK BLOCKS BELOW IN BLUE
OR BLACK INK AS FOLLOWS: [X] KEEP THIS PORTION FOR YOUR RECORDS
-------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN DETACH AND RETURN THIS PORTION ONLY
SIGNED AND DATED.
Vote on Proposals:
1. To approve the Agreement and Plan
of Reorganization and Termination, FOR AGAINST ABSTAIN
as is more fully described in the
accompanying Combined Prospectus/ [ ] [ ] [ ]
Proxy Statement, together with
each and every transaction
contemplated thereby.
<PAGE>
2. To elect trustees to serve as FOR ALL
members of the Board of Trustees FOR WITHHOLD EXCEPT
of The Victory Portfolios, the
nominees are: [ ] [ ] [ ]
Theodore H. Emmerich Dr. Thomas F. Morrissey TO WITHHOLD AUTHORITY TO VOTE
Dr. Harry Gazelle H. Patrick Swygert FOR ANY INDIVIDUAL NOMINEE,
Frankie D. Hughes Frank A. Weil MARK THE "FOR ALL
Roger Noall Donald E. Weston EXCEPT" BOX, AND STRIKE
Eugene J. McDonald Leigh A. Wilson A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST.
3. To approve the adoption of an FOR AGAINST ABSTAIN
Amended and Restated Trust
Instrument for The Victory Portfolios. [ ] [ ] [ ]
4. In their discretion, the Proxies
are authorized to vote upon such
other business as may properly come
before the meeting.
X__________________________________________________
Signature (Please sign within box) (Date)
X__________________________________________________
Signature (Joint Owners) (Date)
<PAGE>
Exhibit 99.B17(b)
LOGO
- ---------------------------------------------
IMPORTANT NOTICE: Please take a moment now
to vote your shares. You may vote directly
over the telephone by calling
800-786-8764. Representatives are
available from ______ to ______ Eastern
Time. You may also fax your ballot to
800-733-1885 or return it in the enclosed
postage paid envelope. Internet voting is
available at www.proxyvote.com.
Your vote is important. Thank you for your
prompt action.
- ---------------------------------------------
THE VICTORY PORTFOLIOS
OHIO REGIONAL STOCK FUND
SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 20, 2000
PROXY CARD
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES of The Victory Portfolios, on
behalf of Ohio Regional Stock Fund (the "Fund"), for use at the Special Meeting
of shareholders to be held at the offices of The Victory Portfolios, 3435
Stelzer Road, Columbus, OH 43219-3035 on March 20, 2000 at 8:30 a.m. Eastern
time. The undersigned hereby appoints Karen Haber and Anne M. Dombrowski and
each of them, with full power of substitution, as proxies of the undersigned to
vote at the above stated Special Meeting, and at all adjournments thereof, all
shares of beneficial interest of the Fund that are held of record by the
undersigned on the record date for the Special Meeting, upon the matters
enumerated below:
IF THIS PROXY CARD IS RETURNED, AND NO
CHOICE IS INDICATED AS TO ANY MATTER, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THE
MATTERS PRESENTED. THE BOARD OF TRUSTEES
RECOMMENDS THAT YOU VOTE "FOR" THE
FOLLOWING PROPOSALS.
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.
TO VOTE, MARK BLOCKS BELOW IN BLUE
OR BLACK INK AS FOLLOWS: [X] KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN DETACH AND RETURN THIS PORTION ONLY
SIGNED AND DATED.
Vote on Proposals:
1. To approve the Agreement and Plan of
Reorganization and Termination, as is FOR AGAINST ABSTAIN
more fully described in the accompanying
Combined Prospectus/Proxy Statement, [ ] [ ] [ ]
together with each and every transaction
contemplated thereby.
<PAGE>
2. To elect trustees to serve as members FOR ALL
of the Board of Trustees of The Victory FOR WITHHOLD EXCEPT
Portfolios, the nominees are:
[ ] [ ] [ ]
Theodore H. Emmerich Dr. Thomas F. Morrissey TO WITHHOLD AUTHORITY TO VOTE
Dr. Harry Gazelle H. Patrick Swygert FOR ANY INDIVIDUAL NOMINEE,
Frankie D. Hughes Frank A. Weil MARK THE "FOR ALL EXCEPT"
Roger Noall Donald E. Weston BOX, AND STRIKE A LINE
Eugene J. McDonald Leigh A. Wilson THROUGH THE NOMINEE'S
NAME IN THE LIST.
3. To approve the adoption of an Amended FOR AGAINST ABSTAIN
and Restated Trust Instrument for The
Victory Portfolios. [ ] [ ] [ ]
4. In their discretion, the Proxies are
authorized to vote upon such other business
as may properly come before the meeting.
X______________________________________________________
Signature (Please sign within box) (Date)
X______________________________________________________
Signature (Joint Owners) (Date)
<PAGE>
