As filed, via EDGAR, with the Securities and Exchange Commission on January 30, 1998 File No.: 333-42837 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No. __ (check appropriate box or boxes) ------------------- THE VICTORY PORTFOLIOS (Exact Name of Registrant as Specified in Charter) 1-800-539-3863 (Area Code and Telephone Number) 3435 Stelzer Road, Columbus, Ohio 43219-3035 (Address of Principal Executive Offices) ------------------- Michael Sullivan BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219-3035 (Name and address of agent for service) Copies to: William J. Blake Key Asset Management Inc. 127 Public Square Cleveland, Ohio 44114 Jay G. Baris Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 ------------------- No filing fee is required because an indefinite number of shares have previously been registered pursuant to Section 24(f) of the Investment Company Act of 1940, as amended. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. THE VICTORY PORTFOLIOS Cross Reference Sheet Items Required by Form N-14 PART A N-14 Item No. Item Caption Prospectus Caption 1. Beginning of Registration Statement Cross Reference Sheet; and Outside Front Cover Page of Front Cover Page. Prospectus 2. Beginning and Outside Back Cover Page of Prospectus Table of Contents. 3. Fee Table, Synopsis Synopsis; Comparison of the Funds' Information and Risk Factors Investment Objectives, Policies, and Risks; Comparison of Fees and Expenses. 4. Information About the Transaction Reasons for the Transaction; Information about the Transaction. 5. Information About the Registrant Comparison of the Funds' Investment Objectives, Policies, and Risks; Information about the Funds; Additional Information. 6. Information About the Company Comparison of the Funds' Being Acquired Investment Objectives, Policies, and Risks ; Information about the Funds; Additional Information. 7. Voting Information Information Relating to Voting Matters. 8. Interest of Certain Persons and Information About the Funds. Experts 9. Additional Information Required Inapplicable. for Reoffering by Persons Deemed to be Underwriters PART B N-14 Statement of Additional Item No. Item Caption Information Caption 10. Cover Page Cover Page. 11. Table of Contents Cover Page. 12. Additional Information About the Registrant Statement of Additional Information of The Victory Portfolios dated March 1, 1997. 13. Additional Information About the Company Being Acquired Inapplicable. 14. Financial Statements Audited annual financial statements of The Victory Portfolios as of October 31, 1997; Audited annual financial statements of Key Mutual Funds as of November 30, 1996; Unaudited semi-annual financial statements of Key Mutual Funds as of May 31, 1997; Pro-forma combined financial statements of the Victory Stock Index Fund, Victory Special Growth Fund, Victory Diversified Stock Fund, Key Stock Index Fund, SBSF Capital Growth Fund, and SBSF Fund, as of October 31, 1997. PART C N-14 Item No. Item Caption Part C Caption 15. Indemnification Indemnification. 16. Exhibits Exhibits. 17. Undertakings Undertakings. IMPORTANT Proxy Materials PLEASE CAST YOUR VOTE NOW! Dear Key Mutual Fund Shareholder: On March 6, 1998, a special shareholder meeting will be held. You are not required to attend the meeting, however, be sure to exercise your right to vote by Proxy. The matters to be discussed are important, and directly affect your investment. As a shareholder, you vote for each full and fractional share that you own. YOU MAY THINK YOUR VOTE IS INSIGNIFICANT, BUT EVERY VOTE IS EXTREMELY IMPORTANT. We must continue sending requests to vote until a majority of the shares are voted prior to the meeting. Additional mailings are expensive, and these costs are charged directly to the fund. The enclosed Proxy Statement details the proposal under consideration. In addition, we have attached a question and answer guide to assist you in understanding the proposal that requires your vote. After you have read the material, please cast your vote promptly by signing and returning the enclosed proxy card. It is important that you sign your proxy card exactly as your name appears in the registration of the proxy card. A postage-paid envelope has been provided for your convenience. You may also register your vote by telephone or fax (see enclosed instructions for details). Your time will be well spent, and you will help save the cost of additional mailings. This proposal has been carefully considered by both of the Boards of the KeyFunds(R) and Victory Portfolios, which are responsible for protecting your interests as a shareholder. Both Boards believe that this proposal is fair and reasonable, and recommend that you approve the proposal. If you have any questions about the proposal, please do not hesitate to contact your investment professional, or call the Funds at 800-KEY-FUND(R) (800-539-3863). Remember this is your opportunity to voice your opinion on matters affecting your fund. YOUR PARTICIPATION IS EXTREMELY IMPORTANT NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN. Thank you. We appreciate your prompt attention. Sincerely, Leigh A. Wilson President of the KeyFunds IMPORTANT INFORMATION TO HELP YOU UNDERSTAND THE PROPOSAL ON WHICH YOU ARE BEING ASKED TO VOTE. PLEASE READ THE FULL TEXT OF THIS PROXY STATEMENT. BELOW IS A BRIEF OVERVIEW OF THE MATTERS TO BE VOTED UPON. YOUR VOTE IS IMPORTANT. IF YOU HAVE QUESTIONS REGARDING THE PROPOSAL PLEASE CALL YOUR INVESTMENT PROFESSIONAL OR 800-KEY-FUND(R) (800-539-3863). WE APPRECIATE YOU PLACING YOUR CONFIDENCE IN THE VICTORY PORTFOLIOS AND THE KEY MUTUAL FUNDS AND LOOK FORWARD TO HELPING YOU ACHIEVE YOUR FINANCIAL GOALS. WHAT PROPOSAL AM I BEING ASKED TO VOTE ON? You are being asked to vote on the following proposal: * To approve an Agreement and Plan providing for the transfer of assets of each Key Fund into a fund of The Victory Portfolios. KEY FUNDS MERGING INTO EXISTING VICTORY FUNDS Old KeyFund Portfolio Operating Victory Fund Portfolio --------------------- -------------------------------- Stock Index Fund Stock Index Fund-Class A SBSF Fund Diversified Stock Fund-Class A SBSF Capital Growth Fund Special Growth Fund-Class A KEY FUNDS REORGANIZING INTO NEW VICTORY FUNDS Old KeyFund Portfolio New Victory Fund Portfolio --------------------- -------------------------- Key Money Market Mutual Fund Federal Money Market Fund-Investor Class SBSF Convertible Securities Convertible Securities Fund-Class A KeyChoice Income and Growth Fund LifeChoice Conservative Investor Fund-Class A KeyChoice Moderate Growth Fund LifeChoice Moderate Investor Fund-Class A KeyChoice Growth Fund LifeChoice Growth Investor Fund-Class A HAS MY FUND'S BOARD OF DIRECTORS APPROVED THE REORGANIZATION? Yes. The Boards of the Key and Victory Funds have unanimously approved the reorganization, and recommend that you vote to approve the reorganization. WHY IS THE REORGANIZATION BEING RECOMMENDED? To eliminate investor confusion and duplicate marketing and operational costs associated with operating two separate entities. The Boards of both the KeyFunds(R) and the Victory Portfolios recognized that several of the Key and Victory Funds are managed in a substantially identical fashion, and all are managed by the same investment adviser, and use the same distributor, administrator and shareholder servicing agents. There is currently a duplication of effort and expense in operating the fund groups separately. It was recognized that the two fund groups could be combined in marketing materials and could be marketed under the same name. ARE THERE OTHER POTENTIAL BENEFITS OF THE REORGANIZATION? Yes. The reorganization would increase the assets of certain Victory Portfolios. A larger pool of assets will allow the investment adviser to increase portfolio diversification. In addition, a larger fund group can more easily attract additional investments than a smaller fund group and invest at lower transaction costs. WHO WILL ADVISE MY FUND ONCE THE MERGER IS COMPLETED? The current portfolio managers of the KeyFunds will continue to manage the fund after the reorganization. WILL THE FEES AND EXPENSES OF MY FUNDS INCREASE? No. KeyFunds' shareholders will exchange their shares for a Victory fund with expenses that are lower or at least no higher than current Key fund expenses. WILL I, OR MY FUNDS HAVE TO PAY TAXES AS A RESULT OF THE REORGANIZATION? Neither the KeyFunds' shareholders nor the Victory or KeyFunds will have any tax consequences as a result of the share exchange. Neither the Victory nor Key Funds and their shareholders will have a loss or gain for Federal income tax purposes as a result of the reorganization. WILL ANY SALES LOAD, SALES COMMISSION OR OTHER FEE BE IMPOSED ON MY SHARES IN CONNECTION WITH THE REORGANIZATION? No. AFTER THE REORGANIZATION, WILL I BE ABLE TO EXCHANGE MY INVESTMENT INTO OTHER FUNDS OF THE VICTORY PORTFOLIOS? Yes. Shareholders will be able to exchange variable fund shares received for other Victory variable funds without a sales charge anytime after the reorganization. WHAT HAPPENS IF I DO NOT WISH TO PARTICIPATE IN THE REORGANIZATION OF THE KEY FUND IN WHICH I OWN SHARES, OR WHAT IF I DO NOT WISH TO OWN SHARES OF THE VICTORY FUND? You may redeem your shares any time before the last business day prior to the closing date of the Reorganization. There are two separate closing dates for the Reorganization. Owners of the following funds may redeem shares before the close of business on March 13, 1998: Key Stock Index Fund SBSF Capital Growth Fund SBSF Fund Owners of the following funds may redeem shares before the close of business on March 20, 1998: KeyChoice Growth Fund KeyChoice Income and Growth Fund KeyChoice Moderate Growth Fund Key Money Market Mutual Fund SBSF Convertible Securities Fund WHEN WILL THE REORGANIZATION OCCUR? A Shareholder Meeting will be held on March 6, 1998. A majority of the shareholders of each Key Fund must approve the reorganization. We expect the merger of all the Funds to be completed by March 23, 1998. HOW DO I VOTE MY SHARES? You can vote your shares by completing and signing the enclosed proxy card(s), and mailing them in the enclosed postage paid envelope. You may also vote your shares by phone at 800-733-8481 ext. 431 or by fax at 800-733-1885. If you need assistance, or have any questions regarding the proposal or how to vote your shares, please call the Funds at 800-KEY-FUND (800-539-3863). KEY MUTUAL FUNDS KEYCHOICE GROWTH FUND KEYCHOICE INCOME AND GROWTH FUND KEYCHOICE MODERATE GROWTH FUND KEY MONEY MARKET MUTUAL FUND KEY STOCK INDEX FUND SBSF CAPITAL GROWTH FUND SBSF CONVERTIBLE SECURITIES FUND SBSF FUND 800-KEY-FUND(R) NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 6, 1998 A special meeting of the shareholders (the "Meeting") of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund (each a "Key Fund," and collectively the "Key Funds"), each a series of SBSF Funds, Inc. (d/b/a and referred to as the "Key Mutual Funds"), will be held at the offices of Key Mutual Funds, 3435 Stelzer Road, Columbus, Ohio 43219-3035, on March 6, 1998 at 8:30 a.m., Eastern time, for the following purposes, which are more fully described in the accompanying Combined Prospectus/Proxy Statement dated _______________, 1998: The following item, inclusive of the several transactions contemplated thereby, applies to, and will be voted on, as appropriate and necessary to fully consummate the transactions so described, (a) separately by the shareholders of each Key Fund and (b) by the shareholders of Key Mutual Funds voting together as a single class: 1. To approve an Agreement and Plan of Reorganization and Liquidation and the transactions contemplated thereby, including (a) the transfer of all or substantially all of the assets belonging to each Key Fund to a corresponding series of The Victory Portfolios, a Delaware business trust, ("Victory"), in exchange for shares of beneficial interest ("shares") of the corresponding series of Victory or shares of a comparable class of the corresponding series of Victory (which transactions, collectively, will effect the transfer of all or substantially all of the assets of Key Mutual Funds to Victory in exchange for shares of Victory); (b) the distribution of shares of Victory received in consideration for the transfer of assets belonging to each Key Fund to the shareholders of the respective Key Funds in complete liquidation of the respective Key Funds; and (c) the cancellation of the outstanding shares of capital stock ("shares") of each Key Fund following the distribution of shares of the corresponding series of Victory to the holders of such shares of each Key Fund (the foregoing steps relative to each Key Fund are referred to as a "Reorganization" of that Key Fund) and, (d) upon such distribution in respect of each of the separate series of the Key Funds, the dissolution of Key Mutual Funds (collectively with each Reorganization, the "Reorganization and Liquidation"). In addition, shareholders of each of the Key Funds will be asked to transact such other business as may properly come before the Meeting or any adjournment thereof. On the day of each Reorganization, your shares will be exchanged, without the imposition of a sales charge and on a tax-free basis, for shares of the corresponding series of Victory with a total net asset value equal to the total net asset value of the shares of the Key Funds you previously owned. THE BOARD OF DIRECTORS OF KEY MUTUAL FUNDS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE KEY FUNDS VOTE TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The enclosed proxy is being solicited on behalf of the Board of Directors of Key Mutual Funds. Shareholders of record as of the close of business on December 26, 1997 are entitled to notice of, and to vote at, the Meeting or any adjournment(s) thereof. PLEASE MARK, DATE, SIGN, AND PROMPTLY RETURN, IN THE ENCLOSED ENVELOPE, EACH ACCOMPANYING PROXY CARD. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO KEY MUTUAL FUNDS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. By order of the Board of Directors, Leigh A. Wilson President Dated: _______, 1998 KEY MUTUAL FUNDS THE VICTORY PORTFOLIOS 3435 STELZER ROAD COLUMBUS, OHIO 43219-3035 800-KEY-FUND COMBINED PROSPECTUS/PROXY STATEMENT DATED ______, 1998 SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 6, 1998 GENERAL INFORMATION This Combined Prospectus/Proxy Statement, which you should keep for future reference, sets forth the information about the Victory Funds that a prospective investor should know before voting. A Statement of Additional Information dated _____, 1998 relating to this Combined Prospectus/Proxy Statement (the "Related Statement of Additional Information") has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated by reference into this Combined Prospectus/Proxy Statement. This Combined Prospectus/Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board") of SBSF Funds, Inc. (d/b/a and referred to herein as "Key Mutual Funds"), a Maryland corporation, on behalf of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund (each a "Key Fund," and collectively the "Key Funds") in connection with a special meeting of shareholders (the "Meeting") to be held at the offices of Key Mutual Funds, 3435 Stelzer Road, Columbus, Ohio 43219-3035, 800-KEY-FUND, on March 6, 1998, at 8:30 a.m., Eastern time, at which shareholders of each Key Fund, voting separately, and the shareholders of Key Mutual Funds voting as a single class, will as appropriate, be asked to consider the following: 1. To approve an Agreement and Plan of Reorganization and Liquidation (the "Plan") and the transactions contemplated thereby, including (a) the transfer of all or substantially all of the assets belonging to each Key Fund to a corresponding series of The Victory Portfolios, a Delaware business trust, ("Victory"), in exchange for shares of beneficial interest ("shares") of the corresponding series of Victory or shares of a comparable class of the corresponding series of Victory (which transactions, collectively, will effect the transfer of all or substantially all of the assets of Key Mutual Funds to Victory in exchange for shares of Victory); (b) the distribution of shares of Victory received in consideration for the transfer of assets belonging to each Key Fund to the shareholders of the respective Key Funds in complete liquidation of the respective Key Funds; and (c) the cancellation of the outstanding shares of capital stock ("shares") of each Key Fund following the distribution of shares of the corresponding series of Victory to the holders of such shares of each Key Fund (the foregoing steps relative to each Key Fund are referred to as a "Reorganization" of that Key Fund) and, (d) upon such distribution in respect of each of the separate series of the Key Funds, the dissolution of Key Mutual Funds (collectively with each Reorganization, the "Reorganization and Liquidation"). In addition, shareholders of each of the Key Funds will be asked to transact such other business as may properly come before the Meeting or any adjournment(s) thereof. -3- The Reorganization and Liquidation will be submitted for approval by the shareholders of each Key Fund voting separately as a series of Key Mutual Funds and for approval by the shareholders of Key Mutual Funds, inclusive of each Key Fund, voting as a single class. Key Mutual Funds and Victory are both registered open-end investment companies that offer their shares in separate series, each series with its own investment objective and policies. As a result of the Reorganization and Liquidation, shareholders of the Key Funds will become shareholders of Victory. Certain shareholders of the Key Funds will become shareholders of currently operating series of Victory, while certain shareholders of the Key Funds will become shareholders of series of Victory that have been newly created to continue the operations of the respective Key Funds. The currently operating series and newly created series of Victory are collectively referred to herein as the "Victory Funds," and individually as a "Victory Fund." OPERATING VICTORY FUNDS. Current shareholders of the Key Stock Index Fund, SBSF Capital Growth Fund, and SBSF Fund will become shareholders in the Victory Stock Index Fund-Class A, Victory Special Growth Fund-Class A, and Victory Diversified Stock Fund-Class A, the latter being currently operating funds (each an "Operating Victory Fund" and collectively the "Operating Victory Funds"). NEW VICTORY FUNDS. The current shareholders of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund, will become shareholders in the Victory LifeChoice Growth Investor Fund-Class A, Victory LifeChoice Conservative Investor Fund-Class A, Victory LifeChoice Moderate Investor Fund-Class A, Victory Federal Money Market Fund-Investor Class, and Victory Convertible Securities Fund-Class A, the latter being newly created series to continue operations following the Reorganization and Liquidation (each a "New Victory Fund" and collectively the "New Victory Funds"). The following table shows each Key Fund and each corresponding series (or class of the corresponding series) of Victory which will remain following the Reorganization and Liquidation: KEY FUNDS VICTORY FUNDS Key Stock Index Fund Victory Stock Index Fund-Class A* SBSF Capital Growth Fund Victory Special Growth Fund-Class A* SBSF Fund Victory Diversified Stock Fund-Class A* KeyChoice Growth Fund Victory LifeChoice Growth Investor Fund-Class A** KeyChoice Income and Growth Fund Victory LifeChoice Conservative Investor Fund-Class A** KeyChoice Moderate Growth Fund Victory LifeChoice Moderate Investor Fund-Class A** Key Money Market Mutual Fund Victory Federal Money Market Fund-Investor Class** SBSF Convertible Securities Fund Victory Convertible Securities Fund-Class A** *Currently Operating Victory Fund. **New Victory Fund established to continue the operations of the corresponding Key Fund. The investment adviser to the Key Funds and Victory Funds is Key Asset Management Inc. ("KAM"), 127 Public Square, Cleveland, Ohio 44114, with offices at 45 Rockefeller Plaza, New York, -4- New York 10111. BISYS Fund Services, Inc. ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219 serves as distributor and administrator for the Key Funds and Victory Funds. FOR SHAREHOLDERS OF THE KEY FUNDS THAT WILL BE REORGANIZED INTO THE OPERATING VICTORY FUNDS, THIS COMBINED PROSPECTUS/PROXY STATEMENT IS ACCOMPANIED BY THE CURRENT PROSPECTUS OF THE OPERATING VICTORY FUNDS DATED MARCH 1, 1997, AS SUPPLEMENTED, WHICH IS INCORPORATED BY REFERENCE. THE ANNUAL REPORT OF THE OPERATING VICTORY FUNDS DATED OCTOBER 31, 1997 WHICH ACCOMPANIES THIS COMBINED PROSPECTUS/PROXY STATEMENT, AND THE ANNUAL REPORT OF THE KEY MUTUAL FUNDS DATED NOVEMBER 30, 1997, WHICH WAS MAILED SEPARATELY, ARE INCORPORATED BY REFERENCE IN THEIR ENTIRETY. The annual reports and prospectuses of the New Victory Funds are not enclosed because the New Victory Funds have no current operations and are being created to continue the current operations of their corresponding Key Funds. Information about the Key Funds is incorporated by reference to the prospectus of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate Growth Fund dated December 16, 1996, as supplemented; the prospectus for the Key Money Market Mutual Fund dated April 1, 1997, as supplemented; the prospectus of the Key Stock Index Fund dated April 1, 1997, as supplemented; and the prospectus for the SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund dated April 1, 1997, as supplemented, which have each been filed with the Commission. A Statement of Additional Information for the Victory Funds dated March 1, 1997, as supplemented, has been filed with the Commission and is incorporated into the Related Statement of Additional Information. Copies of the Related Statement of Additional Information and the current prospectuses and statements of additional information of the Key Funds may be obtained without charge by writing Key Mutual Funds, at P.O. Box 8527, Boston, Massachusetts 02266-8527, or by calling 800-KEY-FUND. This Combined Prospectus/Proxy Statement is Key Mutual Funds' proxy statement for the Meeting and Victory's prospectus for the shares of the Operating Victory Funds that have been registered with the Commission and are to be issued in connection with the Reorganization and Liquidation. THIS COMBINED PROSPECTUS/PROXY STATEMENT IS NOT A PROSPECTUS FOR SHARES OF THE NEW VICTORY FUNDS THAT WILL BE ISSUED IN CONNECTION WITH THE REORGANIZATION AND LIQUIDATION. Shares of the New Victory Funds are offered only through the prospectuses of the New Victory Funds. Because this is a "Combined" Prospectus/Proxy Statement, reference to certain Key Funds, and the New Victory Funds into which they will be reorganized, appears in various places throughout this document. These references, however, relate only to the proxy statement portion of this document and not the prospectus portion. This Combined Prospectus/Proxy Statement is not offering for sale shares in any of the New Victory Funds. This Combined Prospectus/Proxy Statement is expected to be first sent to shareholders on or about February 6, 1998. -5- - -------------------------------------------------------------------------------- THE SECURITIES OF THE VICTORY FUNDS OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY FUNDS OR THE KEY FUNDS. SHARES OF THE KEY FUNDS AND VICTORY FUNDS ARE: o NOT INSURED BY THE FDIC; o NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYBANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK; AND o SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. - -------------------------------------------------------------------------------- -6- TABLE OF CONTENTS PROPOSAL SYNOPSIS..................................................................... Agreement and Plan of Reorganization and Liquidation.................... Tax Consequences ....................................................... Investment Objectives and Policies...................................... Share Classes........................................................... Investment Adviser...................................................... Fees and Expenses....................................................... Distribution, Purchase, and Redemption Procedures....................... Exchange Rights......................................................... Application for Exemptive Relief........................................ Other Considerations.................................................... COMPARISON OF THE FUNDS' INVESTMENT OBJECTIVES, POLICIES, AND RISKS.......... New Victory Funds and Corresponding Key Funds........................... Operating Victory Funds and Corresponding Key Funds..................... THE NEW VICTORY FUNDS........................................................ COMPARISON OF FEES AND EXPENSES.............................................. INFORMATION ABOUT THE TRANSACTION............................................ Agreement and Plan of Reorganization and Liquidation.................... Description of Shares of the Victory Funds.............................. Sales Charges and Shareholder Service Fees.............................. Description of Shares of the Key Funds.................................. Expenses................................................................ Shareholder Approval.................................................... Federal Income Tax Consequences......................................... Capitalization.......................................................... Application for Exemptive Relief........................................ REASONS FOR THE TRANSACTION.................................................. INFORMATION ABOUT THE FUNDS.................................................. Investment Advisory Agreements.......................................... Distribution Plans...................................................... Shareholder Services Plans.............................................. Administrator and Distributor........................................... Sub-Administrator....................................................... Dividends and Distributions............................................. Purchase Procedures..................................................... Exchange Rights......................................................... Redemption Procedures................................................... General................................................................. ADDITIONAL INFORMATION....................................................... INFORMATION RELATING TO VOTING MATTERS....................................... REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION......................... MISCELLANEOUS................................................................ EXHIBIT A.................................................................... -7- PROPOSAL SYNOPSIS This Synopsis of the Proposal provides a summary of the information contained in this Combined Prospectus/Proxy Statement. AGREEMENT AND PLAN OF Under the Plan, each Key Fund will transfer all or REORGANIZATION AND substantially all of its assets to a corresponding LIQUIDATION Operating Victory Fund or New Victory Fund in exchange for shares of the corresponding Victory Fund (or shares of a comparable class of the corresponding Victory Fund), and the corresponding Victory Fund will assume the liabilities of the Key Fund. After the transaction, you will receive shares of the corresponding Victory Fund with a total value equal to the net asset value of the shares of the Key Fund previously owned, as determined at the close of business on the date of the exchange. Key Fund shareholders will not be charged a sales charge for this transaction. See "Reasons for the Transaction," "Information About the Transaction," and the copy of the form of the Plan, which is attached as Exhibit A. TAX CONSEQUENCES Each Fund will receive an opinion of counsel to Victory substantially to the effect that no gain or loss will be recognized by the Key Funds, the Victory Funds, or the shareholders of the Key Funds as a result of the Reorganization and Liquidation. See "Information About the Transaction." Some of the Key Funds are expected to distribute realized capital gains prior to the Reorganization and Liquidation. Any such distribution will be taxable. INVESTMENT OBJECTIVES The New Victory Funds. Generally, the investment AND POLICIES objectives, policies, and restrictions of the New Victory Funds are the same in all material respects to those of the corresponding Key Funds. The investment objectives, policies, and restrictions of the Operating Victory Funds are substantially similar to those of the corresponding Key Funds (although the New Victory Funds have different limitations regarding borrowing and the Victory Convertible Securities Fund has a different limitation concerning illiquid securities). The Operating Victory Funds. The following paragraphs state the investment objectives and summarize the policies of the Operating Victory Funds and the corresponding Key Funds. KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUNDS. Key Stock Index Fund. The investment objective of the Key Stock Index Fund is to seek long-term capital appreciation by attempting to match the investment performance of the Standard & Poor's 500 Composite Stock Index (the "S&P 500 Index")./1/ Under normal market conditions, the Key - -------- /1/ "Standard & Poor's 500" is a registered service mark of Standard and Poor's, which does not sponsor and is in no way affiliated with Victory, Key Mutual Funds, the Victory Stock Index Fund, or the Key Stock Index Fund. -8- Stock Index Fund will attempt to duplicate the capital performance and dividend income of the S&P 500 Index by investing primarily in the stocks which compose the S&P 500 Index and secondarily in stock index futures, while minimizing transaction costs. Victory Stock Index Fund. The investment objective of the Victory Stock Index Fund is to seek long-term capital appreciation by attempting to match the investment performance of the S&P 500 Index. The Victory Stock Index Fund pursues its investment objective by attempting to duplicate the capital performance and dividend income of the S&P 500 Index. The Victory Stock Index Fund invests primarily in many of the equity securities that are in the S&P 500 Index and secondarily in related futures and options contracts. The Victory Stock Index Fund, unlike the Key Stock Index Fund, may invest in American Depository Receipts. SBSF CAPITAL GROWTH FUND AND VICTORY SPECIAL GROWTH FUND. SBSF Capital Growth Fund. The investment objective of the SBSF Capital Growth Fund is to seek capital appreciation. The SBSF Capital Growth Fund seeks to achieve its objective by investing in equity securities of companies which KAM believes are likely to have rapid growth in earnings and cash flow. The SBSF Capital Growth Fund invests primarily in small to medium capitalization companies, i.e., issuers having a market capitalization of $200 million to $1.5 billion, but may invest in companies of any size and take advantage of any investment opportunity with attractive long-term growth prospects, including preferred stocks, convertible securities, and bonds. Victory Special Growth Fund. The Victory Special Growth Fund's investment objective is to seek capital appreciation. The Victory Special Growth Fund pursues its investment objective by investing primarily in equity securities of companies with market capitalizations of $750 million or less. In making investment decisions, KAM looks for above average growth rates, high return on equity, issuers that reinvest their earnings in their business, and strong balance sheets. Because the Victory Special Growth Fund may have a higher percentage of investments in smaller capitalization companies than the SBSF Capital Growth Fund, shareholders may be subject to a greater degree to the risk factors associated with such companies. See "Comparison of the Funds' Investment Objectives, Policies, and Risks." SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND. SBSF Fund. The investment objective of the SBSF Fund is to seek a high total return over the long term consistent with reasonable risk. In seeking its objective, the SBSF Fund will invest primarily in common stocks which, in the opinion of KAM, have the potential for capital appreciation in excess of market averages during periods of market strength while attempting to preserve capital during periods of market weakness. Victory Diversified Stock Fund. The investment objective of the Victory Diversified Stock Fund is to seek long-term growth of capital. The Victory Diversified Stock Fund pursues its investment objective by -9- investing primarily in equity securities and securities that are convertible into common stocks issued by established domestic and foreign companies. Because the Victory Diversified Stock Fund may invest in securities that are convertible into common stocks issued by foreign companies, shareholders may be subject to the risk factors associated with investing in foreign companies. See "Comparison of the Funds' Investment Objectives, Policies, and Risks." The Key Funds and Victory Funds have additional investment policies which are discussed in "Comparison of the Funds' Investment Objectives, Policies, and Risks." SHARE CLASSES The Key Funds. The Key Funds each offer one class of shares, which has no sales charges or redemption fees. See "Comparison of Fees and Expenses." The Victory Funds. The Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory Convertible Securities Fund, Victory Special Growth Fund, and Victory Stock Index Fund each offer only Class A Shares. The Victory Diversified Stock Fund offers Class A Shares and Class B Shares. The Victory Federal Money Market Fund offers Investor Class Shares and Select Class Shares. After each Reorganization, shareholders of each Key Fund (other than Key Money Market Mutual Fund) will receive Class A Shares of the corresponding Victory Fund. Shareholders of the Key Money Market Mutual Fund will receive Investor Class Shares of the Victory Federal Money Market Fund. Class A Shares of the Victory Funds (other than the three LifeChoice Funds) are subject to an initial sales charge on purchases under $1 million and are not subject to an asset-based sales charge. A substantial majority of the Key Fund shareholders will not be subject to a sales charge on future purchases of shares in the Victory Funds because they qualify for sales charge waivers noted in the Victory Funds' prospectuses. The LifeChoice Funds and the Investor Class Shares have no initial sales charge or asset-based sales charge. See "Information About the Transaction" and "Information About the Funds." INVESTMENT ADVISER KAM is the investment adviser for the Key Funds and the Victory Funds. See "Information About the Funds." FEES AND EXPENSES Key Funds. KAM is entitled to received an advisory fee equivalent to a percentage of the value of the average daily net assets of each Key Fund on an annual basis at the following rates: KEY FUNDS TO BE REORGANIZED INTO OPERATING ANNUAL RATE OF ADVISORY VICTORY FUNDS FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Key Stock Index Fund 0.10% SBSF Capital Growth Fund 0.75% SBSF Fund 0.75% -10- KEY FUNDS TO BE REORGANIZED INTO ANNUAL RATE OF NEW VICTORY FUNDS ADVISORY FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) KeyChoice Growth Fund 0.20% KeyChoice Income and Growth Fund 0.20% KeyChoice Moderate Growth Fund 0.20% Key Money Market Mutual Fund 0.25% SBSF Convertible Securities Fund 0.75% For the fiscal year ended November 30, 1997, the total net operating expenses, gross operating expenses before voluntary fee waivers, and amount of fee waivers and reimbursements of each Key Fund were as follows: GROSS OPERATING EXPENSE EXPENSES WAIVERS KEY FUNDS TO BE REORGANIZED INTO NET (BEFORE FEE AND OPERATING VICTORY FUNDS OPERATING WAIVERS AND REIMBURSE- EXPENSES REIMBURSEMENTS) MENTS Key Stock Index Fund $ 0 $ 337,006 $337,006 SBSF Capital Growth Fund 555,145 555,145 0 SBSF Fund 1,270,577 1,274,309 3,732 GROSS OPERATING NET EXPENSES EXPENSE KEY FUNDS TO BE REORGANIZED INTO OPERATING (BEFORE FEE REIMBURSE NEW VICTORY FUNDS EXPENSES WAIVERS) -MENT KeyChoice Growth Fund $9,255 $114,772 $105,517 KeyChoice Income and Growth Fund 6,389 115,280 108,891 KeyChoice Moderate Growth Fund 10,360 125,995 115,635 Key Money Market Mutual Fund 584,155 950,244 366,089 SBSF Convertible Securities Fund 1,064,519 1,064,519 0 The New Victory Funds. The New Victory Funds have no current operations and have been created to continue the operations of the corresponding Key Funds. The New Victory Funds will not be subject to higher contractual investment advisory fees and operating expenses than the corresponding Key Funds. The Operating Victory Funds. KAM is entitled to receive an advisory fee equivalent to a percentage of the value of the average daily net assets of each Operating Victory Fund, at the following rates: Victory Diversified Stock Fund 0.65% Victory Special Growth Fund 1.00% Victory Stock Index Fund 0.60% -11- For the fiscal year ended October 31, 1997, the total operating expenses, and operating expenses before voluntary fee waivers, of each Operating Victory Fund were as follows: EXPENSE WAIVER OR NET GROSS BEFORE REIMBURSE EXPENSES WAIVERS -MENT (In Thousands) (In Thousands) (In Thousands) Victory Diversified Stock Fund $7,455 $7,455 $0 Victory Special Growth Fund 1,275 1,275 0 Victory Stock Index Fund 3,280 2,138 1,142 KAM has advised Key Mutual Funds that it no longer intends to waive or reimburse the fees and expenses of the Key Funds. As a result of the Reorganization and Liquidation, shareholders of the Key Stock Index Fund, SBSF Capital Growth Fund, and SBSF Fund will not be subject to higher total expense whether or not those Key Funds approve the Reorganization and Liquidation, although current expense reimbursements relating to all Key Mutual Funds will no longer limit expenses to former levels. See "Comparison of Fees and Expenses." DISTRIBUTION, PURCHASE, AND REDEMPTION PROCEDURES Key Funds. The Key Funds are sold at net asset value with no initial sales charge, contingent deferred sales charge ("CDSC"), or asset-based sales charges. See "Comparison of Fees and Expenses." Victory Funds. Class A Shares of the Victory Funds (other than the three LifeChoice Funds) are subject to an initial sales charge on investments up to $1 million. However, on investments of $1 million or more, a CDSC of up to 1.00% of the purchase price will be charged to the shareholder if shares are redeemed in the first year after purchase, or at .50% within two years of the purchase. Each LifeChoice Fund and Investor Class Shares of the Victory Federal Money Market Fund are sold without an initial sales charge or asset-based sales charge and are available to certain financial institutions or individuals that meet minimum investment requirements. See "Information About the Funds." Key Funds and Victory Funds. The redemption procedures of the Key Funds and the Victory Funds are similar. See "Information About the Funds." You will not pay a sales charge as a result of the Reorganization and Liquidation. In addition, you will not pay a sales charge if you invest in additional shares of the Victory Funds after the Reorganization and Liquidation provided that you qualify for a waiver of the sales charge. Please refer to the prospectus of your particular Fund. EXCHANGE RIGHTS Key Funds. Shares of the Key Funds may be exchanged for shares of any series of Key Mutual Funds and series of Victory that are not subject to either an initial sales charge or a CDSC, without incurring a sales charge. -12- Victory Funds. Shares of the Victory Funds may be exchanged for shares of the same class of any other series of Victory without incurring a sales charge. See "Information About the Funds." APPLICATIONS FOR EXEMPTIVE RELIEF Key Mutual Funds, Victory, and KAM (the "Applicants") have applied for an order from the Commission that would permit the Funds to carry out the Reorganization and Liquidation, despite certain provisions of the federal securities laws which may be deemed to prohibit the transactions involved in the Reorganization and Liquidation. The Applicants have also applied for exemptive relief in order to be able to charge a sales load in accordance with the limits described in "Comparison of Fees and Expenses" and "Information About the Transaction - Application for Exemptive Relief." OTHER CONSIDERATIONS In the event that the shareholders of any Key Fund do not approve the Reorganization applicable to that Key Fund when voting separately as shareholders of that Key Fund, the Reorganization as respects that Key Fund will not proceed in the manner currently contemplated. In the event that the shareholders of one or more Key Funds approve a Reorganization when voting as shareholders of the respective Key Funds, but the shareholders of Key Mutual Funds voting together do not approve the Reorganization and Liquidation, the Reorganization may proceed as respects certain or all of those Key Funds approving the Reorganization, as determined by the Board, so long as so proceeding does not constitute a transfer of all or substantially all of the assets of Key Mutual Funds, and no dissolution of Key Mutual Funds can be affected until approved by the shareholders of Key Mutual Funds voting together. The Board will consider possible alternatives to the proposed Reorganization insofar as not approved. Shareholders have no right of appraisal, but they may continue to redeem their shares in accordance with the normal policies of Key Mutual Funds. This Synopsis is qualified by reference to the more complete information contained elsewhere in this Combined Prospectus/Proxy Statement, including information incorporated by reference from the accompanying prospectus of the Operating Victory Funds, and in the Plan attached to this Combined Prospectus/Proxy Statement as Exhibit A. COMPARISON OF THE FUNDS' INVESTMENT OBJECTIVES, POLICIES, AND RISKS NEW VICTORY FUNDS AND CORRESPONDING KEY FUNDS The Plan provides for the reorganization of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund into the New Victory Funds. The New Victory Funds currently have no assets; they have been created for the sole purpose of receiving the assets of the corresponding Key Funds in the Reorganization and Liquidation and to continue their operations. Each New Victory Fund has an investment objective and investment policies which are the same in all material respects to the investment objective and policies of its corresponding Key Fund. As is the case with respect to the Key Funds, there is no assurance that the Victory Funds will -13- achieve their respective investment objectives. The Victory Funds will seek to achieve their investment objectives by following substantially the same investment policies as the Key Funds. However, as described below in the section titled, "The New Victory Funds," the New Victory Funds will have certain investment limitations that are different from the corresponding Key Funds, as described below in the section titled, "The New Victory Funds." OPERATING VICTORY FUNDS AND CORRESPONDING KEY FUNDS The current investment objectives, policies, and restrictions of the Operating Victory Funds are, in general, substantially similar to those of the corresponding Key Funds. There are, however, some differences, which are described below. VICTORY STOCK INDEX FUND AND KEY STOCK INDEX FUND. The investment objective of both the Victory Stock Index Fund and Key Stock Index Fund is to seek long-term capital appreciation by attempting to match the performance of the S&P 500 Index. Investment Policies. The following paragraphs summarize the investment policies of the Victory Stock Index Fund and Key Stock Index Fund. o The Key Stock Index Fund and the Victory Stock Index Fund invest primarily in the equity securities that are in the S&P 500 Index and secondarily in stock index futures and options contracts. The Victory Stock Index Fund, unlike the Key Stock Index Fund, may invest in American Depository Receipts. The S&P 500 Index is composed of 500 common stocks chosen on the basis of market value and industry diversification. o The Key Stock Index Fund and the Victory Stock Index Fund may, however, hold only a representative portion of the stocks in the S&P 500 Index due to the illiquidity of some stocks or other factors, such as diversification of the Key Stock Index Fund or the Victory Stock Index Fund. The Key Stock Index Fund and the Victory Stock Index Funds may compensate for the omission of certain stocks by purchasing stocks not included in the S&P 500 Index that are similar to those omitted if KAM believes those purchases will reduce "tracking error" (the difference between the Key Stock Index Fund or the Victory Stock Index Fund investment results (before expenses) and that of the S&P 500 Index). o The Key Stock Index Fund and the Victory Stock Index Fund may invest in preferred stocks, investment-grade corporate debt securities, short-term debt obligations, and U.S. Government obligations. The Victory Stock Index Fund may invest in American Depository Receipts. Risk Factors. The risks of investing in the Victory Stock Index Fund, which are described below, are similar to the risks of investing in the Key Stock Index Fund. The Victory Stock Index Fund is subject to market risk (the chance that stock prices in general will decline, sometimes suddenly and sharply) and objective risk (the chance that the S&P 500 Index will suffer losses). o Objective Risk. Because of the Victory Stock Index Fund's objective, securities may be purchased, retained, and sold by the Victory Stock Index Fund when such transactions would not be consistent with traditional investment criteria. For example, adverse performance will ordinarily not result in the elimination of a stock from the Victory Stock Index Fund's portfolio. The Victory Stock Index Fund will generally remain fully invested in common stocks even when stock prices are generally declining. o Market Risk. The share price of the Victory Stock Index Fund may -14- fluctuate within a wide range, so an investor could lose money over short or extended periods. The share price of the Victory Stock Index Fund is expected to be volatile, so investors should be able to sustain sudden and sometimes substantial fluctuations in the value of their investment. o Additional Considerations. In addition, brokerage costs, fees, operating expenses, and tracking errors may cause the Victory Stock Index Fund's total return to be lower than that of the S&P 500 Index. VICTORY SPECIAL GROWTH FUND AND SBSF CAPITAL GROWTH FUND. The investment objective of both the Victory Special Growth Fund and SBSF Capital Growth Fund is to seek capital appreciation. The following table summarizes the investment policies of the Victory Special Growth Fund and SBSF Capital Growth Fund. INVESTMENT POLICIES OF THE VICTORY INVESTMENT POLICIES OF THE SBSF CAPITAL SPECIAL GROWTH FUND GROWTH FUND Under normal circumstances, at least 65% The SBSF Capital Growth Fund invests of the Victory Special Growth Fund's primarily in small to medium total assets will be invested in equity capitalization companies, i.e., issuers securities of companies with market having a market capitalization of $200 capitalization of $750 million or less million to $1.5 billion, but may invest at the time of purchase. These equity in companies of any size and may take investments include: advantage of any investment opportunity with attractive long-term growth Common stock; prospects, including preferred stocks, Preferred stock; convertible securities, and bonds. Convertible preferred stock; Debt convertible or exchangeable The SBSF Capital Growth Fund seeks to into equity securities; and achieve its objective by investing in Securities convertible into common stock. equity securities of companies which KAM believes are likely to have rapid growth The Victory Special Growth Fund may in earnings or cash flow. invest up to 35% of its total assets in equity securities of companies with The SBSF Capital Growth Fund seeks to market capitalizations of approximately invest in growth oriented common stocks $1 billion or more. of domestic corporations and, to a limited extent, foreign corporations The Victory Special Growth Fund may listed on any national securities invest up to 35% of its total assets in exchange or traded in the investment-grade debt securities. over-the-counter market. The Victory Special Growth Fund may also The SBSF Capital Growth Fund is not invest up to 5% of its total assets in restricted to investments in specific lower-rated debt securities, commonly market sectors and may invest in any referred to as "junk bonds." market sector. Risk Factors. The following paragraphs describe the additional risks involved with investing in the Victory Special Growth Fund, in comparison to the SBSF Capital Growth Fund. o Small Capitalization Companies. Because of the Victory Special Growth Fund's undertaking to concentrate its investments in small capitalization companies, the Victory Special Growth Fund may have a larger portion of its assets invested in small capitalization companies than the SBSF Capital Growth Fund. The securities of small -15- capitalization companies have historically experienced a greater degree of volatility than their large capitalization counterparts. Smaller capitalization companies may have limited product lines, markets, or financial resources, which may make them more susceptible to market and interest rate changes. Therefore, the securities of smaller capitalization companies may be subject to more abrupt or erratic price movements than securities of larger companies. In addition, small capitalization stocks as a group may not respond to general market rallies or downturns as much as other types of equity securities. Lower Rated Debt Securities. The Victory Special Growth Fund may invest up to 5% of its total assets in lower-rated debt securities, or "junk bonds," that have poor protection against default in the payment of principal and interest or which may be in default. These securities are often considered to be speculative and involve greater risk of loss or price changes due to changes in the issuer's capacity to pay. The market prices of lower-rated debt securities may fluctuate more than those of higher-rated debt securities, and they may decline significantly in periods of general economic difficulty, which may follow periods of rising interest rates. The SBSF Capital Growth Fund does not invest in these types of securities and accordingly investment in the SBSF Capital Growth Fund is not subject to this risk. VICTORY DIVERSIFIED STOCK FUND AND SBSF FUND. The investment objectives of the Victory Diversified Stock Fund and SBSF Fund are similar: the Victory Diversified Stock Fund seeks long-term growth of capital; the SBSF Fund seeks a high total return over the long term consistent with reasonable risk. The following table summarizes the investment policies of the Victory Diversified Stock Fund and the SBSF Fund. Investment Policies of the Victory Investment Policies of the SBSF Fund Diversified Stock Fund The Victory Diversified Stock Fund The SBSF Fund invests primarily in pursues its objective by investing common stocks, but also may invest in primarily in common stocks and preferred stocks, securities convertible securities convertible into common into common stocks, and fixed-income stocks issued by established domestic securities. and foreign companies. The SBSF Fund invests in securities KAM seeks to invest in securities issued which in the opinion of KAM have the by companies that KAM believes either potential for capital appreciation in represent investment value because their excess of market averages during periods market prices do not reflect their of market strength while attempting to earnings performance, or are selling preserve capital during periods of below historical price relationships market weakness. and/or underlying asset values. Investments are based on analysis by KAM The SBSF Fund may invest in the of cash flow, book value, dividend yield securities of companies that possess and growth potential, quality of valuable fixed assets, or are management, adequacy of revenues, undervalued in the marketplace in earnings and capitalization, and future relation to such factors as the issuer's relative earnings growth. KAM will assets, earnings, or growth potential. attempt to choose investments which, in the aggregate, provide above average The SBSF Fund is not restricted to dividend yield and potential for investments in any specific market appreciation. sector or industry group. Under normal conditions, the Victory Diversified Stock Fund invests at least 80% of the value of its total assets in common stocks and securities convertible or exchangeable into common stocks. Under normal conditions, the Victory Diversified Stock Fund may invest up to 20% of its total assets in: o Investment-grade corporate debt securities; o Short-term debt obligations; and o U.S. Government obligations. -16- Risk Factors. The risks of investing in the SBSF Fund are similar to the risks of investing in the Victory Diversified Stock Fund. o Market and Objective Risk. The Victory Diversified Stock Fund is subject to market risk (the chance that stock prices in general will decline, sometimes suddenly and sharply) and objective risk (the possibility that pursuit of the investment objective will not yield substantial returns). In addition, because the Victory Diversified Stock Fund may have some exposure to securities of foreign issuers, the Fund may be subject to greater market risks than mutual funds that invest only in securities of U.S. issuers. For example, foreign investments may be unfavorably affected by changes in exchange rates. Foreign companies may not be subject to the same degree of reporting standards as U.S. companies. Investments in foreign securities may also be subject to local economic or political risks, such as political instability of foreign governments. o Manager Risk. Because investments are based on KAM's evaluations of the value of companies relative to various factors, the performance of the Victory Diversified Stock Fund is directly dependent on the Victory Diversified Stock Fund's investment strategies and KAM's skill and proficiency in utilizing the strategies to target investment opportunities ("manager risk"). If KAM errs in its categorization of securities as undervalued, the Victory Diversified Stock Fund may not achieve its investment objective. It should be noted, however, that market risk, objective risk, and manager risk are common to all mutual funds, although the extent of such risks may vary between mutual funds or types of mutual funds. THE NEW VICTORY FUNDS The New Victory Funds are being created for the purpose of effecting the Reorganization and Liquidation of the corresponding Key Funds and continuing their operations as series of Victory. After the Reorganization and Liquidation, the contractual investment advisory fees and total operating expense ratios for the New Victory Funds will be no higher than the current contractual investment advisory fees and total operating expense ratios of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund. The New Victory Funds, with the exception of the Victory Convertible Securities Fund, will have purchase, exchange, and redemption procedures that are substantially similar to the purchase, exchange, and redemption procedures of the corresponding Key Funds. The Victory Convertible Securities Fund, unlike the SBSF Convertible Securities Fund, will charge an initial sales charge on certain purchases. See "Information About the Funds." Because the New Victory Funds are, in effect, a continuation of the corresponding Key Funds, the New Victory Funds will be substantially the same in most material respects to the corresponding Key Funds. Three differences, however, are (1) that each New Victory Fund is a series of Victory, which is a Delaware business trust, whereas each Key Fund is a series of Key Mutual Funds, which is a Maryland corporation, (2) with the exception of two persons who serve on the Boards of both Victory and Key Mutual Funds, the Board of Trustees of Victory is composed of different persons than the Board of Directors of Key -17- Mutual Funds, and (3) several of the New Victory Funds will have investment restrictions that are slightly different from those of the Key Funds. With respect to investment restrictions regarding borrowing, the different restrictions between certain Key Funds, and the New Victory Funds are described as follows: KEY FUNDS: NEW VICTORY FUNDS: Currently, for the KeyChoice Growth Fund, KeyChoice For the Victory LifeChoice Growth Investor Fund, Moderate Growth Fund, and KeyChoice Income and Growth Victory LifeChoice Moderate Investor Fund, Victory Fund, the borrowing restriction states: LifeChoice Conservative Investor Fund, Victory Federal Money Market Fund, and Victory Convertible Securities The above noted Key Funds ("Funds") may not borrow money, Fund, the borrowing restriction will state: except that (a) a Fund may invest in Underlying Portfolios that have the authority to borrow money to the None of the above noted Victory Funds ("Funds") may extent permissible under applicable regulations and borrow money, except that (a) each Fund may enter into interpretations of the Investment Company Act of 1940, as commitments to purchase securities in accordance with amended (the "1940 Act") or an exemptive order; (b) a its investment program, including delayed-delivery and Fund may invest in Underlying Portfolios (other mutual when-issued securities and reverse repurchase funds) that borrow money from banks for temporary or agreements, provided that the total amount of any such emergency purposes, including meeting redemption borrowing does not exceed 33 1/3% of the Fund's total requests, in an amount not exceeding 5% of the lower of assets; and (b) each Fund may borrow money for market value or the cost of its total assets at the time temporary or emergency purposes in an amount not when the loan is made, in which case it may pledge, exceeding 5% of the value of its total assets at the mortgage, or hypothecate any of its assets as security time when the loan is made. Any borrowings for such borrowing, but not to an extent greater than 5% representing more than 5% of a Fund's total assets must of the market value of its assets; and (c) a Fund may be repaid before the Fund may make additional borrow money for temporary or emergency purposes in an investments. amount not exceeding 10% of the value of its total assets at the time when the loan is made. Any borrowings representing more than 5% of a Fund's total assets must be repaid before the Fund may make additional investments. For the SBSF Convertible Securities Fund and Key Money Market Mutual Fund: Each of the Funds will not ordinarily borrow money, but each Fund reserves the right to borrow from banks, on a temporary basis, an aggregate amount of not more than 5% of the total asset value of the respective Fund at the time of borrowing. None of the Funds has a policy of limiting the uses for which borrowed funds may be used. EXPLANATION OF THE CHANGE AND TERMS DEFINED. Certain terms noted within the borrowing restriction of the New Victory Funds are defined as follows. -18- Delayed-delivery and when-issued securities are securities subject to settlement on a future date. The risk associated with delayed-delivery and when-issued securities is that the market value of the securities may change in the time between the purchase and delivery dates of the securities. An additional risk with these securities is that no interest accrues to the Fund during the time period prior to settlement. A segregated account is established and the Funds maintain cash and marketable securities at least equal in value to commitments for delayed-delivery and when-issued securities. Under a reverse repurchase agreement, a Fund would sell securities and agree to repurchase them at a mutually agreed date and price. Reverse repurchase agreements involve the risk that the market value of the securities may decline prior to the repurchase date. The cash proceeds of the sales may be invested in securities or other instruments. In the event that the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund's obligation to repurchase the securities, and the Fund's use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such a decision. The New Victory Funds' borrowing restriction clarifies and modernizes the restriction on borrowing by treating borrowing for temporary or emergency purposes separately from other borrowing. The borrowing limits for non-temporary or non-emergency purposes would increase from 10% to 33 1/3% of a Fund's total assets. Borrowing for emergency purposes may be necessary to address unanticipated liquidation of Fund shares that exceed available cash. To increase flexibility, reverse repurchase agreements would not be used by a Fund for the purpose of leveraging, and would be subject to the 33 1/3% limitation (rather than 10%) of a Fund's total assets. Money borrowed will be subject to interest and other costs. With respect to investment restrictions regarding restricted and illiquid securities, the differences between the SBSF Convertible Securities Fund and the Victory Convertible Securities Fund are described as follows: SBSF CONVERTIBLE SECURITIES VICTORY CONVERTIBLE SECURITIES FUND: FUND: Currently, for the SBSF For the Victory Convertible Convertible Securities Fund, the Securities Fund the fundamental restriction non-fundamental restriction regarding restricted and regarding restricted and illiquid securities provides: illiquid securities provides would provide: The SBSF Convertible Securities Fund will not invest more than The Victory Convertible 10% of its total assets in (i) Securities Fund will not invest securities restricted as to more than 15% of its net assets disposition under the Federal in illiquid securities. securities laws, (ii) securities as to which there are no readily available market quotations, or (iii) repurchase agreements with a maturity in excess of seven days. EXPLANATION OF THE CHANGE AND TERMS DEFINED. The amount invested in illiquid securities would increase from 10% of the Fund's total assets to 15% of the Fund's net assets. Illiquid securities are securities that are not readily marketable or cannot be disposed of within seven days in the usual course of business at approximately the price at which the Fund has valued them. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. KAM determines whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. The change would standardize, among all Victory Funds within the same -19- category (i.e., all money market funds and all non-money market funds), the applicable investment restriction, as well as modernize the restriction to reflect the current position of the Commission staff. In addition, the change from a fundamental to non-fundamental restriction would allow the Board of Victory to amend the restriction in a timely manner without requiring shareholder approval. Thus, as a non-fundamental restriction, the policy of the Victory Convertible Securities Fund would give the Fund additional flexibility, because the Board of Victory may amend the restriction to meet the changing needs of the Victory Convertible Securities Fund or changes in applicable laws. It should be noted that approval of the Reorganization and Liquidation by shareholders shall be deemed acceptance by shareholders of the investment policies and restrictions of the New Victory Funds, which differ from those of certain Key Funds, as described above. Furthermore, if shareholders approve the Reorganization and Liquidation, shareholders will no longer have the opportunity to vote on the changes discussed above concerning the borrowing restrictions and investment in illiquid securities. In the event the Reorganization is not approved by shareholders of a Key Fund, the Board of Directors of Key Mutual Funds will consider what other course of action, if any, should be taken with respect to such Key Fund, which could include the adoption of a plan, upon shareholder approval, to liquidate such Key Fund or the resolicitation of shareholder proxies. COMPARISON OF FEES AND EXPENSES The following tables summarize and compare the fees and expenses of the Key Funds and the corresponding class of the Victory Funds. These tables are intended to assist shareholders in comparing the various costs and expenses that shareholders indirectly bear with respect to an investment in the Key Funds and those that they can expect to bear indirectly as shareholders of the Victory Funds. Annual expenses may be more or less than those shown below. Victory Victory KeyChoice Victory KeyChoice LifeChoice KeyChoice LifeChoice Growth LifeChoice Moderate Moderate Income and Conservative Fund Growth Growth Fund Investor Fund Growth Investor Fund Investor Fund Fund SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None(1) None(1) None(1) None(1) None(1) None(1) (as a percentage of offering price) Sales Charge Imposed on Reinvested None None None None None None Dividends Deferred Sales Charge None None None None None None Redemption Fees None None None None None None Exchange Fees None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS) Management Fees (no waivers applicable) 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other Expenses 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% Key Money Victory Federal Money Market Mutual Market Fund Key Stock Victory Stock Fund Investor Class Index Fund Index Fund SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases None None None 5.75% (as a percentage of offering price) Sales Charge Imposed on Reinvested Dividends None None None None Deferred Sales Charge None None None None Redemption Fees None None None None Exchange Fees None None None None -20- ANNUAL FUNDS OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS) Management Fees (after waivers, if applicable) 0.00%(2) 0.00%(3) 0.00%(4) 0.45%(5) Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 0.00% Other Expenses 0.27% 0.27% 0.56% 0.11% ----- ----- ----- ----- Total Fund Operating Expenses (after waivers) 0.27%(2) 0.27%(3) 0.56%(4) 0.56%(5) SBSF Victory Convertible Convertible Victory SBSF Victory Special Securities Securities SBSF Diversified Capital Growth Fund Fund Fund Fund Stock Growth Fund Fund SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on None 5.75% None 5.75% None 5.75% Purchases (as a percentage of offering price) Sales Charge Imposed on Reinvested None None None None None None Dividends Deferred Sales Charge None None None None None None Redemption Fees None None None None None None Exchange Fees None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS) Management Fees (no waivers applicable) 0.75% 1.00% 0.75% 0.75% 0.75% 0.65% Rule 12b-1 Distribution Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other Expenses 0.67% 0.40% 0.56% 0.50% 0.52% 0.40% ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses 1.42% 1.40% 1.31% 1.25% 1.27% 1.05% (1) Although the KeyChoice Growth Fund, KeyChoice Moderate Growth Fund, and KeyChoice Income and Growth Fund ("KeyChoice Funds"), do not currently impose a sales charge, an application for exemptive relief has been filed with the Commission that would permit the KeyChoice Funds, and, if granted, the corresponding Victory LifeChoice Funds (Growth Investor, Moderate Investor, and Conservative Investor), to impose a maximum sales charge of 5.75% on purchases of shares. The decision to grant or deny the application is, however, solely within the discretion of the Commission. (2) Without waivers, the Management Fee paid by the Key Money Market Mutual Fund would be 0.25% of the average daily net assets of the Fund, and Total Fund Operating Expenses would be 0.52% of the average daily net assets of the Fund. (3) Without waivers, the Management Fee paid by the Victory Federal Market Mutual Fund would be 0.25% of the average daily net assets of the Fund, and Total Fund Operating Expenses would be 0.52% of the average daily net assets of the Fund. (4) Without waivers, the Management Fee paid by the Key Stock Index Fund would be 0.10% of the average daily net assets of the Fund, and Total Fund Operating Expenses would be 0.66% of the average daily net assets of the Fund. (5) Without waivers, the Management Fee paid by the Victory Stock Index Fund would be 0.60% of the average daily net assets of the Fund, and Total Fund Operating Expenses would be 1.16% of the average daily net assets of the Fund. -21- EXAMPLE Using the above expenses, you would pay the following expenses on a $1,000 investment, assuming (1) five percent annual return and (2) full redemption at the end of each period: - -------------------------------------------------------------------------------- 10 1 YEAR 3 YEARS 5 YEARS YEARS - -------------------------------------------------------------------------------- KeyChoice Growth Fund $14 $45 $78 $170 Victory LifeChoice Growth Investor Fund $14 $45 $78 $170 - -------------------------------------------------------------------------------- KeyChoice Moderate Growth Fund $14 $43 $75 $165 Victory LifeChoice Moderate Investor Fund $14 $43 $75 $165 - -------------------------------------------------------------------------------- KeyChoice Income and Growth Fund $14 $42 $73 $160 Victory LifeChoice Conservative Investor Fund $14 $42 $73 $160 - -------------------------------------------------------------------------------- Key Money Market Mutual Fund $3 $9 $15 $34 Victory Federal Money Market Fund $3 $9 $15 $34 - -------------------------------------------------------------------------------- Key Stock Index Fund $5 $16 $29 $66 Victory Stock Index Fund $63 $74 $87 $124 - -------------------------------------------------------------------------------- SBSF Capital Growth Fund $14 $45 $78 $170 Victory Special Growth Fund $71 $99 $130 $216 - -------------------------------------------------------------------------------- SBSF Convertible Securities Fund $13 $42 $72 $158 Victory Convertible Securities Fund $70 $95 $122 $200 - -------------------------------------------------------------------------------- SBSF Fund $13 $40 $70 $153 Victory Diversified Stock Fund $68 $89 $112 $178 - -------------------------------------------------------------------------------- The purpose of the table is to assist you in understanding the various costs and expenses that an investor in each Fund will bear directly or indirectly. See "Information About the Funds" for a more complete discussion of annual operating expenses of the Funds. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. INFORMATION ABOUT THE TRANSACTION AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The Reorganization and Liquidation is subject to certain conditions described in the Plan. The Board of Directors of Key Mutual Funds may terminate the Plan with regard to any Key Fund at any time prior to the closing of the Reorganization and Liquidation without liability on the part of any Key Fund. Assuming satisfaction of the conditions of the Plan, the closing date for a Reorganization will be on March 16, 1998, or such other date or dates as is agreed to by the parties (each a "Closing Date"). The parties may agree to establish one or more Closing Dates for a Reorganization insofar as applicable to a particular Key Fund. The Board has approved the Plan which provides that on the Closing Date all, or substantially all, of the assets of or belonging to each Key Fund whose shareholders approve a Reorganization will be transferred to the corresponding Victory Fund in exchange for the issuance of full and fractional shares of the corresponding Victory Fund and the assumption by the corresponding Victory Fund of the liabilities belonging to the Key Fund. Each Key Fund will distribute the shares as received to the shareholders of that Key Fund, and the shares of the Key Fund will become void. Thus, each shareholder of the Key Fund approving a Reorganization will, at the time of the Reorganization as applicable to that Key Fund, become a shareholder of the corresponding Victory Fund and will receive the same dollar value in the Victory Fund shares as the shareholder held in shares of the Key Fund. -22- For purposes of the Reorganization, the number of shares of each Victory Fund to be issued to the corresponding Key Fund will have an aggregate net asset value equal to the aggregate net asset value of the corresponding Key Fund as of the close of business on the business day preceding the Closing Date (the "Valuation Date"). Asset value determinations will be made in accordance with the valuation procedures set forth in the then-current prospectuses and statements of additional information of the Key Fund and the Victory Funds. On, or as soon as practicable after the Closing Date, each Key Fund will liquidate and distribute pro rata the shares of the corresponding Victory Fund received in the Reorganization as applicable to that Key Fund to its shareholders of record. Shareholders of record will be determined as of the close of business on the Valuation Date. The liquidation and distribution will be accomplished by establishing accounts on the share records of the Victory Funds in the name of the Key Fund shareholders, each account reflecting ownership of the respective number of shares of the Victory Funds due to each shareholder of the corresponding Key Fund. After the distributions in respect of each Key Fund, that Key Fund will be terminated. Shareholders of each Key Fund (other than Key Money Market Mutual Fund) will be issued Class A Shares of the corresponding Victory Fund. Shareholders of the Key Money Market Mutual Fund will be issued Investor Class Shares of the Victory Federal Money Market Fund. If the Reorganization is approved by shareholders of a Key Fund, Key Mutual Funds reserves the right on behalf of such Key Fund to sell portfolio securities and/or purchase other securities to the extent necessary so that the asset composition of each Key Fund is consistent with the investment policies and restrictions of the corresponding Victory Fund. Purchase and sale transactions would entail transaction costs borne by or belonging to the Key Fund and may also have tax consequences for shareholders. As of the date of this Combined Prospectus/Proxy Statement, however, Key Mutual Funds does not anticipate that any significant changes will need to be made to the portfolios of the Key Funds for these purposes. DESCRIPTION OF SHARES OF THE VICTORY FUNDS. Full and fractional shares of the Victory Funds will be issued to the shareholders of the Key Funds in accordance with the procedures under the Plan as described above. Each share will be fully paid and nonassessable by Victory when issued, transferable without restriction, and will have no preemptive or conversion rights. SALES CHARGES AND SHAREHOLDER SERVICE FEES. The Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory Convertible Securities Fund, Victory Special Growth Fund, and Victory Stock Index Fund offer only Class A Shares. The Victory Diversified Stock Fund offers Class A Shares and Class B Shares. The Victory Federal Money Market Fund offers Investor Class Shares and Select Class Shares. Class A shares are offered at net asset value plus the applicable initial sales charge. The Victory Funds provide, however, a waiver of the sales charges on Class A shares, for which substantially all of the Key Fund shareholders will qualify. Class A Shares (except Class A Shares of the Victory Stock Index Fund) are subject to a shareholder servicing fee at an annual rate of up to 0.25% of the average daily net assets of the class. The Investor Class Shares of the Victory Federal Money Market Fund are available to certain institutions or individuals that meet minimum investment requirements, and are not subject to a shareholder servicing fee. See "Information About the Funds." DESCRIPTION OF SHARES OF THE KEY FUNDS. The Key Mutual Funds offer one class of shares with no sales charges, redemption fees, or exchange fees. See "Comparison of Fees and Expenses." -23- EXPENSES. Each Reorganization will be effected for each Key Fund shareholder at net asset value without the imposition of any sales charges. Expenses otherwise incurred by the Funds in connection with the transactions will be borne by each Fund. In accordance with the policies of the Victory Funds, no new certificates for the Victory Fund shares will be issued. SHAREHOLDER APPROVAL. Approval of the Reorganization and Liquidation requires the approval at the Meeting of each Key Fund voting separately as a series and the approval at the Meeting of the shareholders of Key Mutual Funds (i.e. the shareholders of all of the Key Funds) voting together as a single class. Approval of the Reorganization with respect to each Key Fund voting separately as a series requires the affirmative vote of a "majority of the outstanding voting securities" of that Key Fund, where a "majority of the outstanding voting securities" means the lesser of (i) 67% or more of the voting securities of the Key Fund present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Key Fund are present or represented by proxy, or (ii) more than fifty percent of the outstanding voting securities of the Key Fund. To the extent which the Reorganization as applicable to one or more Key Funds and results in the transfer of all or substantially all of the assets of Key Mutual Funds, the approval of such transfer will also require the affirmative vote of a majority of shares of Key Mutual Funds issued and outstanding on the Record Date, voting together as a single class. In the event that the shareholders of any Key Fund do not approve the Reorganization by the requisite vote when voting separately as a series, the Reorganization as respects that Key Fund will not proceed in the manner currently contemplated. In the event that the shareholders of one or more Key Funds approve the Reorganization by the requisite vote when voting separately as a series, but the shareholders of Key Mutual Funds voting together as a single class do not approve the Reorganization as applicable to the several Key Funds and the resulting transfer of all or substantially the assets of Key Mutual Funds by the requisite vote, the Reorganization may proceed as respects certain or all of those Key Funds approving the Reorganization when voting separately as a series, so long and insofar as so proceeding does not constitute a transfer of all or substantially all of the assets of Key Mutual Funds, and no dissolution of Key Mutual Funds can be effected unless and until the requisite vote of the shareholders of Key Mutual Funds voting together as a single class is obtained. In such event, the Board reserves the right to determine those Key Funds as respects which a Reorganization will and will not then proceed. In addition, the Board will consider possible alternatives to the Reorganization and the Reorganization and Liquidation. Each Board may terminate the Plan at any time prior to the closing of the transaction. FEDERAL INCOME TAX CONSEQUENCES. It is a condition to the obligations of Key Mutual Funds and Victory to consummate the Reorganization and Liquidation that they receive an opinion from Kramer, Levin, Naftalis & Frankel, counsel to Victory, in form and substance reasonably satisfactory to each of them, substantially to the effect that, for federal income tax purposes, with respect to each Key Fund and its corresponding Victory Fund: (1) the transfer by the Key Fund of substantially all of its assets to the Victory Fund in exchange for shares of the Victory Fund and the assumption by the Victory Fund of the liabilities of or belonging to the Key Fund, and the subsequent liquidation of the Key Fund pursuant to the Plan, will constitute a reorganization within the meaning of section 368(a)(l) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Key Fund and the Victory Fund will each be "a party to a reorganization" within the meaning of section 368(b) of the Code; (2) the Key Fund will not recognize any gain or loss as a result of the Reorganization; (3) the Victory Fund will not recognize any gain or loss on the receipt of the assets of the Key Fund in exchange for shares of the Victory Fund and the assumption of the liabilities of the Key Fund; (4) the shareholders of the Key Fund will not recognize any gain or loss on the exchange of their shares of the Key Fund for shares of the Victory Fund in the Reorganization; (5) the aggregate tax basis of the shares of the Victory Fund received by each shareholder of the Key Fund will be the same as the aggregate tax basis of the shares of the Key Fund exchanged therefor; (6) the Victory Fund's adjusted tax bases in the assets received from the Key Fund in the Reorganization will be the same as the -24- adjusted tax bases of such assets in the hands of the Key Fund immediately prior to the Reorganization; (7) the holding period of each former shareholder of the Key Fund in the shares of the Victory Fund received in the Reorganization will include the period during which such shareholder held the Key Fund shares exchanged therefor, if such shares were held as a capital asset at the time of Reorganization; and (8) the Victory Fund's holding periods in the assets received from the Key Fund in the Reorganization will include the holding periods of such assets in the hands of the Key Fund immediately prior to the Reorganization. Such opinion will be based upon facts existing at the closing of the Reorganization and upon then-current law and, in rendering the opinion, counsel will rely upon various assumptions and representations made by Key Mutual Funds, Victory, and KAM as of such time. Key Mutual Funds and Victory have not sought and will not seek a ruling from the Internal Revenue Service ("IRS") with respect to the federal income tax consequences of the Reorganization, but will act in reliance upon the opinion of counsel discussed in the preceding paragraph. Such opinion is not binding on the IRS or any court and does not preclude the IRS from adopting a contrary position. Shareholders should consult their own advisers concerning the potential tax consequences of the Reorganization to them, including any applicable state and local income tax consequences. CAPITALIZATION. Under the Plan, three of the Key Funds would be reorganized into three Operating Victory Funds, and five of the Key Funds would be reorganized into five New Victory Funds that are being created by Victory and will have nominal assets and liabilities on the Closing Date. The following table sets forth, as of October 31, 1997, (i) the capitalization of each of the three Key Funds that would be reorganized into Operating Victory Funds; (ii) the capitalization of each of the corresponding Operating Victory Funds involved; and (iii) the pro forma capitalization of each of the Operating Victory Funds as adjusted to give effect to each Reorganization of the foregoing Key Funds. The capitalization of each Key Fund and Operating Victory Fund is likely to be different at the Closing as a result of daily share purchase and redemption activity in the Key Funds' and Operating Victory Funds' as well as the effects of their other ongoing operations. Because the other five Key Funds are to be reorganized into the New Victory Funds, which will have nominal assets and liabilities before the Reorganization, information on the capitalization of these other Key Funds and New Victory Funds is not presented. PRO FORMA CAPITALIZATION (As of October 31, 1997) (In Thousands) The table below reflects current and pro forma capitalization information for the combination of the Key Stock Index Fund with the Victory Stock Index Fund. Total Net Assets Shares Outstanding ---------------- ------------------ Key Stock Index Fund $37,116 2,807 Victory Stock Index Fund 465,015 24,807 Pro Forma Combined 502,131 26,787 The table below reflects current and pro forma capitalization information for the combination of the SBSF Capital Growth Fund and Victory Special Growth Fund. Total Net Assets Shares Outstanding ---------------- ------------------ SBSF Capital Growth Fund $42,674 3,650 Victory Special Growth Fund 104,565 6,420 Pro Forma Combined 147,239 9,040 The table below reflects current and pro forma capitalization information for the combination of the SBSF Fund and Victory Diversified Stock Fund. -25- Total Net Assets Shares Outstanding ---------------- ------------------ SBSF Fund $93,689 5,078 Victory Diversified Stock Fund 792,468 44,638 Pro Forma Combined 886,157 49,913 APPLICATION FOR EXEMPTIVE RELIEF. As of December 26, 1997, SNBOC and Company ("SNBOC") and Key Trust Company of Ohio, N.A. ("Key Trust"), which are affiliates of KAM, held shares of each of the following Victory and Key Funds as record holder for the benefit of various customers (including employees of KeyCorp and its affiliates) noted below. Because SNBOC owns in excess of 5% of the outstanding voting securities of the Victory and Key Funds set out below, SNBOC may be deemed to be an affiliate of the Victory and Key Funds. In addition, because SNBOC owns in excess of 25% of the outstanding voting securities of the Victory and Key Funds, it may be deemed to be a control person of those Funds. As a consequence of SNBOC's ownership of shares in the Victory and Key Funds, such Funds may be deemed affiliated persons of each other for reasons not based solely on their common adviser, KAM. Thus, the transfer of assets contemplated by the Plan may be prohibited by the 1940 Act. -26- % OF TOTAL FUND OUTSTANDING SHARES Victory Stock Index Fund 97.97% Victory Special Growth Fund 98.32% Victory Diversified Stock Fund 83.65% Key Stock Index Fund 94.47% KeyChoice Growth Fund 99.11% KeyChoice Moderate Growth Fund 98.56% KeyChoice Income and Growth Fund 97.98% SBSF Convertible Securities Fund 10.12% SBSF Capital Growth Fund 72.07% The 1940 Act provides, however, that the Commission may issue an order granting an exemption from the affiliated transaction prohibitions if, among other requirements, evidence establishes that (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned; (2) the proposed transaction is consistent with the investment policies of each fund involved; and (3) the proposed transaction is consistent with the general purposes of the 1940 Act. Key Mutual Funds, Victory, and KAM have filed an application with the Commission for such an order, and Key Mutual Funds and Victory believe that the applicants meet the applicable standards for the receipt of the order. However, there can be no assurance that the Commission will issue the order. Key Mutual Funds and Victory do not intend to effect the Reorganization and Liquidation without receiving such an order. REASONS FOR THE TRANSACTION On December 2, 1997, the Board of Directors of Key Mutual Funds unanimously approved the proposed Plan and the transactions contemplated therein, subject to shareholder approval. The Board of Directors voted to approve the Reorganization because the Board believed that the opportunity for shareholders of the Key Funds to become shareholders of the Victory Funds would provide them with substantial advantages. The Board of Directors of Key Mutual Funds and the Board of Trustees of Victory, including a majority of the directors and trustees on each Board who are not "interested persons" (as defined by the 1940 Act) of Key Mutual Funds or Victory, have determined that participation in the transaction is in the best interests of the Key Funds and Victory Funds and that the interests of the existing shareholders of the Key Funds and Victory Funds will not be diluted as a result of effecting the Reorganization and Liquidation. The Directors considered various factors in reaching their decision to approve and to recommend to the shareholders of the Key Funds that they approve the Reorganization and Liquidation. The Directors considered the efficiency of the present arrangement in which Key Mutual Funds and Victory operate as separate entities within the same complex of mutual funds. The Directors believe that the Reorganization and Liquidation could simplify the marketing of the funds as a whole. The Directors also believe that Victory's ability to promote the Victory Funds to a large marketing base, particularly through Victory's selected broker-dealer distribution network, is expected to enhance the asset growth potential of the current Key Funds. The Directors anticipate that such growth and the elimination of certain redundancies in the administration and operation of the Funds will result in economies of scale that will benefit the shareholders in the form of lower expense ratios. -27- The Directors considered the terms and conditions of the Plan and that the Reorganization will be accomplished by transferring the assets of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund to New Victory Funds with substantially identical investment policies and objectives. The Directors considered that the investment objective of each Operating Victory Fund is similar to that of the comparable Key Mutual Fund in all material respects. The Directors further considered that KAM will continue to provide investment advisory services to the Victory Funds, thereby affording shareholders continuity of management with respect to the portfolios. The Directors considered that there will be no sales charge imposed in effecting the Reorganization. In addition, by keeping the Key Funds together within the same complex of funds, shareholders will benefit from the ability to make exchanges among the Funds without incurring sales charges, and to make exchanges without incurring sales charges within a larger universe of related mutual funds. Also considered was the fact that the Reorganization is intended to qualify as a tax-free exchange. The Directors considered KAM's intention to discontinue waiving some or all fees and reimbursing expenses of the Key Funds and compared the actual expense structures of the Funds for the most recent fiscal year, without voluntary fee waivers and expense reimbursements, to anticipated expenses of the Victory Funds. The Directors expect that the current shareholders of the Key Funds, as shareholders of the Victory Funds, will be subject to expenses that are no higher than the current expenses of the Key Funds, and that are no higher than the Key Funds' expenses without waiver or reimbursement from KAM. Among the other factors considered by the Directors were: (i) that BISYS Fund Services, Inc. ("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219, will continue to serve as administrator and distributor of the Funds; and (ii) that Key Trust Company of Ohio, National Association will continue to serve as custodian of the Funds. INFORMATION ABOUT THE FUNDS INVESTMENT ADVISORY AGREEMENTS. KAM serves as investment adviser to the Key Funds under three separate investment advisory agreements: (i) an investment advisory agreement dated April 5, 1995, on behalf of the Key Money Market Mutual Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund, between Key Mutual Funds and KAM; (ii) an investment advisory agreement dated July 1, 1996, on behalf of the Key Stock Index Fund, between Key Mutual Funds and KAM; and (iii) an investment advisory agreement dated December 16, 1996, on behalf of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate Growth Fund, between Key Mutual Funds and KAM. KAM serves as investment adviser to the Victory Funds under an investment advisory agreement dated March 1, 1997 between KAM and Victory, on behalf of the Victory Funds (including the Victory Stock Index Fund, Victory Special Growth Fund, and Victory Diversified Stock Fund). KAM will also serve as investment adviser to the New Victory Funds (the Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, Victory LifeChoice Moderate Investor Fund, Victory Federal Money Market Fund, and Victory Convertible Securities Fund), pursuant to an investment advisory agreement. The investment advisory agreement between KAM and Key Mutual Funds relating to the Key Stock Index Fund contains terms that are materially the same as those set forth in the investment advisory agreement between KAM and Victory on behalf of the Victory Stock Index Fund. -28- The Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, and Victory LifeChoice Moderate Investor Fund have been created by Victory to carry on the operations of the corresponding Key Funds. Each corresponding Key Fund has been constructed as a "fund of funds," which means that it pursues its investment objective primarily by allocating its investments among other mutual funds (the "Underlying Portfolios"). The investment advisory agreement between KAM and Victory relating to the Victory LifeChoice Growth Investor Fund, Victory LifeChoice Conservative Investor Fund, and Victory LifeChoice Moderate Investor Fund is identical in all material respects to the investment advisory agreement between Key Mutual Funds and KAM relating to the corresponding Key Funds. Both investment advisory agreements allow KAM to invest in Underlying Portfolios and to otherwise operate each fund as a "fund of funds." The investment advisory agreement between KAM and Key Mutual Funds on behalf of the Key Money Market Mutual Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund contains terms that are similar to those contained in the investment advisory agreement of the corresponding Victory Funds. In general, there are two differences between the investment advisory agreements. The investment advisory agreement between KAM and Victory provides that KAM may delegate a portion of its responsibilities to an investment sub-adviser affiliated with KAM. In addition, the investment advisory agreement between KAM and Victory provides that KAM may render services through its own employees or through the employees of one or more affiliated companies that are qualified to act as investment adviser to the Victory Funds and are under the common control of KAM as long as all such persons are functioning as part of an organized group of persons that is managed by authorized officers of KAM. In addition, the investment advisory agreement between KAM and Victory recognizes that trades may be executed through an affiliated broker-dealer, although such trades are also permitted under the investment advisory agreement between KAM and Key Mutual Funds. With respect to the selection of brokers or dealers, the investment advisory agreement between KAM and Victory provides that KAM shall use its best efforts to select brokers or dealers to execute portfolio transactions at prices which, under the circumstances, result in total costs or proceeds being the most favorable to the Victory Funds. In assessing the best overall terms available for any transaction, KAM considers all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, research services provided to KAM, and the reasonableness of the commission. Under the investment advisory agreement between Victory and KAM, KAM is entitled to receive a fee calculated as a percentage of the average daily net assets of the Victory Funds, computed daily and paid monthly, at the following annual rates: ANNUAL RATE OF ADVISORY FEES OPERATING VICTORY FUNDS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Victory Stock Index Fund 0.60% Victory Special Growth Fund 1.00% Victory Diversified Stock Fund 0.65% ANNUAL RATE OF ADVISORY FEES NEW VICTORY FUNDS (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Victory LifeChoice Growth Investor Fund 0.20% Victory LifeChoice Conservative Investor Fund 0.20% Victory LifeChoice Moderate Investor Fund 0.20% Victory Federal Money Market Fund 0.25% Victory Convertible Securities Fund 0.75% -29- Under the investment advisory agreements between KAM and Key Mutual Funds, KAM is entitled to receive a fee calculated as a percentage of the average daily net assets of the Key Funds, computed daily and paid monthly, at the following annual rates: ------------------ ------------------ ------------------ ------------------ Key Fund *Advisory Fees Gross Dollars Due WAIVED Net ------------------ ------------------ ------------------ ------------------ Key Stock Index Fund 0.10% $27,585.16 $27,585.16 $0.00 SBSF Convertible Securities Fund 0.75% 595,736.75 0.00 595,736.75 SBSF Capital Growth Fund 0.75% 290,732.60 0.00 290,732.60 SBSF Fund 0.75% 760,259.20 0.00 760,259.20 Key Money Market Fund 0.25% 277,325.72 277,325.72 0.00 KeyChoice Growth Fund 0.20% 6,257.72 127.60 6,129.74 KeyChoice Moderate Growth Fund 0.20% 7,588.95 1,023.51 6,565.44 Keychoice Income & Growth Fund 0.20% 4,449.98 138.51 4,311.47 ----- -------- ------ -------- 3.20% 1,969,935.69 306,200.50 1,663,735.20 * Annual Rate of Advisory Fees (as a percentage of average daily net assets). The New Victory Funds are subject to the same level of investment advisory fees as the corresponding Key Funds. Shareholders of the Key Stock Index Fund and SBSF Capital Growth Fund will be subject to a higher level of contractual investment advisory fees as shareholders of the Victory Stock Index Fund and Victory Special Growth Fund, but shareholders of the SBSF Fund will be subject to lower advisory fees as shareholders of the Victory Diversified Stock Fund. By virtue of the higher contractual advisory fee earned on Victory Stock Index Fund and Victory Special Growth assets, KAM may be deemed to have a interest in the Reorganization that is materially adverse to the interest of shareholders. However, the total operating expenses of the Victory Stock Index Fund will be no higher than that of the Key Stock Index Fund, while the total operating expenses of the Victory Special Growth Fund, and Victory Diversified Stock Fund, will be lower than the expenses of the SBSF Capital Growth Fund and the SBSF Fund. KAM is a New York corporation that is registered as an investment adviser with the Commission. KAM is a wholly owned subsidiary of KeyBank, National Association which is a wholly owned subsidiary of KeyCorp, one of the largest financial services holding companies in the United States. KAM and its affiliates managed approximately $57 billion as of September 30, 1997 for numerous clients, including large corporate and public retirement plans, Taft-Hartley plans, foundations and endowments, high net-worth individuals, and mutual funds. The following persons are directors and/or senior officers of KAM: William G. Spears, Chairman, Chief Operating Officer, and Senior Managing Director; Richard J. Buoncore, Director, President, Chief Operating Officer, and Senior Managing Director; Anthony Aveni, Director, Chief Investment Officer, and Senior Managing Director; William J. Blake, Secretary; Vincent Farrell, Director, Chief Investment Officer, and Senior Managing Director; James D. Kacic, Treasurer, Chief Financial Officer, and Managing Director. The business address of each of the directors and officers is 127 Public Square, Cleveland, Ohio 44114. No directors or senior officers of Key Mutual Funds are affiliated with KAM. DISTRIBUTION PLANS. Key Mutual Funds has adopted a distribution plan -30- (the "Key Distribution Plan") for the Key Funds, except the Key Stock Index Fund, pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1"). No separate payments are authorized to be made by the Key Funds under the Key Distribution Plan. Rather, the Key Distribution Plan provides that to the extent any portion of the fees payable under the shareholder servicing plan of the Key Funds or any shareholder servicing agreement in connection with the Key Funds are deemed to be for services primarily intended to result in the sale of Key Fund shares, such fees are deemed approved and may be paid pursuant to the Key Distribution Plan and in accordance with Rule 12b-1. Victory has adopted a distribution and service plan (the "Victory Distribution Plan"), similar to the Key Distribution Plan, for each of the New Victory Funds. No separate payments are authorized to be made by the New Victory Funds under the Victory Distribution Plan. Like the Key Distribution Plan, the Victory Distribution Plan provides that to the extent any portion of the fees payable under the shareholder servicing plan of the Victory Funds or any shareholder servicing agreement in connection with the Victory Funds are deemed to be for services primarily intended to result in the sale of Victory Fund shares, such fees are deemed approved and may be paid pursuant to the Victory Distribution Plan and in accordance with Rule 12b-1. The Operating Victory Funds have not adopted a Rule 12b-1 distribution plan. SHAREHOLDER SERVICES PLANS. Key Mutual Funds has adopted a shareholder servicing plan for the Key Funds, except the Key Stock Index Fund, under which each Key Fund may pay to BISYS, an affiliate of KAM, or financial institutions that provide certain services to the Funds (and that have signed shareholder service agreements), a shareholder services fee at an annual rate not to exceed 0.25% of the average daily net assets of the Fund attributable to BISYS or the financial institution. Victory has adopted a shareholder servicing plan for the Victory Funds, with the exceptions being the Victory Stock Index Fund and the Investor Class of the Victory Federal Money Market Fund. Shareholder servicing agents perform a number of services for their customers who are shareholders of the Victory Funds. For these services each Victory Fund pays a fee at an annual rate of up to 0.25% of the average daily net assets of each class of its shares serviced by the agent. The Victory Funds (except the Victory Stock Index Fund) have agreements with various shareholder servicing agents, including KeyBank, National Association and its affiliates, other financial institutions, and securities brokers. ADMINISTRATOR AND DISTRIBUTOR. BISYS serves as the administrator, distributor, and fund accountant for the Key Funds and Victory Funds pursuant to administration, distribution, and accounting agreements with Key Mutual Funds and Victory. BISYS, as administrator of the Key Funds and Victory Funds, generally assists in all aspects of each Fund's administration and operation. For expenses incurred and services provided as administrator of the Key Funds, BISYS receives an annual fee, computed daily and payable monthly, of 0.01% of the average daily net assets of each of the KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate Growth Fund, and 0.25% of the average daily net assets of each of the Key Money Market Mutual Fund, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF Convertible Securities Fund, and SBSF Fund up to $50,000,000, and 0.15% of such assets greater than $50,000,000. For expenses incurred and services provided as administrator of the Victory Funds, BISYS receives a fee at the following annual rate based on each Victory Fund's average daily net assets: 0.15% for portfolio assets up to $300 million; 0.12% for the next $300 million of portfolio assets; and -31- 0.10% for portfolio assets in excess of $600 million. After the Reorganization and Liquidation, BISYS will continue to serve as administrator of the Victory Funds. BISYS, as administrator, may periodically waive all or a portion of its administration fees due from a Fund. BISYS also serves as distributor of the Key Funds and Victory Funds. BISYS does not charge the Funds a fee for its services as distributor, but receives sales charges paid by shareholders. Under its distribution agreements with Key Mutual Funds and Victory, BISYS may provide sales support, including cash or other compensation to dealers for selling shares of the Funds. Payments may be in the form of trips, tickets, and/or merchandise offered through sales contests. BISYS does this at its own expense and not at the expense of any Fund or its shareholders. BISYS will continue as distributor of the Victory Funds after the Reorganization and Liquidation. SUB-ADMINISTRATOR. KAM serves as sub-administrator of the Victory Funds. For its services as sub-administrator of the Victory Funds, BISYS pays KAM an annual fee of up to 0.05% of the average daily net assets of the Victory Funds. The Key Funds do not have a sub-administrator. DIVIDENDS AND DISTRIBUTIONS. The dividend and distribution policy of each Key Fund is identical to the policy of the corresponding Victory Fund. Net income earned on securities owned by the Victory Federal Money Market Fund and Key Money Market Mutual Fund accrue daily, are declared daily, and are paid monthly. All of the other Key and Victory Funds declare and pay dividends from their net investment income quarterly. Any net capital gains realized by the Key and Victory Funds are paid as dividends at least annually. The Victory Funds declare and pay dividends separately for Class A, Class B, Investor Class, and Select Class Shares. The Victory Funds and Key Funds provide investors five identical dividend distribution options. If a shareholder does not choose an option on his or her Account Application, his or her income and capital gain dividends, if any, are automatically reinvested in additional shares of the particular Victory or Key Fund in which such shareholder owns shares in at the net asset value of the Fund as of the day after the record date of the distribution. The dividend distribution option elected by shareholders of the Key Funds will carry over to their accounts as shareholders with the Victory Funds. The election may be changed by writing Boston Financial Data Services, Inc. ("BFDS"), Two Heritage Drive, Quincy, Massachusetts 02171, or by calling 800-KEY-FUND (800-539-3863), and will become effective with regard to dividends having record dates after receipt of the request by BFDS. In accordance with the requirements imposed by the Code upon regulated investment companies such as the Victory and Key Funds, it is each Victory and Key Fund's policy to distribute to shareholders all of its investment income (net of expenses) and any capital gains (net of capital losses). For federal income tax purposes, shareholders will be treated in the same manner whether distributions are received in cash or reinvested in additional shares of a Victory or Key Fund. -32- PURCHASE PROCEDURES. Shares of the Key Funds and Victory Funds are sold on a continuous basis at net asset value per share, plus any applicable initial sales charge. The Key Mutual Funds each offer one class of shares with no initial sales charge. The Victory Funds offer different classes of shares, which have varying purchase procedures, sales charges, and ongoing fees. Investor Class Shares and Select Class Shares of the Victory Funds are not subject to an initial sales charge or CDSC. Class A Shares of the Victory Funds are sold at net asset value per share plus an initial sales charge which varies depending upon the amount purchased. As noted previously, substantially all of the Key Fund shareholders will qualify for a waiver of the sales charges on Class A shares. EXCHANGE RIGHTS. The exchange rights of both the Key Funds and Victory Funds are similar. Shares of a Key Fund may be exchanged, without the imposition of a sales charge, for shares of any other series of Key Mutual Funds and for shares of any series of Victory that is not subject to either a front-end sales charge or CDSC. Shares of a Victory Fund may be exchanged, without the imposition of a sales charge, for shares of any other series of Victory that are of the same class as the shares being exchanged. REDEMPTION PROCEDURES. The Key Funds and Victory Funds offer identical redemption features pursuant to which proceeds of a redemption are remitted to shareholders. Shareholders of the Key Funds and Victory Funds may redeem shares by mail, telephone, or wire. GENERAL. Each Victory Fund differs from its corresponding Key Fund in that each Victory Fund is a series of Victory, which is a Delaware business trust organized on December 6, 1995, whereas Key Mutual Funds is a Maryland corporation that was incorporated on May 26, 1983. In addition, with the exception of two persons who serve on the Boards of both Victory and Key Mutual Funds, the Board of Trustees of Victory is composed of different persons than the Board of Directors of Key Mutual Funds. Each Victory Fund is a separate series of Victory and, as such, has similar rights under the Trust Instrument of Victory and applicable Delaware law. Shares of each class of the Victory Funds participate equally in dividends and distributions attributable to such class, including any distributions in the event of a liquidation. Each share of a series of Victory is entitled to one vote for all purposes. Shares of all series of Victory vote for the election of Trustees and on any other matter that affects each series in substantially the same manner, except as otherwise required by law. As to matters that affect each series differently, such as approval of an investment advisory agreement, shares of each series vote as a separate series. In addition, on matters that affect the classes of a series differently, shares of each class vote separately. Delaware law does not require registered investment companies, such as Victory or its series, to hold annual meetings of shareholders and it is anticipated that shareholder meetings will be held only when specifically required by federal or state law. Shareholders have available certain procedures for the removal of Trustees. Victory indemnifies trustees and officers to the fullest extent permitted under federal and Delaware law. ADDITIONAL INFORMATION This Combined Prospectus/Proxy Statement and the Related Statement of Additional Information do not contain all of the information set forth in the registration statement and the exhibits relating thereto filed by Victory with the Commission under the Securities Act of 1933, as amended, and the 1940 Act, to which reference is hereby made. Information about the Operating Victory Funds is included in its prospectuses dated March 1, 1997, as supplemented, and in the annual report of -33- the Victory Funds dated October 31, 1997, copies of which are included herewith and incorporated by reference herein. Additional information about the Operating Victory Funds is included in the Statement of Additional Information dated March 1, 1997, as supplemented, which has been filed as part of the Related Statement of Additional Information of this Combined Prospectus/Proxy Statement, dated _______, 1998 and is incorporated by reference. The Victory and Key Funds are subject to the informational requirements of the 1940 Act and the regulations thereunder and in accordance therewith file proxy material, reports, and other information with the Commission. These documents and other information can be inspected and copied at the Public Reference Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material may also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549 at prescribed rates. INFORMATION RELATING TO VOTING MATTERS GENERAL INFORMATION. This Combined Prospectus/Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors of Key Mutual Funds for the Meeting. It is expected that the solicitation of proxies will be primarily by mail. Representatives of KAM and its affiliates, Key Mutual Funds and service contractors retained by Key Mutual Funds, may contact shareholders directly to discuss the Proposal set forth herein, and may also solicit proxies by telephone, telegraph, or personal interview. The estimated costs of solicitation of proxies are expected to be approximately $75,000 in the aggregate for the Key Funds and will be borne by KAM, BISYS, and the Key Funds. The expenses charged to the Key Funds will be charged to each Key Fund in proportion to the number of shareholders of each Key Fund. It is anticipated that banks, broker-dealers, KAM and other institutions will be requested to forward proxy materials to beneficial owners and to obtain authorization for the execution of proxies. Victory and Key Mutual Funds may, upon request, reimburse banks, broker-dealers, and other institutions for their expenses in forwarding proxy materials to beneficial owners. Only shareholders of record of the Key Funds at the close of business on December 26, 1997 (the "Record Date"), will be entitled to vote at the Meeting. As of the Record Date, each of the Key Funds had the number of shares issued and outstanding set forth below, each share being entitled to one vote: FUND NAME TOTAL SHARES OUTSTANDING *Key Stock Index Fund 2,964,790.618 *SBSF Fund 5,852,343.790 *SBSF Capital Growth Fund 3,602,038.989 **Key Money Market Fund 278,683,431.430 **SBSF Convertible Securities Fund 8,472,421.641 **KeyChoice Growth Fund 681,719.768 **KeyChoice Moderate Growth Fund 704,548.390 **KeyChoice Income & Growth Fund 845,189.710 * Key Fund that will be reorganized into an Operating Victory Fund ** Key Fund that will be reorganized into a New Victory Fund -34- As of December 26, 1997, the Directors and officers of Key Mutual Funds, as a group, owned less than 1% of the outstanding shares of each Key Fund. To the best of the knowledge of the Key Funds, the following shareholders beneficially owned 5% or more of the outstanding shares of the Key Funds and Operating Victory Funds as of December 26, 1997: ====================================================================================================================== PERCENT OF CLASS OWNED PERCENT OF CLASS OWNED FUND NAME AND ADDRESS OF RECORD OF RECORD AND BENEFICIALLY ====================================================================================================================== SBSF Convertible Charles Schwab & Co. 28.13% N/A Securities Fund Special Custody Acct. #2 FBO Customers Attn: Mutual Funds Dept. 101 Montgomery St. San Francisco, CA 94104-4122 ====================================================================================================================== SBSF Convertible Key Trust 10.12% N/A Securities Fund P.O. Box 93971 4900 Tiedeman Road Brooklyn, OH 44144-2338 ====================================================================================================================== SBSF Convertible Donaldson Lufkin & Jenrette SEC 9.34% N/A Securities Fund For the Exclusive Benefit of Our Mutual Funds Dept. P.O. Box 2052 Jersey City, NJ 07303-2052 ====================================================================================================================== Key Money Market Mutual Student Loan Funding Corp. 75.76% 75.76% Fund One West Fourth Street, Suite 200 Cincinnati, OH 45202-3699 ====================================================================================================================== Key Money Market Mutual KeyCorp Investment Products 5.60% N/A Fund 127 Public Square Cleveland, OH 44114-1216 ====================================================================================================================== SBSF Capital Growth Fund Key Trust 72.07% N/A P.O. Box 93971 4900 Tiedeman Road Brooklyn, OH 44144-2338 ====================================================================================================================== SBSF Fund Mac & Co. 9.09% N/A Mellon Bank N.A. P.O. Box 320 Pittsburgh, PA 15230-0320 ====================================================================================================================== SBSF Fund Fleet National Bank FBO Alliance 5.88% N/A P.O. Box 92800 Rochester, NY 14692-8900 ====================================================================================================================== Key Stock Index Fund SNBOC & Company 94.47% N/A 4900 Tiedeman Road P.O. Box 93971 Cleveland, OH 44144-2338 ====================================================================================================================== -35- KeyChoice Income & SNBOC & Company 97.98% N/A Growth Fund 4900 Tiedeman Road P.O. Box 93971 Cleveland, OH 44144-2338 ====================================================================================================================== KeyChoice Moderate SNBOC & Company 98.56% N/A Growth Fund 4900 Tiedeman Road P.O. Box 93971 Cleveland, OH 44144-2338 ====================================================================================================================== KeyChoice Growth Fund SNBOC & Company 99.11% N/A 4900 Tiedeman Road P.O. Box 93971 Cleveland, OH 44144-2338 ====================================================================================================================== Victory Diversified SNBOC & Company 83.65% N/A Stock Fund 4900 Tiedeman Road Cleveland, OH 44144-2338 ====================================================================================================================== Victory Stock Index Fund SNBOC & Company 97.97% N/A 4900 Tiedeman Road Cleveland, OH 44144-2338 ====================================================================================================================== Victory Special Growth SNBOC & Company 98.32% N/A Fund P.O. Box 93971 4900 Tiedeman Road Cleveland, OH 44144-2338 ====================================================================================================================== The KeyCorp Cash Balance Mutual Equity Fund may be deemed to control the Victory Special Growth Fund because as of December 26, 1997 it beneficially owned 35.6% of the Victory Special Growth Fund. For this purpose, "control" means the beneficial ownership, either directly or through one or more controlled companies, of more than 25 percent of the outstanding voting securities of Victory Special Growth Fund. The KeyCorp Cash Balance Mutual Equity Fund's control of the Victory Special Growth Fund has no effect on the voting rights of other shareholders of the Victory Special Growth Fund. Student Loan Funding Corporation may be deemed to control the Key Money Market Mutual Fund because as of December 26, 1997 it owned 75.76% of the Key Money Market Mutual Fund. Student Loan Funding Corporation's control of the Key Money Market Mutual Fund has no effect on the voting rights of other shareholders of the Key Money Market Mutual Fund. As of December 26, 1997, SNBOC held shares of certain Key and Victory Funds listed in the above chart. SNBOC and Key Trust and their affiliates have advised Key Mutual Funds that they intend to vote any shares over which they have voting power at the Meeting (i) in the manner instructed by the customers for whom such shares are held, or (ii) in the event that such instructions are not received, in the same proportion as the votes cast by other shareholders (including customers of SNBOC and Key Trust and their affiliates who furnish voting instructions). Each whole share of each Key Fund shall be entitled to one vote when voting on the Reorganization or any of the transactions contemplated thereby, and each fractional share shall be entitled to a proportionate fractional vote. If the accompanying proxy is executed and returned in time for the Meeting, the shares covered thereby will be voted in accordance with the instructions thereon. In the absence of any instructions, if executed and returned in time -36- for the meeting, such proxy will be voted to approve the Reorganization and any transactions contemplated thereby, whether as a matter submitted for the separate approval by the shareholders of any Key Fund or for the approval by the shareholders of Key Mutual Funds voting as a single class. Any shareholder giving a proxy may revoke it at any time before the Meeting by submitting to Key Mutual Funds a written notice of revocation or a subsequently executed proxy, or by attending the Meeting and voting in person. However, attendance at the Meeting, itself, will not serve to revoke a previously tendered proxy. If a proxy represents a broker "non-vote" (that is, a proxy from a broker or nominee indicating that such person has not received instructions from the beneficial owner or other person entitled to vote shares on a particular matter with respect to which the broker or nominee does not have discretionary power) or marked with an abstention (collectively, "abstentions"), the shares represented thereby will be considered to be present at the meeting for purposes of determining the existence of a quorum for the transaction of business and will have the effect of a vote against the Proposal. QUORUM AND ADJOURNMENTS. Shareholders holding a majority of the outstanding shares of Key Mutual Funds at the close of business on the Record Date present in person or by proxy shall constitute a quorum for the transaction of business at the Meeting. If a quorum is not present at the Meeting, the holders of a majority of shares of Key Mutual Funds present at the Meeting, may adjourn the Meeting, without notice other than announcement at the Meeting, until the requisite amount of shares entitled to vote at the Meeting are present. If necessary, proxies indicating a vote in favor of the Reorganization and Liquidation will be voted for adjournment and proxies indicating the vote against the Reorganization and Liquidation will be voted against adjournment. An adjourned meeting may be held within 120 days after the record date set for the original meeting without the necessity of further notice. OTHER BUSINESS. The Board of Directors of Key Mutual Funds knows of no other business to be brought before the Meeting. If any other matters come before the Meeting, proxies that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named as proxies. FUTURE SHAREHOLDER PROPOSALS. Under the Charter and By-Laws of Key Mutual Funds, annual meetings of shareholders are not required to be held unless necessary under the 1940 Act. Therefore, the Key Funds do not hold shareholder meetings on an annual basis. A shareholder proposal intended to be presented at any meeting hereafter called should be sent to Key Mutual Funds at 3435 Stelzer Road, Columbus, Ohio 43219-3035, and must be received by Key Mutual Funds within a reasonable time before solicitation relating thereto is made in order to be included in the notice or proxy statement relating to such meeting. The submission by a shareholder of a proposal for inclusion in a proxy statement does not guarantee that it will be included. REQUIRED VOTE AND BOARD OF DIRECTORS' RECOMMENDATION Approval of the Reorganization and Liquidation requires the approval at the Meeting of each Key Fund voting separately as a series and the approval at the Meeting of the shareholders of Key Mutual Funds (i.e. the shareholders of all of the Key Funds) voting together as a single class. Approval of the Reorganization with respect to each Key Fund voting separately as a series requires the affirmative vote of a "majority of the outstanding voting securities" of that Key Fund, where a "majority of the outstanding voting securities" means the lesser of (i) 67% or more of the voting securities of the Key Fund present at the Meeting, if the holders of more than 50% of the outstanding voting securities of the Key Fund are present or represented by proxy, or (ii) more than fifty percent of the outstanding voting securities of the Key Fund. To the extent which the Reorganization as applicable to one or more Key Funds would result in the transfer of all or substantially all of the assets of Key Mutual Funds, the approval of such transfer will also require -37- the affirmative vote of a majority of shares of Key Mutual Funds issued and outstanding on the Record Date, voting together as a single class. In the event that the shareholders of any Key Fund do not approve the Reorganization by the requisite vote when voting separately as a series, the Reorganization as respects that Key Fund will not proceed in the manner currently contemplated. In the event that the shareholders of one or more Key Funds approve the Reorganization by the requisite vote when voting separately as a series, but the shareholders of Key Mutual Funds voting together as a single class do not approve the Reorganization as applicable to the several Key Funds and the resulting transfer of all or substantially all the assets of Key Mutual Funds by the requisite vote, the Reorganization may proceed as respects certain or all of those Key Funds approving the Reorganization when voting separately as a series, so long and insofar as so proceeding does not constitute a transfer of all or substantially all of the assets of Key Mutual Funds, and no dissolution of Key Mutual Funds can be effected unless and until the requisite vote of the shareholders of Key Mutual Funds voting together as a single class is obtained. In such event, the Board reserves the right to determine which Key Funds as respects which a Reorganization will and will not then proceed. In addition, the Board will consider possible alternatives to the Reorganization and the Reorganization and Liquidation. After carefully considering all of the issues involved, the Board of Directors has unanimously concluded that each Reorganization and the Reorganization and Liquidation, and any other of the transactions contemplated thereby, is advisable and in the best interest of each of the Key Funds and their shareholders and is advisable and in the best interest of all of the shareholders of the Key Mutual Funds. Therefore, the Board recommends that shareholders approve the proposal. MISCELLANEOUS FINANCIAL STATEMENTS. Coopers & Lybrand L.L.P., independent accountants to the Key and Victory Funds, have audited the financial statements included in the Related Statement of Additional Information accompanying this Combined Prospectus/Proxy Statement for the Victory Funds for the year ended October 31, 1997, and for the Key Mutual Funds for the year ended November 30, 1997. Representatives of Coopers & Lybrand, L.L.P. are not expected to be present at the Meeting but have been given the opportunity to make a statement if they so desire, and will be available should any matter arise requiring their participation. __________________, 1998 By Order of the Board of Directors, Leigh A. Wilson President -38- EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION THIS AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION (this "Agreement") is made as of the ___ day of __________, 1998, by and among SBSF Funds, Inc. d/b/a Key Mutual Funds, a Maryland corporation (the "Company"), for itself and on behalf of each of its existing investment portfolios set forth on Schedule A hereto (individually, each such investment portfolio being an "Acquired Portfolio" and collectively, the "Acquired Portfolios"), and The Victory Portfolios, a Delaware business trust (the "Trust"), for itself and on behalf of each of its existing investment portfolios set forth on Schedule A hereto (individually, each such investment portfolio being an "Acquiring Fund" and collectively the "Acquiring Funds"). In accordance with the terms and conditions set forth in this Agreement, the parties desire that all or substantially all of the assets of each Acquired Portfolio be transferred to the Acquiring Fund corresponding thereto, as indicated in the table set forth in Schedule A hereto, in exchange for shares of specified classes (as relevant) of such corresponding Acquiring Fund ("Acquiring Fund Shares") and the assumption by such Acquiring Fund of the Liabilities (as defined in paragraph 1.3) of such corresponding Acquired Portfolio, and that such Acquiring Fund Shares be distributed pro rata by the Acquired Portfolio to its shareholders of record in complete liquidation of the Acquired Portfolio immediately following the "Closing" as defined in this Agreement and in complete cancellation of its shares. In consideration of the premises and of the covenants and agreements herein contained, the parties hereto agree as follows: 1. REORGANIZATION OF EACH ACQUIRED PORTFOLIO AND SUBSEQUENT LIQUIDATION 1.1 Subject to the terms and conditions, and based on the representations and warranties contained in this Agreement, on the Applicable Closing Date, as described in paragraph 3.1, each Acquired Portfolio shall assign, deliver and otherwise transfer its assets as described in paragraph 1.2 (the "Acquired Portfolio Assets") to its corresponding Acquiring Fund identified in Schedule A, and such corresponding Acquiring Fund shall, as consideration therefor, (i) deliver to such Acquired Portfolio such number of full and fractional Acquiring Fund Shares as results from dividing (a) the value of such Acquired Portfolio Assets, net of such Acquired Portfolio's Liabilities, computed in the manner and as of the time and date set forth in paragraph 2.1, by (b) the net asset value of one share of beneficial interest of the corresponding Acquiring Fund, computed in the manner and as of the time and date set forth in paragraph 2.2, and (ii) assume all of such Acquired Portfolio's Liabilities. 1.2 With respect to each Acquired Portfolio, the Acquired Portfolio Assets shall consist of all property and assets of any nature whatsoever, including, without limitation, all cash, cash equivalents, securities, claims and receivables (including dividend and interest receivables) owned by the Acquired Portfolio, and any deferred or prepaid expenses shown as an asset on the Acquired Portfolio's books on the Applicable Closing Date, as defined in paragraph 3.1. At least fifteen (15) days prior to the Applicable Closing Date, each Acquired Portfolio will provide the corresponding Acquiring Fund with (i) a list of the Portfolio Assets and (ii) a list of the Acquired Portfolio's known -39- Liabilities, and such Acquiring Fund will provide such Acquired Portfolio with a copy of the investment objective, policies and restrictions applicable to it. Each Acquired Portfolio reserves the right to sell any of the securities or other assets shown on the list of the Acquired Portfolio's Assets prior to the Applicable Closing Date. 1.3 Liabilities include all liabilities and obligations whether absolute or contingent, known or unknown, accrued or unaccrued. 1.4 Upon an Acquired Portfolio's consummation of the transaction described in paragraph 1.1, the Acquired Portfolio will distribute the Acquiring Fund Shares it received pursuant to paragraph 1.1 to its shareholders of record determined as of the close of business on the Applicable Valuation Date ("Participating Shareholders of Record"). The distribution will be made pro rata based upon the ratio that the percentage of the outstanding Acquired Portfolio shares owned by each Participating Shareholder of Record on the Applicable Valuation Date bears to the total number of Acquiring Fund Shares received by the Acquired Portfolio from the Acquiring Fund. Fractional shares will be carried to the third decimal place. In exchange for Acquiring Fund Shares distributed, all issued and outstanding shares of the Acquired Portfolio will be canceled simultaneously therewith on such Acquired Portfolio's books; any outstanding share certificates representing interests in the Acquired Fund thereafter will represent the right to receive such number of Acquiring Fund Shares after the Closing(s) as determined in accordance with paragraph 1.1. 1.5 The transactions described in paragraphs 1.1 and 1.4 above as they relate to each separate Acquired Portfolio and its corresponding Acquiring Fund are collectively referred to as a "Reorganization." It is intended by the parties hereto that each Reorganization constitute a reorganization within the meaning of section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). The parties hereto hereby adopt this Agreement as a "plan of reorganization" within the meaning of Treasury regulation sections 1.368-2(g) and 1.368-3(a). 1.6 As soon as reasonably practicable after the Closing (as defined in paragraph 3.1) of a Reorganization of any Acquired Portfolio, the Company will take all necessary steps under and subject to its Charter and Maryland law to effect a termination of that Acquired Portfolio and to terminate the qualification, classification and registration of such Acquired Portfolio at all appropriate federal and state agencies. All reporting and other obligations of the Company shall remain the exclusive responsibility of the Company up to and including the date on which the particular Acquired Portfolio is terminated and deregistered, subject to any reporting or other obligations described in paragraph 4.10. 1.7 The failure of any Acquired Portfolio and its corresponding Acquiring Fund to consummate a Reorganization shall not affect the consummation or validity of a Reorganization with respect to any other Acquired Portfolio and its corresponding Acquiring Fund, and each provision of this Agreement shall be construed to effect this intent, including, without limitation, as the context requires, construing the terms "Acquiring Fund" and "Acquired Portfolio" as meaning only those series of the Trust and the Company, respectively, which are involved in a Reorganization as of an Applicable Closing Date. 2. VALUATION 2.1 With respect to each Acquired Portfolio, the value of the Portfolio Assets shall be the value of such assets computed as of the close of business on the business day immediately preceding the Applicable Closing (such time and -40- date being referred to as an "Applicable Valuation Date"), using the valuation procedures set forth in the Acquiring Fund's then-current Prospectus and Statement of Additional Information. 2.2 The net asset value of each share of beneficial interest of an Acquiring Fund shall be its net asset value per share computed on the Applicable Valuation Date, using the valuation procedures set forth in the Acquiring Fund's then-current Prospectus and Statement of Additional Information. 2.3 All computations of value contemplated by this Article 2 shall be made by the respective Acquiring Fund's fund accountant (BISYS Fund Services, Inc.). Each Acquiring Fund shall cause its fund accountant to deliver a copy of its valuation report to the Company and to the Trust at the Applicable Closing(s). 3. CLOSING(S) AND APPLICABLE CLOSING DATE 3.1 The closing for each Reorganization ("Closing" or "Applicable Closing") shall occur on March 16, 1998, or on such other date or dates as may be mutually agreed upon by the parties to such Reorganization (an "Applicable Closing Date"). Each Closing shall be held at the offices of the Trust or at any other location mutually agreeable to the parties hereto. All transactions taking place at a Closing shall be deemed to take place simultaneously as of the close of business, generally 4:00 p.m. Eastern time on the Applicable Closing Date unless otherwise provided. 3.2 The custodian of each Acquiring Fund shall be given access to the portfolio securities held by the corresponding Acquired Portfolio for the purpose of examination no later than five (5) business days prior to the Applicable Valuation Date. Such Acquired Portfolio's portfolio securities (together with any cash or other assets) shall be delivered by the Acquired Portfolio to such custodian for the account of the Acquiring Fund on the Closing Date, in accordance with applicable custody provisions under the Investment Company Act of 1940, as amended ("1940 Act"), and duly endorsed in proper form for transfer in such condition as to constitute good delivery thereof. The portfolio securities shall be accompanied by any necessary federal and state stock transfer stamps or a check for the appropriate purchase price of such stamps. The cash delivered shall be in any such form as is reasonably directed by the Acquiring Fund. 3.3 Notwithstanding anything herein to the contrary, in the event that on the Applicable Valuation Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on such exchange or elsewhere shall be disrupted so that, in the judgment of the Company or the Trust, accurate appraisal of the value of the net assets of an Acquiring Fund or an Acquired Portfolio is impracticable, the Applicable Valuation Date for the Reorganization to which such Acquiring Fund is a party shall be postponed until the first business day after the day when trading shall have been fully resumed without restriction or disruption and reporting shall have been restored and the Applicable Closing Date shall be postponed to the day after the Applicable Valuation Date as so postponed. 3.4 If requested by the Trust and to the extent reasonably necessary to enable an Acquiring Fund and its transfer agent and shareholder servicing agents to perform and provide all necessary and appropriate shareholder accounting, communications and related services, the Company shall deliver at the Applicable Closing: (a) a list, certified by its Secretary, of the names, addresses and taxpayer identification numbers of all Participating Shareholders of Record and the number and percentage ownership of outstanding shares of the Portfolio owned -41- by each such shareholder, all as of the Applicable Valuation Date, and (b) such other documentation relating to such shareholders as is reasonably requested. The corresponding Acquiring Fund shall issue and deliver to such Secretary a confirmation evidencing the Acquiring Fund Shares to be credited on the Applicable Closing Date or shall provide evidence satisfactory to the Company that such Acquiring Fund Shares have been credited to the Acquired Portfolio's account on the books of the Acquiring Fund. At the Closings, each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts or other documents of transfer, assignment or conveyance as such other party or its counsel may reasonably request. 4. COVENANTS WITH RESPECT TO EACH OF THE ACQUIRING FUNDS AND THE ACQUIRED PORTFOLIOS 4.1 The Company will call a special meeting of shareholders (the "Meeting") for the purposes of (i) considering the approval of the transaction contemplated by this Agreement by the shareholders of each Acquired Portfolio; and (ii) considering such other business as may properly come before such Meeting. 4.2 The Company, on behalf of each Acquired Portfolio, covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof, other than in connection with the Reorganizations contemplated by this Agreement. 4.3 The Company, on behalf of each Acquired Portfolio, will assist each corresponding Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the shares of the Acquired Portfolios. 4.4 Subject to the provisions hereof, the Trust, on its own behalf and on behalf of each Acquiring Fund, and the Company, on its own behalf and on behalf of each Acquired Portfolio, will take, or cause to be taken, all actions, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated herein, including the obtaining of any required regulatory approvals. 4.5 The Company, on behalf of each Acquired Portfolio, shall furnish to each Acquired Portfolio's corresponding Acquiring Fund within 15 days after the Applicable Closing Date, a final statement of the Acquired Portfolio's assets and liabilities as of the Applicable Closing Date, which statement shall be certified by the Company as being determined in accordance with generally accepted accounting principles consistently applied or in accordance with another mutually agreed upon standard. 4.6 The Trust has prepared and filed, or will prepare and file, with the Securities and Exchange Commission (the "SEC") a registration statement on Form N-14 under the Securities Act of 1933, as amended (the "1933 Act"), relating to the Acquiring Fund Shares of the Victory Stock Index Fund, Victory Diversified Stock Fund and Victory Special Growth Fund (the "Existing Acquiring Funds"), which, without limitation, shall include a proxy statement of the Company and the prospectuses of the Existing Acquiring Funds relating to the transactions contemplated by this Agreement (the "Registration Statement"). The Registration Statement shall also contain a proxy statement of the Company with respect to the Acquired Portfolios to be reorganized into the other newly created Acquiring Funds (the "New Acquiring Funds"). The Company, on behalf of each Acquired Portfolio, has provided or will provide the Trust with such information and documents relating to each Acquired Portfolio as are requested -42- by the Trust and as are reasonably necessary for the preparation of the Prospectus/Proxy Statement set forth in the Registration Statement, and information relating to the notice of meeting and form of proxy, other information needed for the Registration Statement and any other proxy solicitation materials to be used in connection with the Meeting (collectively, the "Proxy Materials"). The Trust will use all reasonable efforts to have the Registration Statement become effective under the 1933 Act as soon as practicable, and will take all actions, if any, required by law to qualify the Existing Acquiring Fund Shares to be issued in the Reorganization under the laws of the states in which such qualification is required. 4.7 The Company, on behalf of each Acquired Portfolio: (a) as soon after the Applicable Closing Date as is reasonably practicable, shall prepare and file all federal and other tax returns and reports of the Acquired Portfolio as may be required by law to be filed with respect to all periods ending on or before the Applicable Closing Date but not theretofore filed and (b) shall submit for payment to the Acquiring Fund the amount of any federal and other taxes, if any, shown as due thereon which were not paid on or before the Applicable Closing Date and shall reflect on the unaudited statement of assets and liabilities of the Acquired Portfolio referred to in paragraphs 1.3 and 4.5 all federal and other taxes, if any, that remain unpaid as of the Applicable Closing Date. 4.8 With respect to each Acquiring Fund, the Trust agrees to use all reasonable efforts to maintain in effect the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state securities laws as may be necessary and as it may deem appropriate in order to continue to conduct its operations through the Applicable Closing Date and to consummate the Reorganization, as contemplated herein. The Trust agrees to use all reasonable efforts to operate each Acquiring Fund substantially in accordance with its then current Prospectus and Statement of Additional Information, including qualifying as a regulated investment company under Subchapter M of the Code through the Applicable Closing Date and for at least one (1) year thereafter, although the Acquiring Fund may merge or consolidate during such one-year period with an investment company with investment objectives, policies and restrictions and other characteristics comparable to those of the Acquiring Fund. 4.9 If each of the Acquired Portfolios consummates a Reorganization, and all of the other investment portfolios of the Company have been reorganized into the Trust or otherwise terminated, then the Company will file with the SEC as soon as reasonably practicable thereafter an application for deregistration under the 1940 Act and will seek to obtain an order declaring that the Company has ceased to be an investment company under the 1940 Act, and will file any final regulatory reports, including, but not limited to, any Form N-SAR and Rule 24f-2 filings, and also will take all other steps as are necessary and proper to effect the termination of the Company in accordance with the laws of the State of Maryland and other applicable requirements. If an Acquired Portfolio does not consummate a Reorganization, then the Company shall file any required final regulatory reports with respect to the other Acquired Portfolios as soon as reasonably practicable after the Applicable Closing Date last to occur. Any reporting or other responsibility of the Company is and shall remain the responsibility of the Company up to and including the date on which the Company is terminated and deregistered. 4.10 With respect to each Acquired Portfolio that consummates a Reorganization, the Trust agrees to indemnify and hold harmless each Director of the Company at the time of execution of this Agreement, whether or not such person is or becomes a trustee of the Trust subsequent to the Applicable Closing Date of the Reorganization, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such Director in connection with any claim that is asserted against such Director arising out of such person's service as a Director of the Company, provided that such indemnification shall be limited to the full extent of the indemnification that is available to the trustees of the Trust pursuant to the provisions of the Trust's Declaration of Trust and applicable law. -43- 4.11 For the period beginning at the Applicable Closing Date of the last Reorganization to occur and ending not less than three years thereafter, the Trust shall provide for a liability policy covering the actions of the current directors of the Company for the period they served as such, which may be accomplished by causing such persons to be added as insured under the liability policy of the Trust. 5. REPRESENTATIONS AND WARRANTIES 5.1 The Trust, on behalf of itself and each Acquiring Fund, represents and warrants to the Company and to the respective corresponding Acquired Portfolios whose assets will be transferred to each of the Acquiring Funds, as follows: (a) The Trust is a business trust validly existing under the laws of the State of Delaware and is duly registered as an open-end, management investment company under the 1940 Act, and each Acquiring Fund is a validly existing series of shares of the Trust representing interests in the Acquiring Fund under the laws of the State of Delaware; (b) The Trust is not in violation of, and the execution, delivery and performance of this Agreement will not result in a violation of, the Trust's Declaration of Trust or By-Laws, each as amended to date, or result in a material breach or violation of, or constitute a material default under, any agreement or other undertaking to which the Trust or any of its Acquiring Funds is a party or by which any of them or their assets is bound; (c) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Trust and each Acquiring Fund, and assuming this Agreement is enforceable against the Company, this Agreement is a valid and binding obligation of the Trust and each Acquiring Fund enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and to general equity principles; (d) Except as disclosed in writing to and accepted by the Company, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Trust or any Acquiring Fund or any of their properties or assets, and the Trust knows of no facts that might form the basis for the institution of any such proceedings (other than routine inquiries and examinations), and neither the Trust nor any Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein; (e) All of the Trust's issued and outstanding shares representing interests in each Acquiring Fund are, and on the Applicable Closing Date will be, duly authorized and validly issued and outstanding, and fully paid and non-assessable by the Trust and no shareholder has any preemptive rights to purchase any such shares, and the Acquiring Funds do not have outstanding any options, warrants or other rights to subscribe for or purchase any of their shares (other than dividend reinvestment plans of the Acquiring Funds or as set forth in this Agreement), nor are there outstanding any securities convertible into any shares of the Acquiring Funds (except pursuant to exchange privileges described in the current Prospectus and Statement of Additional Information of the Acquiring Funds); -44- (f) The Acquiring Fund Shares to be issued and delivered by the Trust to each corresponding Acquired Portfolio pursuant to the terms hereof will have been duly authorized as of the Applicable Closing Date and, when so issued and delivered, will be duly authorized and validly issued, fully paid and non-assessable, and have been or will be duly registered under the 1933 Act and qualified for sale under the laws of such states where such qualification is required; (g) All issued and outstanding shares of each Acquiring Fund have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and applicable state securities laws; (h) From the effective date of the Registration Statement through the time of the Meeting and the Applicable Closing Date, the Registration Statement (exclusive of those portions that are based upon written information regarding the Company and the Acquired Portfolios furnished by the Company which fully and fairly disclose such information) (i) complies in all material respects with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act, and the rules and regulations thereunder and (ii) does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and as of such dates and times, any written information furnished by the Trust to the Company for use in the Proxy Materials does not contain and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; (i) The Statements of Assets and Liabilities, Statements of Operations and Statements of Changes in Net Assets of each Acquiring Fund as of and for that Acquiring Fund's most recent fiscal year, certified by Coopers & Lybrand LLP, and the unaudited Statements of Assets and Liabilities, Statements of Operations and Statements of Changes in Net Assets for that Acquiring Fund's most current completed six month period within the fiscal year, if any (copies of which have been or will be furnished to the Company, if available) fairly present, in all material respects, such Acquiring Fund's financial condition as of such dates and its results of operations for such periods in accordance with generally accepted accounting principles consistently applied, and as of such dates there were no liabilities of such Acquiring Fund (contingent or otherwise) known to the Trust that were not disclosed therein but that would be required to be disclosed therein in accordance with generally accepted accounting principles; (j) Since the date of the most recent audited financial statements, there has not been any material adverse change in any Acquiring Fund's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed in writing to and accepted by the Trust prior to the Applicable Closing Date (for the purposes of this subparagraph (j), neither a decline in an Acquiring Fund's net asset value per share nor a decrease in an Acquiring Fund's size due to redemptions shall be deemed to constitute a material adverse change); (k) All federal and other tax returns and reports of the Trust and the Acquiring Funds required by law to be filed on or before the -45- Applicable Closing Date, if any, shall have been filed, and all federal and other taxes owed by the Trust or such Acquiring Funds shall have been paid so far as due, and to the best of the Trust's knowledge, no such return is as of the date hereof under audit and no material assessment has been asserted with respect to any such return; (l) For each full and partial taxable year from its inception through the Applicable Closing Date, each Acquiring Fund has qualified as a regulated investment company under Subchapter M of the Code; and (m) The Trust will provide to the Company the Form N-1A registration statement(s) concerning the Acquiring Funds, which will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make any statements therein, in light of the circumstances under which such statements were made, not materially misleading. 5.2 The Company, on behalf of itself and each Acquired Portfolio, represents and warrants to the Trust and to the respective Acquiring Funds that will receive the assets of each of the corresponding Acquired Portfolios, as follows: (a) The Company is a corporation validly existing under the laws of the State of Maryland, and is duly registered as an open-end, management investment company under the 1940 Act, and each Acquired Portfolio is a validly existing series of shares of the Company under the laws of the State of Maryland; (b) The Company is not in violation of, and the execution, delivery and performance of this Agreement will not result in a violation of, the Company's Charter or By-Laws each as amended to date, or result in a material breach or violation of, or constitute a material default under, any agreement or other undertaking to which the Company or any of its Acquired Portfolios is a party or by which any of them or their assets are bound; (c) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Company, and assuming this Agreement is enforceable against the Trust, this Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and to general equity principles; (d) Except as otherwise disclosed in writing to and accepted by the Trust, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Company or any Acquired Portfolio or any of their properties or assets, and the Company knows of no facts that might form the basis for the institution of any such proceedings (other than routine inquiries and examinations), and neither the Company nor any Acquired Portfolio is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is reasonably likely to materially and adversely affect, its business or its ability to consummate the transactions contemplated herein; (e) All of each Acquired Portfolio's issued and outstanding shares representing interests in the Acquired Portfolio are, and on the Applicable Closing Date will be, duly authorized and validly issued and -46- outstanding, and fully paid and non-assessable and all such shares will, at the time of the Applicable Closing, be held by the Participating Shareholders of Record as set forth on the books and records of the Company's transfer agent (and in the amounts set forth therein) and as set forth in any list of Participating Shareholders of Record provided to the Trust pursuant to paragraph 3.4, and no Participating Shareholders of Record will have any preemptive rights to purchase any of such shares and the Acquired Portfolios do not have outstanding any options, warrants or other rights to subscribe for or purchase any of their shares (other than dividend reinvestment plans of the Acquired Portfolios or as set forth in this Agreement), nor are there outstanding any securities convertible into any shares of the Acquired Portfolios (except pursuant to exchange privileges described in the current Prospectus and Statement of Additional Information of the Acquired Portfolio); (f) All of each Acquired Portfolio's issued and outstanding shares representing interests in each Acquired Portfolio have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and applicable state securities laws; (g) From the effective date of the Registration Statement through the time of the Meeting and the Applicable Closing Date, each Acquired Portfolio's Proxy Materials (exclusive of any written information furnished by the Trust for use in the Proxy Materials which fully and fairly discloses such information) (i) comply in all material respects with the applicable provisions of the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) do not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and as of such dates and time, any written information furnished by the Company to the Trust for use in the Registration Statement does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the information provided not misleading; (h) The Statements of Assets and Liabilities, Statements of Operations and Statements of Changes in Net Assets of each Acquired Portfolio as of and for that Acquired Portfolio's most recent fiscal year, certified by Coopers and Lybrand LLP and the unaudited Statements of Assets and Liabilities, Statements of Operations and Statements of Changes in Net Assets for that Acquired Portfolio's most recently completed six month semi-annual fiscal period (copies of which have been or will be furnished to the Trust) fairly present, in all material respects, such Acquired Portfolio's financial condition as of such dates and its results of operations for such periods in accordance with generally accepted accounting principles consistently applied, and as of such dates there were no liabilities of such Acquired Portfolio (contingent or otherwise) known to the Company that were not disclosed therein but that would be required to be disclosed therein in accordance with generally accepted accounting principles; (i) Since the date of the most recent audited financial statements, there has not been any material adverse change in any Acquired Portfolio's financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed in writing to and accepted by the Trust prior to the Applicable Closing Date (for the purposes of this subparagraph (i), neither a decline in an Acquired Portfolio's net asset value per share nor a decrease in an Acquired Portfolio's size due to redemptions shall be deemed to constitute a material adverse change); -47- (j) All federal and other tax returns and reports of the Company and each Acquired Portfolio required by law to be filed on or before the Applicable Closing Date shall have been filed, and all federal and other taxes owed by the Company or any such Acquired Portfolio shall have been paid so far as due, and to the best of the Company's knowledge, no such return is as of the date hereof under audit and no material assessment has been asserted with respect to any such return; (k) For each full and partial taxable year from its inception through the Applicable Closing Date, each of the Acquired Portfolios has qualified as a regulated investment company under Subchapter M of the Code; and (l) At the Applicable Closing Date, each Acquired Portfolio will have good and marketable title, through its custodian, to its Portfolio Assets and full right, power and authority to assign, deliver and otherwise transfer such Portfolio Assets hereunder, and upon delivery and payment for such Portfolio Assets as contemplated herein, the corresponding Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the ownership or transfer thereof other than such restrictions as might arise under the 1933 Act. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY The obligations of the Company to complete the Reorganization with respect to an Acquired Portfolio shall be subject, at the Company's election (subject to the limitations of paragraph 13), to the performance by the Trust (and by the Acquiring Fund corresponding to such Acquired Portfolio), of all the obligations to be performed by it hereunder on or before the Applicable Closing Date, and in addition thereto, the satisfaction of the following conditions with respect to the Trust (and the corresponding Acquiring Fund): 6.1 All representations and warranties of the Trust contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated herein, as of the Applicable Closing Date, with the same force and effect as if made on and as of the Applicable Closing Date. 6.2 The Trust shall have delivered to the Company at the Applicable Closing a certificate executed by one of its officers, dated as of the Applicable Closing Date, to the effect that the representations and warranties of the Trust made herein are true and correct at and as of the Applicable Closing Date, except as they may be affected by the transactions contemplated herein, and as to such other matters as the Company shall reasonably request. 6.3 The Company shall have received at the Closing an opinion of legal counsel to the Trust, dated as of the Applicable Closing Date, in form (including reasonable and customary qualifications and assumptions) reasonably satisfactory to the Company, substantially to the effect that: (i) the Trust is a business trust validly existing under the laws of the State of Delaware and is duly registered as an open-end, management investment company under the 1940 Act, and each Acquiring Fund is a validly existing series of shares of the Trust representing interests in the Acquiring Fund under the laws of the State of Delaware; (ii) the execution, delivery and performance of this Agreement will not result in a violation of the Trust's Declaration of Trust or By-Laws, each as amended to date; (iii) the execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Trust and each Acquiring Fund, and this Agreement has been duly executed and delivered by the Trust -48- and is a valid and binding obligation of the Trust and each Acquiring Fund, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights or remedies and to general equity principles (regardless of whether considered at a proceeding in law or equity), equitable defenses or waivers and the discretion of the court before which any proceeding for specific performance, injunctive and other forms of equitable relief may be brought; and (iv) the Acquiring Fund Shares to be issued and delivered pursuant to the terms of this Agreement will have been duly authorized as of the Applicable Closing Date and, when so issued and delivered, will be validly issued, fully paid and non-assessable (except as disclosed in the Acquiring Fund's then current Prospectus and Statement of Additional Information). In rendering such opinion, legal counsel to the Trust may rely on an opinion of Delaware counsel (with respect to matters of Delaware law) and on certificates of officers or trustees of the Trust, in each case reasonably acceptable to the Company. 6.4 As of the Applicable Closing Date, there shall have been no material change in the investment objective, policies and restrictions of an Acquiring Fund nor any increase in the rate of permissible investment advisory or other fees or charges payable by any Acquiring Fund or its shareholders to the Acquiring Fund's investment adviser, distributor and/or administrator from those fees and charges described in the current Prospectus of such Acquiring Fund delivered to the Company, and there shall have been no change in any fee waiver or expense reimbursement undertakings described in the Proxy Materials. 6.5 The Board of Trustees of the Trust, including a majority of its trustees who are not "interested persons" of the Trust (as defined in the 1940 Act), shall have determined that this Agreement and the transactions contemplated hereby are in the best interests of each Acquiring Fund and that the interest of shareholders of each Acquiring Fund would not be diluted as a result of such transactions. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST The obligations of the Trust to complete the Reorganization with respect to an Acquiring Fund shall be subject, at the Trust's election (subject to the limitations of paragraph 13), to the performance by the Company (and the Acquired Portfolio corresponding to such Acquiring Fund), of all the obligations to be performed by it hereunder on or before the Applicable Closing Date and, in addition thereto, the satisfaction of the following conditions with respect to the Company (and the corresponding Acquired Portfolio): 7.1 All representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated herein, as of the Applicable Closing Date, with the same force and effect as if made on and as of the Applicable Closing Date. 7.2 The Company shall have delivered, in accordance with Article 1 hereof, to the Trust on behalf of the Acquiring Fund a statement of Portfolio Assets and Stated Liabilities of each Acquired Portfolio, together, if required by the Trust, with a list of such Acquired Portfolio's portfolio securities and other assets showing the respective adjusted bases and holding periods thereof for income tax purposes, as of the Applicable Closing Date, certified by an appropriate officer of the Company. -49- 7.3 The Company shall have delivered to the Trust at the Applicable Closing a certificate executed by one of its officers, and dated as of the Applicable Closing Date, to the effect that the representations and warranties of the Company made herein are true and correct at and as of the Applicable Closing Date, except as they may be affected by the transactions contemplated herein, and as to such other matters as the Trust shall reasonably request. 7.4 The Trust shall have received at the Closing an opinion of legal counsel to the Company, dated as of the Applicable Closing Date, in form (including reasonable and customary qualifications and assumptions) reasonably satisfactory to the Trust, substantially to the effect that: (i) the Company is a corporation duly incorporated and validly existing under the laws of the State of Maryland and is duly registered as an open-end, management investment company under the 1940 Act, and each Acquired Portfolio is a validly existing series of shares of the Company under the laws of the State of Maryland; (ii) the execution, delivery and performance of this Agreement will not result in a violation of the Company's Charter or By-laws, each as amended to date; and (iii) the execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Company and each Acquired Portfolio, and this Agreement has been duly authorized and delivered by the Company and is a valid and binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights or remedies and to general equity principles (regardless of whether considered in a proceeding in law or equity), equitable defenses or waivers and the discretion of the court before which any proceeding for specific performance, injunctive and other forms of equitable relief may be brought. In rendering such opinion, legal counsel to the Company may rely on an opinion of Maryland counsel (with respect to matters of Maryland law) and on certificates of officers or directors of the Company, in each case reasonably acceptable to the Trust. 7.5 On the Applicable Closing Date, the Acquired Portfolio Assets of each Acquired Portfolio shall include no assets that the corresponding Acquiring Fund, by reason of the Trust's Declaration of Trust, 1940 Act requirements or otherwise, may not legally acquire. 7.6 The Board of Directors of the Company, including a majority of the directors who are not "interested persons" of the Company (as defined by the 1940 Act) shall have determined that this Agreement and the transactions contemplated hereby are advisable and in the best interests of each Acquired Portfolio and that the interests of the shareholders in the Acquired Portfolio would not be diluted as a result of such transactions, and the Company shall have delivered to the Trust at the Applicable Closing, a certificate, executed by an officer, to the effect that the condition described in this subparagraph has been satisfied. 7.7 Prior to the Applicable Valuation Date, each Acquired Portfolio shall have declared a dividend or dividends, with a record date and ex-dividend date prior to the Applicable Valuation Date, which together will all previous dividends, shall have the effect of distributing to its shareholders all of its net investment company taxable income, if any, for the taxable periods or years ending on or before the Applicable Closing (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized in taxable periods or years ending on or before the Applicable Closing. -50- 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE TRUST The obligations herein of the Company, with respect to each Acquired Portfolio, and of the Trust, with respect to each corresponding Acquiring Fund, to effect the Reorganization are each subject to the further conditions that on or before the Applicable Closing Date: 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the shareholders of the Acquired Portfolio, and insofar as such transactions are to be consummated and require the approval of the shareholders of the Company voting together as a single class, the requisite vote of the shareholders of the Company, all in accordance with the applicable provisions of the Company's Charter and By-laws and the requirements of the 1940 Act, and evidence of such approval shall have been delivered to the Trust. 8.2 No action, suit or other proceeding shall be pending or threatened before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement as it relates to the Reorganization or any of the transactions related thereto. 8.3 All consents of other parties and all other consents, approvals and permits of federal, state and local regulatory authorities (including, without limitation, those of the SEC and of state securities authorities, including "no-action" positions of or exemptive orders from such federal and state authorities, and those of the Office of the Comptroller of the Currency ("OCC") and the Department of Labor with respect to the Employee Retirement Income Security Act of 1974 ("ERISA") or the Internal Revenue Service with respect to the Code), deemed necessary by the Trust or the Company to permit consummation, in all material respects, of the Reorganization and transactions related thereto shall have been obtained, except where failure to obtain any such consent, order or permit would not, in the reasonable opinion of the party asserting that the condition to closing has not been satisfied, involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Portfolio involved in the Reorganization. 8.4 The Registration Statement and the Trust's registration statement(s) on Form N-1A covering the continuous offering of shares of the Acquiring Funds shall have become and shall be effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the Company and the Trust, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. 8.5 The Trust and the Company shall receive an opinion of legal counsel of the Trust, dated the Applicable Closing Date of the Reorganization, with respect to each Acquired Portfolio and its corresponding Acquiring Fund, addressed to, and in form and substance satisfactory to, the Trust and the Company, to the effect that the Reorganization will constitute a reorganization within the meaning of section 368(a)(1) of the Code, and the Acquired Portfolio and the Acquiring Fund will each be a "party to a reorganization" within the meaning of section 368(b) of the Code. Each party agrees to make reasonable covenants and representations as to factual matters that are true and correct as of the Applicable Closing Date in connection with the rendering of such opinion. 9. EXPENSES The Trust and the Company confirm their understanding that each party will be responsible for its own expenses in connection with the Reorganization. -51- 10. ENTIRE AGREEMENT; SURVIVAL OF PROVISIONS OF THIS AGREEMENT 10.1 This Agreement together with the documents contemplated herein constitute the entire agreement between the parties and supersede any prior or contemporaneous understanding or arrangement with respect to the subject matter hereof. 10.2 The representations and warranties contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall not survive the consummation of the transactions contemplated herein. The covenants contained in this agreement shall not survive the consummation of such transactions, except as otherwise provided herein. 11. TERMINATION 11.1 With respect to any Acquired Portfolio and its corresponding Acquiring Fund, this Agreement may be terminated, and the Reorganization and any related transactions involving such Acquired Portfolio and Acquiring Fund contemplated hereby may be abandoned, at any time prior to the Applicable Closing: (a) by the mutual written consent of the Trust and the Company; (b) by either the Trust or the Company by written notice to the other, without liability to the terminating party on account of such termination (provided the terminating party is not otherwise in material default or breach of this Agreement) upon a finding by the Board of the terminating party that in the judgment of such Board, proceeding with the Reorganization would be inadvisable; or (c) by either the Trust or the Company by written notice to the other, without liability to the terminating party on account of such termination (provided the terminating party is not otherwise in material default or breach of this Agreement) if (i) the other party shall fail to perform in any material respect its agreements contained herein required to be performed prior to the Applicable Closing Date, (ii) the other party materially breaches or shall have materially breached any of its representations, warranties or covenants contained herein, or (iii) any other condition herein expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met. 11.2 Termination of this Agreement pursuant to paragraph 11.1(a) shall terminate all obligations of the parties hereto with respect to the Acquired Portfolio and Acquiring Fund affected by such termination and there shall be no liability for damages on the part of the Trust (or any Acquiring Fund), the Company (or any Acquired Portfolio), or any of their trustees, directors, officers or employees, to any other party or its trustees, directors, officers or employees. 12. AMENDMENTS AND WAIVERS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Trust and the Company; provided, however, that following the approval of this Agreement by shareholders with respect to a particular Acquired Portfolio, no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to Participating Shareholders of Record, or otherwise materially and adversely affecting such Acquired -52- Portfolio, without further approval by shareholders of such Acquired Portfolio in accordance with paragraph 8.1 hereof. The parties may not waive the opinion described in paragraph 8.5, and no waiver may materially and adversely affect the rights of the shareholders of any Acquired Portfolio without the approval by the shareholders of such an Acquired Portfolio in accordance with paragraph 8.1 hereof. 13. NOTICES Any notice, report, statement or demand required or permitted by any provision of this Agreement shall be in writing and shall be given by prepaid certified mail or overnight express courier, addressed as follows: a. if to the Company or an Acquired Portfolio: BISYS Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219 Attention: Michael Sullivan with a copy to: Key Asset Management Inc. 127 Public Square Cleveland, Ohio 44114 Attention: Kathleen A. Dennis and an additional copy to: Morrison & Foerster LLP 2000 Pennsylvania Avenue, NW Suite 5500 Washington, D.C. 20006 Attention: Robert M. Kurucza, Esq. b. if to the Trust or an Acquiring Fund: BISYS Fund Services, Inc. 3534 Stelzer Road Columbus, Ohio 43219 Attention: Michael Sullivan -53- with copies to: Key Asset Management Inc. 127 Public Square Cleveland, Ohio 44114 Attention: Kathleen A. Dennis and to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attention: Carl Frischling, Esq. or to such other person or address as the Trust or the Company, respectively, shall furnish to the other in writing. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY 14.1 The headings of Articles contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to Articles, paragraphs, subparagraphs or Schedules or Exhibits shall be construed as referring to the Articles, paragraphs and subparagraphs hereof, or Schedules or Exhibits hereto, respectively, except as is otherwise expressly provided. Whenever the terms hereto, hereunder, herein or hereof are used in the Agreement, they shall be construed as referring to this entire Agreement, rather than to any individual paragraph, subparagraph or sentence. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the law of the State of New York, without reference to the conflict of laws provisions or principles of its laws. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 It is expressly agreed that the rights and obligations hereunder of the Trust and each Acquiring Fund are separate from the rights and obligations of each other Acquiring Fund, that the rights and obligations of each Acquired Portfolio are separate from the rights and obligations of each other Acquired Portfolio, and that neither the rights and obligations of the Acquiring Funds nor of the Acquired Portfolios shall be construed to be joint rights or obligations of two or more of the Acquiring Funds or two or more of the Acquired Portfolios, respectively, notwithstanding the fact that each of the Acquiring Funds and each of the Acquired Portfolios have entered into this Agreement. -54- 14.6 It is expressly agreed that the obligations of the Trust and the Company hereunder shall not be binding upon any of the trustees, directors, nominees, officers, agents or employees of the Trust or the Company, personally, but shall bind only the assets and property of the Trust as provided in its Declaration of Trust and the Company as provided in its Charter. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first set forth above by their duly authorized representatives. The Company, for itself and on behalf of the Acquired Portfolios ATTEST: By:_____________________________ Name: Leigh A. Wilson By:_________________________ Title: President Name: Jay G. Baris Title: Assistant Secretary The Trust, for itself and on behalf of the Acquiring Funds By: ________________________________ Name: Leigh A. Wilson Title: President ATTEST: By:____________________ Name: Jay G. Baris Title: Assistant Secretary SCHEDULE A ACQUIRED PORTFOLIOS CORRESPONDING ACQUIRING FUNDS (1) SBSF Fund (1) Victory Diversified Stock Fund-Class A (2) SBSF Capital Growth Fund (2) Victory Special Growth Fund-Class A (3) SBSF Convertible Securities Fund (3) Victory Convertible Securities Fund-Class A (4) Key Stock Index Fund (4) Victory Stock Index Fund-Class A (5) Key Money Market Mutual Fund (5) Victory Federal Money Market Fund-Investor Class (6) KeyChoice Growth Fund (6) Victory LifeChoice Growth Investor Fund-Class A (7) KeyChoice Moderate Growth Fund (7) Victory LifeChoice Moderate Investor Fund-Class A (8) KeyChoice Income and Growth Fund (8) Victory LifeChoice Conservative Investor Fund-Class A PART B RELATED STATEMENT OF ADDITIONAL INFORMATION THE VICTORY PORTFOLIOS 3425 STELZER ROAD COLUMBUS, OHIO 4321-3035 800-KEY-FUND _______, 1998 This Related Statement of Additional Information is not a prospectus, but should be read in conjunction with the Combined Prospectus/Proxy Statement of The Victory Portfolios dated ______, 1998, which may be obtained by writing The Victory Portfolios, at P.O. Box 8527, Boston, Massachusetts 02266-8527 or by calling 800-579-3863. Further information about The Victory Portfolios is contained in the Statement of Additional Information of The Victory Portfolios dated March 1, 1997 and the audited financial statements of The Victory Portfolios for the period ended October 31, 1997, which are both incorporated by reference herein. The audited financial statements of the Key Stock Index Fund, SBSF Capital Growth Fund, and SBSF Fund (the "Key Funds") for the period ended November 30, 1997 are also incorporated by reference herein. The pro forma combined statement of assets and liabilities reflects the financial position of Victory Stock Index Fund, Victory Special Growth Fund, and Victory Diversified Stock Fund (the "Victory Funds") at October 31, 1997 as though the Reorganization occurred as of that date. The pro forma combined statement of operations reflects the results of operations of the Victory Funds and Key Funds for the period ended October 31, 1997 as though the Reorganization occurred at the beginning of the period presented. THE VICTORY/ KEY FUNDS ProForma Combined Statements of Assets and Liabilities (unaudited) October 31, 1997 (Amounts in thousands, except per share amounts) Victory Diversified Stock SBSF Proforma Proforma Fund Fund Adjustments Combined ----------- ----------- ----------- ----------- ASSETS: Investments, at value (Cost $645,984, $71,924, $717,908) $ 797,478 $ 94,068 $ -- $ 891,546 Interest and dividends receivable 733 -- -- 733 Receivable for capital shares issued 1,002 -- -- 1,002 Receivable from brokers for investments sold 2,810 37 -- 2,847 Prepaid expenses and other assets 5 8 -- 13 ----------- ----------- ----------- ----------- Total Assets 802,028 94,113 -- 896,141 ----------- ----------- ----------- ----------- LIABILITIES: CALL OPTIONS WRITTEN, AT VALUE (premium received $0, $418, $418) -- 268 -- 268 Payable for capital shares redeemed 39 -- -- 39 Payable to brokers for investments purchased 8,815 -- -- 8,815 Accrued expenses and other payables: Investment advisory fees 459 63 -- 522 Administration fees 8 2 -- 10 Custodian fees 16 5 -- 21 Accounting fees 1 -- -- 1 Transfer agent fees 86 12 -- 98 Shareholder service fees -- 2 -- 2 Shareholder service fees-Class A 74 -- -- 74 Shareholder service and 12b-1 fees-Class B 26 -- -- 26 Other 36 72 -- 108 ----------- ----------- ----------- ----------- Total Liabilities 9,560 424 -- 9,984 ----------- ----------- ----------- ----------- NET ASSETS: Capital 551,092 53,294 -- 604,386 Undistributed (distributions in excess of) net investment income 124 (63) -- 61 Net unrealized appreciation/depreciation from investments 151,494 22,294 -- 173,788 Accumulated undistributed net realized gains -- from investment transactions 89,758 18,164 -- 107,922 ----------- ----------- ----------- ----------- Net Assets $ 792,468 $ 93,689 $ -- $ 886,157 =========== =========== =========== =========== Net Assets Class A $ 762,270 93,689 $ -- 855,959 Class B 30,198 -- -- 30,198 ----------- ----------- ----------- ----------- Total $ 792,468 93,689 $ -- 886,157 =========== =========== =========== =========== Outstanding units of beneficial interest (shares) Class A 42,924 5,078 197 48,199 Class B 1,714 -- -- 1,714 ----------- ----------- ----------- ----------- 44,638 5,078 197 49,913 =========== =========== =========== =========== Net asset value -- Redemption price per share $ 18.45 ========== Redemption price per share-Class A $ 17.76 $ -- $ 17.76 =========== =========== =========== =========== Offering price per share-Class B* $ 17.62 $ -- $ 17.62 =========== =========== =========== =========== Maximum sales charge 5.75% -- -- 5.75% =========== =========== =========== =========== Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to nearest cent) $ 18.45 $ -- =========== =========== Maximum offering price per share (100%/(100%-maximum sales Charge) of net asset value adjusted to nearest cent)-Class A $ 18.84 $ -- $ 18.84 =========== =========== =========== * Redemption price per Class B Share varies based on length of time held. THE VICTORY/ KEY FUNDS ProForma Combined Statements of Assets and Liabilities (unaudited) October 31, 1997 (Amounts in thousands, except per share amounts) Victory SBSF Special Capital Growth Growth Proforma Proforma Fund Fund Adjustments Combined ----------- ----------- ----------- ----------- ASSETS: Investments, at value (Cost $86,395, $35,531, $121,926) $ 103,171 $ 41,994 $ -- $ 145,165 Interest and dividends receivable 1 7 -- 8 Receivable for capital shares issued 6 -- -- -- Receivable from brokers for investments sold 2,012 935 -- 2,947 Deferred organizational costs -- 6 (6) -- Prepaid expenses and other assets 2 3 -- 5 ----------- ----------- ----------- ----------- Total Assets 105,192 42,945 (6) 148,131 ----------- ----------- ----------- ----------- LIABILITIES: Payable to brokers for investments purchased 501 200 -- 701 Accrued expenses and other payables: Investment advisory fees 97 29 -- 126 Administration fees 1 1 -- 2 Custodian fees 6 4 -- 10 Accounting fees 4 -- -- 4 Transfer agent fees 3 5 -- 8 Shareholder service fees 8 -- -- 8 Other 7 32 -- 39 ----------- ----------- ----------- ----------- Total Liabilities 627 271 -- 898 ----------- ----------- ----------- ----------- NET ASSETS: Capital 76,532 33,855 -- 110,387 Undistributed (distributions in excess of ) net investment income (2) (653) (6) (661) Net unrealized appreciation/depreciation from investments 16,776 6,463 -- 23,239 Accumulated undistributed net realized gains from investment transactions 11,259 3,009 -- 14,268 ----------- ----------- ----------- ----------- Net Assets 104,565 $ 42,674 $ -- $ 147,233 =========== =========== =========== =========== ----------- ----------- ----------- ----------- Outstanding units of beneficial interest (shares) 6,420 3,650 (1,030) 9,040 =========== =========== =========== =========== Net asset value $ 16.29 $ 11.69 $ -- $ 16.29 =========== =========== =========== =========== Maximum sales charge 5.75% -- -- 5.75% =========== =========== =========== =========== Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to nearest cent) $ 17.28 $ 11.69 -- 17.28 =========== =========== =========== =========== THE VICTORY/ KEY FUNDS ProForma Combined Statements of Assets and Liabilities (unaudited) October 31, 1997 (Amounts in thousands, except per share amounts) Victory Key Stock Stock Index Index Proforma Proforma Fund Fund Adjustments Combined ----------- ----------- ----------- ----------- ASSETS: Investments, at value (Cost $346,871,$33,092, $379,963) $ 463,357 $ 36,918 $ -- $ 500,275 Interest and dividends receivable 480 35 -- 515 Receivable for capital shares issued 157 10 -- 167 Net variation margin on open futures contracts 1,359 177 -- 1,536 Deferred organization costs -- 24 (24) -- Prepaid expenses and other assets 42 26 -- 68 ----------- ----------- ----------- ----------- Total Assets 465,395 37,190 -- 502,585 ----------- ----------- ----------- ----------- LIABILITIES: Payable to brokers for investments purchased 141 10 -- 151 Payable for organization costs 30 (24) 6 Accrued expenses and other payables: Investment advisory fees 184 -- -- 184 Administration fees -- -- -- -- Custodian fees 34 16 -- 50 Accounting fees -- -- -- -- Transfer agent fees 8 3 -- 11 Shareholder service fees -- -- -- -- Other 13 15 -- 28 ----------- ----------- ----------- ------------ Total Liabilities 380 74 (24) 430 ----------- ----------- ----------- ------------ NET ASSETS: Capital 320,738 31,502 -- 352,240 Undistributed (distributions in excess of) net investment income 682 87 -- 769 Net unrealized appreciation/depreciation from investments and futures contracts 115,674 3,724 -- 119,398 Accumulated undistributed net realized gains -- from investment transactions 27,921 1,803 -- 29,724 ----------- ----------- ----------- ------------ Net Assets $ 465,015 $ 37,116 $ -- $ 502,131 =========== =========== =========== ============ ----------- ----------- ----------- ------------ Outstanding units of beneficial interest (shares) 24,807 2,807 (827) 26,787 =========== =========== =========== ============ Net asset value $ 18.75 $ 13.22 $ -- $ 18.75 =========== =========== =========== ============ Maximum sales charge 5.75% -- -- 5.75% =========== =========== =========== ============ Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to $ 19.89 $ 13.22 $ -- $ 19.89 =========== =========== =========== ============ STATEMENT OF OPERATIONS: THE VICTORY/ KEY FUNDS ProForma Combined Statements of Operations (unaudited) For the Year Ended October 31, 1997 (Amounts in Thousands) Pro Forma Pro Forma Diversified Stock Fund SBSF Fund Adjustments Combined Year ended Year ended Year ended Year ended October 31 October 31 October 31 October 31 1997 1997 1997 1997 ---- ---- ---- ---- INVESTMENT INCOME: Interest income $ 1,697 $ 173 $ -- $ 1,870 Dividend income 12,311 1,159 -- 13,470 Foreign tax withholding (7) (10) -- (17) --------- -------- ----- --------- Total Income 14,001 1,322 -- 15,323 --------- -------- ----- --------- EXPENSES: Investment advisory fees 4,561 775 (101) 5,235 Administration fees 1,035 205 (249) 991 Shareholder service fees -- 6 (6) -- Shareholder service fees-Class A 771 -- 800 1,571 Shareholder service fees and 12b-1 fees-Class B 200 -- -- 200 Accounting fees 120 12 (5) 127 Custodian fees 145 25 (8) 162 Legal and audit fees 91 186 (86) 191 Amortization of organization costs -- -- -- -- Trustees' fees and expenses 23 19 (13) 29 Transfer agent fees 383 62 (138) 307 Registration and filing fees 48 15 (20) 43 Printing fees 60 11 (22) 49 Other 18 21 (12) 27 --------- -------- ----- --------- Total Expenses 7,455 1,337 (140) 8,932 Expenses voluntarily reduced -- (4) (882) (886) --------- -------- ----- --------- Net Expenses 7,455 1,333 (742) 8,046 --------- -------- ----- --------- Net Investment Income 6,546 (11) 742 7,277 --------- -------- ----- --------- REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains from investment transactions 90,018 19,858 -- 109,876 Net realized losses from foreign currency transactions -- -- -- -- Net change in unrealized appreciation from investments 68,082 (1,138) -- 66,944 Change in unrealized depreciation from translation of assets and liabilities in foreign currencies -- -- -- -- --------- -------- ----- --------- Net realized/unrealized gains from investments and foreign currencies 158,100 18,720 -- 176,820 --------- -------- ----- --------- Change in net assets resulting from operations $ 164,646 $ 18,709 $ 742 $ 184,097 ========= ======== ===== ========= STATEMENT OF OPERATIONS: THE VICTORY/ KEY FUNDS ProForma Combined Statements of Operations (unaudited) For the Year Ended October 31, 1997 (Amounts in Thousands) Special Growth SBSF Capital Pro Forma Pro Forma Fund Growth Fund Adjustments Combined Year ended Year ended Year ended Year ended October 31 October 31 October 31 October 31 1997 1997 1997 1997 ---- ---- ---- ---- INVESTMENT INCOME: Interest income $ 207 $ 92 $ -- $ 299 Dividend income 209 67 -- 276 Foreign tax withholding -- -- -- -- -------- ------- ----- -------- Total Income 416 159 -- 575 -------- ------- ----- -------- EXPENSES: Investment advisory fees 921 289 95 1,305 Administration fees 138 96 (38) 196 Shareholder service fees 92 14 176 282 Shareholder service fees-Class A Shareholder service fees and 12b-1 fees-Class B Accounting fees 39 4 (3) 40 Custodian fees 35 26 (25) 36 Legal and audit fees 13 71 (55) 29 Amortization of organization costs -- 6 (6) 12 Trustees' fees and expenses 4 6 (6) 4 Transfer agent fees 14 24 (23) 15 Registration and filing fees 15 23 (23) 15 Printing fees 2 4 (4) 2 Other 2 1 (2) 1 -------- ------- ----- -------- Total Expenses 1,275 564 92 1,931 Expenses voluntarily reduced -- -- (164) (164) Expenses reimbursed by distributor -- -- -- -- -------- ------- ----- -------- Net Expenses 1,275 564 (72) 1,767 -------- ------- ----- -------- Net Investment Income (Loss) (859) (405) 72 (1,192) -------- ------- ----- -------- REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains from investment transactions 12,119 3,302 -- 15,421 Net realized losses from foreign currency transactions -- -- -- -- Net change in unrealized appreciation (depreciation) from investments 6,482 3,746 -- 10,228 Change in unrealized depreciation from translation of assets and liabilities in foreign currencies -- -- -- -- -------- ------- ----- -------- Net realized/unrealized gains from investments and foreign currencies 18,601 7,048 -- 25,649 -------- ------- ----- -------- Change in net assets resulting from operations $ 17,742 $ 6,643 $ 72 $ 24,457 ======== ======= ===== ======== STATEMENT OF OPERATIONS: THE VICTORY/ KEY FUNDS ProForma Combined Statements of Operation (unaudited) For the Year Ended October 31, 1997 (Amounts in Thousands) Victory Key Pro Forma Pro Forma Stock Index Fund Stock Index Fund Adjustments Combined Year ended Year ended Year ended Year ended October 31 October 31 October 31 October 31 1997 1997 1997 1997 ---- ---- ---- ---- INVESTMENT INCOME: Interest income $ 2,809 $ 380 $ -- $ 3,189 Dividend income 6,015 333 -- 6,348 Foreign tax withholding (42) (2) -- (44) -------- ------- ----- --------- Total Income 8,782 711 -- 9,493 -------- ------- ----- --------- EXPENSES: Investment advisory fees 2,290 26 127 2,443 Administration fees 568 38 (40) 566 Shareholder service fees -- -- -- -- Shareholder service fees-Class A -- -- -- -- Shareholder service fees and 12b-1 fees-Class B -- -- -- -- Accounting fees 121 79 (92) 108 Custodian fees 164 76 (85) 155 Legal and audit fees 48 64 (62) 50 Amortization of organization costs -- 5 (--) 5 Trustees' fees and expenses 11 4 (8) 7 Transfer agent fees 35 14 (25) 24 Registration and filing fees 32 27 (31) 28 Printing fees 2 4 (3) 3 Other 9 4 (7) 6 -------- ------- ----- --------- Total Expenses 3,280 341 (225) 3,396 Expenses voluntarily reduced (1,142) (64) 53 (1,153) Expenses reimbursed by distributor -- (277) 277 -- -------- ------- ----- --------- Net Expenses 2,138 -- 105 2,243 -------- ------- ----- --------- Net Investment Income 6,644 711 (105) 7,250 -------- ------- ----- --------- REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains from investment transactions 31,506 1,940 -- 33,446 Net realized losses from foreign currency transactions -- -- -- -- Net change in unrealized appreciation from investments 57,624 3,301 -- 60,925 Change in unrealized depreciation from translation of -- -- assets and liabilities in foreign currencies -- -- -- -- -------- ------- ----- --------- Net realized/unrealized gains from investments and foreign currencies 89,130 5,241 -- 94,371 -------- ------- ----- --------- Change in net assets resulting from operations $ 95,774 $ 5,952 $(105) $ 101,621 ======== ======= ===== ========= KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- COMMERCIAL PAPER (12.8%) Financial Services (11.3%) General Electric Capital Corp., 56,682 56,682 7,441 7,441 64,123 64,123 5.79%, 11/3/97 Total Commercial Paper (Cost 56,682 7,441 64,123 $64,123) COMMON STOCKS (86.3%) Advertising (0.1%) Interpublic Group of Cos., Inc. 7,092 337 505 24 7,597 361 Aerospace-Defense (1.5%) AlliedSignal, Inc. 32,227 1,160 2,317 83 34,544 1,243 B.F. Goodrich Co. 3,079 137 220 10 3,299 147 Boeing Co. 57,010 2,730 4,098 196 61,109 2,926 General Dynamics Corp. 3,558 289 255 21 3,813 310 Lockheed Martin Corp. 11,043 1,050 790 75 11,833 1,125 Northrop Grumman Corp. 3,798 415 273 30 4,071 445 Raytheon Co. 13,457 730 964 52 14,421 782 United Technologies Corp. 13,406 938 965 68 14,371 1,006 7,449 535 7,984 Agriculture (0.1%) Pioneer Hi-Bred International, 3,837 352 275 25 4,112 377 Inc. Airlines (0.3%) AMR Corp. Delaware(b) 5,235 610 373 44 5,608 654 Delta Air Lines, Inc. 4,184 422 301 30 4,485 452 Southwest Airlines Co. 8,314 271 594 19 8,908 290 U.S. Airways Group, Inc.(b) 4,893 229 353 17 5,246 246 1,532 110 1,641 Aluminum (0.3%) Alcan Aluminum Ltd. 12,926 369 927 26 13,853 395 Aluminum Co. of America 9,904 723 709 52 10,613 775 Reynolds Metal Co. 4,198 256 299 18 4,497 274 1,348 96 1,444 Apparel (0.0%) Reebok International Ltd.(b) 3,204 118 231 9 3,435 127 Apparel-Footwear (0.3%) Fruit of the Loom, Inc., Class 4,173 109 301 8 4,474 117 A(b) Liz Claiborne, Inc. 3,984 202 288 15 4,272 217 Nike, Inc., Class B 16,441 772 1,179 55 17,620 827 VF Corp. 3,578 320 260 23 3,838 343 1,403 101 1,504 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Automobiles (1.5%) Chrysler Corp. 38,405 1,354 2,762 97 41,167 1,451 Ford Motor Co. 68,008 2,971 4,889 214 72,897 3,185 General Motors Corp. 41,516 2,665 2,984 192 44,500 2,857 Navistar International Corp.(b) 4,158 96 300 7 4,458 103 PACCAR, Inc. 4,432 200 317 14 4,749 214 7,286 524 7,810 Automotive Parts (0.3%) Cummins Engine Co., Inc. 2,179 133 156 10 2,335 143 Dana Corp. 5,944 278 422 20 6,366 298 Echlin, Inc. 3,590 118 255 8 3,845 126 Genuine Parts Co. 10,255 321 735 23 10,990 344 ITT Industries, Inc. 6,745 213 485 15 7,230 228 Meritor Automotive, Inc.(b) 223 5 0 0 223 5 TRW, Inc. 7,018 401 508 29 7,526 430 1,469 105 1,574 Banks (5.4%) Banc One Corp. 33,185 1,730 2,386 124 35,571 1,854 Bank of New York Co. 21,609 1,017 1,554 73 23,163 1,090 BankAmerica Corp. 39,769 2,845 2,859 205 42,628 3,048 Bankers Trust New York Corp. 5,666 669 407 48 6,073 717 Barnett Banks, Inc. 11,321 781 811 56 12,132 837 Chase Manhattan Corp. 24,114 2,782 1,734 200 25,848 2,982 Comerica, Inc. 6,009 475 431 34 6,440 509 First Chicago NBD Corp. 16,835 1,225 1,211 88 18,046 1,313 First Union Corp. 31,966 1,568 2,299 113 34,265 1,681 Huntington Bancshares, Inc. 10,773 348 778 25 11,551 373 J.P. Morgan & Co., Inc. 10,188 1,118 733 80 10,921 1,198 KeyCorp 12,369 757 889 54 13,258 811 MBNA Corp. 28,539 751 2,046 54 30,585 805 Mellon Bank Corp. 14,327 739 1,030 53 15,357 792 National City Corp. 12,255 732 882 53 13,137 785 NationsBank Corp. 40,538 2,427 2,915 175 43,453 2,602 Norwest Corp. 42,684 1,369 3,066 98 45,750 1,467 PNC Bank Corp. 17,480 830 1,257 60 18,737 890 Republic New York Corp. 3,120 330 222 23 3,342 353 SunTrust Banks, Inc. 12,177 789 876 57 13,053 846 Wachovia Corp. 9,085 684 658 50 9,743 734 Wells Fargo & Co. 5,007 1,459 364 106 5,371 1,565 25,425 1,829 27,253 Banks-Money Centers Regional (1.6%) BankBoston Corp. 8,296 672 599 49 8,895 721 Citicorp 26,085 3,263 1,876 233 27,961 3,497 CoreStates Financial Corp. 11,526 839 829 60 12,355 899 Fleet Financial Group, Inc. 14,235 915 1,024 66 15,259 981 State Street Corp. 9,144 510 656 37 9,800 546 U.S. Bancorp 13,935 1,417 999 102 14,934 1,519 7,616 547 8,163 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Banks-Outside Money Center (0.2%) Fifth Third Bancorp 8,775 562 631 41 9,406 603 Providian Financial Corp. 5,340 198 383 14 5,723 212 760 55 815 Beverages (2.8%) Anheuser-Busch Cos., Inc. 28,004 1,118 2,014 80 30,018 1,199 Brown-Forman Corp., Class B 3,929 193 281 14 4,210 207 Coca-Cola Co. 141,231 7,980 10,153 574 151,384 8,553 Coors (Adolph) Co. 2,111 75 153 5 2,264 80 PepsiCo, Inc. 87,150 3,208 6,265 231 93,415 3,439 Seagram Co. Ltd. 21,112 711 1,513 51 22,625 762 13,285 955 14,240 Broadcasting/Cable (0.1%) Tele-Communications, Inc., 24,229 556 1,789 41 26,018 597 Class A(b) Brokerage Services (0.8%) Merrill Lynch & Co., Inc. 18,869 1,276 1,352 91 20,221 1,367 Morgan Stanley, Dean, Witter, 33,423 1,637 2,403 118 35,826 1,756 Discover & Co. Salomon Brothers, Inc. 6,121 476 441 34 6,562 510 Schwab (Charles) Corp. 15,067 514 1,082 37 16,149 551 3,903 280 4,184 Building Materials (0.2%) Armstrong World Industries, Inc. 2,321 154 167 11 2,488 166 Centex Corp. 1,658 97 118 7 1,776 104 Fleetwood Enterprises, Inc. 2,034 62 146 4 2,180 66 Kaufman & Broad Home Corp. 2,213 47 158 3 2,371 51 Masco Corp. 9,393 412 675 31 10,068 441 Pulte Corp. 1,198 45 85 3 1,283 48 817 59 876 Chemicals-General (2.2%) Air Products & Chemicals, Inc. 6,242 474 448 34 6,690 508 Dow Chemical Co. 12,982 1,178 934 85 13,916 1,263 E.I. Du Pont de Nemours Co. 64,392 3,663 4,629 265 69,021 3,925 Eastman Chemical Co. 4,464 266 320 19 4,784 285 Englehard Corp. 8,219 143 589 10 8,808 153 FMC Corp.(b) 2,119 171 152 12 2,271 184 Great Lakes Chemical Corp. 3,409 160 244 11 3,653 172 Hercules, Inc. 5,641 259 409 19 6,050 278 Mallinckrodt, Inc. 4,178 157 300 11 4,478 168 Monsanto Co. 33,567 1,435 2,413 103 35,980 1,538 Nalco Chemical Co. 3,805 152 273 11 4,078 163 PPG Industries, Inc. 10,210 578 735 42 10,945 620 Praxair, Inc. 8,998 392 644 28 9,642 420 Rohm & Haas Co. 3,509 292 253 21 3,762 313 Sigma-Aldrich Corp. 5,709 201 409 14 6,118 215 Union Carbide Corp. 7,074 323 511 23 7,585 347 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- W.R. Grace & Co. 4,136 281 296 20 4,432 301 10,125 728 10,853 Chemicals-Specialty (0.1%) Millipore Corp. 2,481 97 179 7 2,660 104 Morton International, Inc. 7,974 263 572 19 8,546 282 360 26 386 Commercial Services (0.5%) Automatic Data Processing, Inc. 16,675 852 1,195 61 17,870 914 CUC International, Inc.(b) 23,322 688 1,676 49 24,998 737 Ecolab, Inc. 3,690 176 265 13 3,955 188 Federal Express Corp.(b) 6,542 437 467 31 7,009 468 2,153 154 2,307 Computers & Peripherals (4.5%) 3Com Corp.(b) 19,624 813 1,410 58 21,034 872 Apple Computer, Inc.(b) 7,250 123 517 9 7,767 132 Bay Networks, Inc.(b) 12,183 385 874 28 13,057 413 Cabletron Systems, Inc.(b) 8,978 260 645 19 9,623 279 Cisco Systems, Inc.(b) 38,099 3,125 2,739 225 40,838 3,350 Compaq Computer Corp.(b) 43,047 2,744 3,094 197 46,141 2,941 Computer Sciences Corp.(b) 4,392 312 313 22 4,705 334 Data General Corp.(b) 2,724 52 195 4 2,919 56 Dell Computer, Inc.(b) 18,836 1,509 1,354 108 20,190 1,618 Digital Equipment Corp.(b) 8,703 436 623 31 9,326 467 EMC Corp.(b) 14,049 787 1,005 56 15,054 843 Hewlett-Packard Co. 59,229 3,654 4,258 263 63,487 3,916 International Business Machines 55,931 5,486 4,021 394 59,952 5,879 Corp. Seagate Technology, Inc.(b) 13,925 378 1,001 27 14,926 405 Silicon Graphics, Inc.(b) 10,080 148 722 11 10,802 159 Sun Microsystems, Inc.(b) 21,005 719 1,506 52 22,511 771 Unisys Corp.(b) 9,957 133 713 9 10,670 142 21,064 1,513 22,577 Conglomerates (1.1%) Corning, Inc. 13,138 593 944 43 14,082 635 Crane Co. 2,615 109 188 8 2,803 117 Minnesota Mining & 23,658 2,164 1,699 155 25,357 2,320 Manufacturing Co. National Service Industries, 2,568 114 184 8 2,752 122 Inc. Tenneco, Inc. 9,694 436 698 31 10,392 467 Textron, Inc. 9,396 543 673 39 10,069 582 Westinghouse Electric Corp. 40,137 1,061 2,901 77 43,038 1,138 Whitman Corp. 5,784 152 415 11 6,199 163 5,172 372 5,544 Construction (0.1%) Fluor Corp. 4,779 196 343 15 5,122 211 Foster Wheeler Corp. 2,315 76 165 5 2,480 81 272 20 292 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Consumer Products (1.6%) American Greetings Corp., Class 4,287 149 306 11 4,593 159 A Clorox Co. 5,886 412 422 30 6,308 442 Colgate-Palmolive Co. 16,852 1,091 1,211 78 18,063 1,170 Jostens, Inc. 2,219 52 158 4 2,377 55 Newell Co. 9,060 348 649 25 9,709 373 Procter & Gamble Co. 76,918 5,230 5,526 375 82,444 5,606 7,282 523 7,805 Containers (0.3%) Ball Corp. 1,718 60 123 4 1,841 64 Bemis, Inc. 3,020 115 216 8 3,236 123 Crown Cork & Seal, Inc. 7,308 330 524 24 7,832 355 Owens Corning 3,038 104 217 7 3,255 111 Owens-Illinois, Inc.(b) 7,991 276 574 20 8,565 295 Rubbermaid, Inc. 8,537 205 613 15 9,150 220 Stone Container Corp. 5,657 68 405 5 6,062 73 Tupperware Corp. 3,488 87 251 6 3,739 94 1,245 89 1,335 Cosmetics & Related (0.8%) Alberto Culver Co. 3,196 96 228 7 3,424 103 Avon Products, Inc. 7,539 494 540 35 8,079 529 Gillette Co. 31,875 2,839 2,291 204 34,166 3,043 International Flavor & 6,224 301 446 22 6,670 323 Fragance, Inc. 3,730 268 3,998 Diversified (0.2%) Tyco International Ltd. 30,342 1,145 2,180 82 32,522 1,228 Electrical Equipment (3.0%) Emerson Electric Co. 25,251 1,324 1,817 95 27,068 1,419 General Electric Co. 186,429 12,036 13,403 866 199,832 12,902 Johnson Controls, Inc. 4,770 214 342 15 5,112 229 Thomas & Betts Corp. 3,130 156 222 11 3,352 167 W.W. Grainger, Inc. 2,833 248 210 18 3,043 266 13,978 1,005 14,983 Electronic & Electrical-General (1.4%) Advanced Micro Devices, Inc.(b) 8,022 185 573 13 8,595 198 AMP, Inc. 12,507 563 896 40 13,403 603 Andrew Corp.(b) 5,137 119 371 9 5,508 128 EG&G, Inc. 2,606 54 187 4 2,793 58 General Signal Corp. 2,870 115 205 8 3,075 123 Harris Corp. 4,538 198 326 14 4,864 212 Honeywell, Inc. 7,261 494 519 35 7,780 530 KLA-Tencor Corp.(b) 4,766 209 342 15 5,108 224 Motorola, Inc. 33,899 2,092 2,436 152 36,335 2,242 National Semiconductor Corp.(b) 8,267 298 594 21 8,861 319 Rockwell International Corp. 11,891 583 856 42 12,747 625 Tandy Corp. 6,036 207 442 15 6,478 223 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Tektronix, Inc. 1,903 113 136 8 2,039 121 Texas Instruments, Inc. 10,917 1,165 781 83 11,698 1,248 6,395 459 6,854 Entertainment (1.1%) Brunswick Corp. 5,656 191 405 14 6,061 205 Harrah's Entertainment, Inc.(b) 5,748 113 418 8 6,166 121 Hasbro, Inc. 7,231 210 520 15 7,751 225 King World Productions, Inc.(b) 2,094 99 152 7 2,246 106 Loews Corp. 6,549 731 469 52 7,018 784 Viacom, Inc., Class B(b) 20,095 608 1,439 44 21,534 651 Walt Disney Co. 38,443 3,162 2,763 227 41,206 3,389 5,114 367 5,481 Financial & Insurance (0.1%) MBIA, Inc. 5,082 304 358 21 5,440 325 Financial Services (3.0%) American Express Co. 26,694 2,082 1,919 150 28,613 2,232 American General Corp. 14,137 721 1,016 52 15,153 773 Beneficial Corp. 3,029 232 219 17 3,248 249 Countrywide Credit Industries, 6,101 209 438 15 6,539 224 Inc. Equifax, Inc. 8,592 267 617 19 9,209 286 Federal Home Loan Mortgage Corp. 39,574 1,499 2,845 108 42,419 1,607 Federal National Mortgage Assoc. 60,414 2,927 4,343 210 64,757 3,136 First Data Corp. 25,265 734 1,817 53 27,082 787 Golden West Financial Corp., 3,231 280 234 20 3,465 301 Delaware Green Tree Financial Corp. 7,735 326 554 23 8,289 349 H.F. Ahmanson & Co. 5,748 339 399 24 6,147 363 Household International, Inc. 6,081 689 435 49 6,516 738 TransAmerica Corp. 3,605 364 260 26 3,865 390 Travelers Group, Inc. 36,515 2,556 2,625 184 39,140 2,740 Washington Mutual, Inc. 14,262 976 1,025 70 15,287 1,046 14,201 1,020 15,221 Food Distributors (0.5%) Albertsons, Inc. 13,994 516 1,006 35 15,000 554 American Stores Co. 15,505 398 1,115 29 16,620 427 Fleming Cos., Inc. 2,153 36 154 3 2,307 39 Giant Food, Inc., Class A 3,418 105 245 8 3,663 112 Great Atlantic & Pacific Tea, 2,179 67 156 5 2,335 72 Inc. Kroger Co.(b) 14,485 473 1,037 34 15,522 506 SUPERVALU, Inc. 3,451 126 245 9 3,696 135 Sysco Corp. 9,932 397 712 28 10,644 426 Winn-Dixie Stores, Inc. 8,478 315 608 23 9,086 337 2,433 174 2,608 Food Processing & Packaging (2.0%) Archer-Daniels-Midland Co. 31,892 710 2,292 51 34,184 761 Campbell Soup Co. 26,190 1,350 1,883 97 28,073 1,448 ConAgra, Inc. 26,930 811 1,946 59 28,876 870 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- CPC International, Inc. 8,178 810 585 58 8,763 868 General Mills, Inc. 9,106 601 657 43 9,763 644 H.J. Heinz Co. 21,020 976 1,511 70 22,531 1,046 Hershey Foods Corp. 8,136 450 586 32 8,722 482 Kellogg Co. 23,500 1,012 1,694 73 25,194 1,085 Quaker Oats Co. 7,822 374 557 27 8,379 401 Ralston-Ralston Purina Group 6,069 545 435 39 6,504 584 Sara Lee Corp. 27,351 1,398 1,966 101 29,317 1,498 Wm. Wrigley Jr. Co. 6,618 479 474 34 7,092 513 9,516 684 10,200 Forest Products-Lumber & Paper (1.2%) Boise Cascade Corp. 3,167 110 227 8 3,394 118 Champion International Corp. 5,463 301 390 22 5,853 323 Fort James Corp. 10,759 427 773 31 11,532 458 Georgia Pacific Corp. 5,210 442 374 32 5,584 474 International Paper Co. 17,220 775 1,237 56 18,457 831 Kimberly-Clark Corp. 31,699 1,646 2,282 117 33,981 1,765 Louisiana Pacific Corp. 6,224 131 446 9 6,670 140 Mead Corp. 2,980 180 214 13 3,194 193 Potlatch Corp. 1,648 82 118 6 1,766 88 Temple-Inland, Inc. 3,242 186 233 13 3,475 199 Union Camp Corp. 3,950 214 283 15 4,233 229 Westvaco Corp. 5,807 191 416 14 6,223 204 Weyerhauser Co. 11,354 542 811 39 12,165 581 Willamette Industries, Inc. 6,325 209 452 15 6,777 224 5,436 390 5,827 Funeral Services (0.1%) Service Corp. International 14,323 436 1,029 31 15,352 467 Health Care (0.2%) Columbia/HCA Healthcare Corp. 37,238 1,052 2,678 76 39,916 1,127 Humana, Inc.(b) 9,316 196 668 14 9,984 210 1,248 90 1,337 Heavy Machinery (0.6%) Case Corp. 4,246 254 304 18 4,550 272 Caterpillar Tractor, Inc. 21,435 1,098 1,542 80 22,977 1,177 Deere & Co. 14,356 755 1,032 54 15,388 810 Harnischfeger Industries, Inc. 2,814 111 201 8 3,015 119 Ingersoll Rand Co. 9,447 368 678 26 10,125 394 McDermott International, Inc. 3,162 115 225 8 3,387 123 2,701 194 2,895 Hotels & Motels (0.5%) HFS, Inc.(b) 9,039 637 646 47 9,685 683 Hilton Hotels Corp. 14,239 439 1,019 31 15,258 470 ITT Corp.(b) 6,632 495 475 35 7,107 531 Marriott International, Inc. 7,240 505 518 36 7,758 541 Mirage Resorts, Inc.(b) 10,181 255 732 18 10,913 273 2,331 167 2,498 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Household Goods-Appliances, Furnishings & Electronics (0.1%) Maytag Corp. 5,613 187 399 13 6,012 201 Whirlpool Corp. 4,246 258 304 19 4,550 275 445 32 476 Industrial Goods & Services (0.1%) Aeroquip-Vickers Inc. 1,599 83 114 6 1,713 89 Dover Corp. 6,332 428 457 31 6,789 458 511 37 547 Insurance-Life (0.1%) Jefferson Pilot Corp. 4,032 312 289 22 4,321 334 Insurance-Multi-Line (2.7%) Aetna, Inc. 8,532 606 616 44 9,148 650 Allstate Corp. 24,774 2,055 1,781 148 26,555 2,202 American International Group, 39,930 4,076 2,872 291 42,802 4,370 Inc. Aon Corp. 9,516 513 680 37 10,196 550 CIGNA Corp. 4,215 654 302 47 4,517 701 Conseco Inc. 10,698 467 769 34 11,467 500 General Re Corp. 4,534 894 330 65 4,864 959 Hartford Financial Services 6,719 544 482 39 7,201 583 Group, Inc. Lincoln National Corp. 5,805 399 420 29 6,225 428 Marsh & McLennan Cos., Inc. 9,593 681 690 49 10,283 730 MGIC Investment Corp. 6,499 392 467 28 6,966 420 Safeco Corp. 8,054 384 578 28 8,632 411 SunAmerica, Inc. 11,107 399 798 29 11,905 428 Torchmark Corp. 7,881 314 569 23 8,450 337 USF&G Corp. 6,312 128 451 9 6,763 137 12,506 900 13,406 Insurance-Property, Casualty, Health (0.4%) Chubb Corp. 9,821 651 712 47 10,533 697 Progressive Corp. 4,106 428 295 31 4,401 459 St. Paul Cos., Inc. 4,781 382 342 27 5,123 410 UNUM Corp. 7,946 387 570 28 8,516 415 1,848 133 1,981 Investment Company (0.1%) TCI Ventures Group, Class A(b) 13,594 314 799 18 14,393 332 Machine Tools (0.0%) Cincinnati Milacron, Inc. 2,270 63 163 5 2,433 68 Manufacturing -Capital Goods (0.2%) Cooper Industries, Inc. 6,955 363 500 26 7,455 389 Illinois Tool Works, Inc. 14,202 698 1,017 50 15,219 748 1,061 76 1,137 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Manufacturing-Consumer Goods (0.2%) Eaton Corp. 4,403 425 315 30 4,718 456 Mattel, Inc. 16,539 643 1,189 47 17,728 689 1,068 77 1,145 Manufacturing-Miscellaneous (0.6%) Briggs & Stratton Corp. 1,443 72 104 5 1,547 77 NACCO Industries, Inc. 470 48 33 3 503 52 Pall Corp. 7,231 150 517 11 7,748 160 Thermo Electron Corp.(b) 8,556 319 613 23 9,169 342 Unilever N.V. 36,456 1,946 2,612 140 39,068 2,085 Western Atlas, Inc.(b) 3,075 265 220 19 3,295 284 2,800 201 3,000 Medical Services (0.8%) Beverly Enterprises, Inc.(b) 6,277 94 450 7 6,727 100 HEALTHSOUTH Corp.(b) 25,277 646 1,816 45 27,093 693 Manor Care, Inc. 3,625 124 259 9 3,884 133 Tenet Healthcare Corp.(b) 17,238 527 1,240 38 18,478 565 United Healthcare Corp. 10,679 495 767 36 11,446 530 1,886 135 2,021 Medical Supplies (0.7%) Alza Corp., Class A(b) 4,842 126 347 9 5,189 135 Bausch & Lomb, Inc. 3,156 124 227 9 3,383 133 Baxter International, Inc. 15,914 736 1,144 53 17,058 789 Becton Dickinson & Co. 6,957 320 499 23 7,456 343 Biomet, Inc. 6,335 158 454 11 6,789 169 Boston Scientific Corp.(b) 11,055 503 794 36 11,849 539 C.R. Bard, Inc. 3,265 91 233 6 3,498 97 Guidant Corp. 8,439 485 607 35 9,046 520 Medtronic, Inc. 26,627 1,159 1,914 84 28,541 1,242 St. Jude Medical, Inc.(b) 5,227 158 373 11 5,600 170 United States Surgical Corp. 4,182 113 299 8 4,481 121 3,973 285 4,258 Medical-Wholesale Drug Distribution (0.1%) Cardinal Health, Inc. 6,181 459 443 33 6,624 492 Metals-Fabrication (0.1%) Phelps Dodge Corp. 3,440 256 252 18 3,692 275 Timken Co. 3,573 120 256 9 3,829 128 376 27 403 Mining (0.1%) Asarco, Inc. 2,399 66 176 5 2,575 70 Cyprus Amax Minerals Co. 5,324 111 381 8 5,705 119 Inco Ltd. 9,508 196 680 14 10,188 211 373 27 400 Newspapers (0.5%) Dow Jones & Co., Inc. 5,465 254 390 18 5,855 272 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Gannett Co., Inc. 16,140 849 1,156 61 17,296 910 Knight-Ridder, Inc. 4,979 260 359 19 5,338 279 New York Times Co., Class A 5,460 299 390 21 5,850 320 Times Mirror Co., Class A 5,455 295 390 21 5,845 316 Tribune Co. 6,990 385 501 28 7,491 413 2,342 168 2,510 Office Equipment & Supplies (Non-Computer Related) (0.6%) Avery Dennison Corp. 5,872 234 422 17 6,294 251 Deluxe Corp. 4,694 154 336 11 5,030 165 IKON Office Solutions, Inc. 7,565 214 541 15 8,106 230 Moore Corp. Ltd. 5,032 81 360 6 5,392 87 Pitney Bowes, Inc. 8,216 652 594 47 8,810 699 Xerox Corp. 18,514 1,468 1,331 106 19,845 1,573 2,803 202 3,005 Oil & Gas Exploration, Production & Services (1.3%) Amerada Hess Corp. 5,225 321 378 23 5,603 344 Anadarko Petroleum Corp. 3,398 249 244 18 3,642 267 Apache Corp. 5,142 216 369 15 5,511 231 Ashland, Inc. 4,246 202 304 14 4,550 217 Burlington Resource, Inc. 10,037 491 722 35 10,759 527 Coastal Corp. 6,037 363 432 26 6,469 389 Columbia Gas System, Inc. 3,154 228 226 16 3,380 244 Helmerich & Payne, Inc. 1,426 115 101 8 1,527 123 Kerr-McGee Corp. 2,715 183 195 13 2,910 197 Occidental Petroleum Corp. 18,857 526 1,356 38 20,213 563 ONEOK, Inc. 1,590 55 114 4 1,704 58 Oryx Energy Co.(b) 6,003 165 430 12 6,433 177 Pennzoil Co. 2,685 199 192 14 2,877 213 Rowan Cos., Inc.(b) 4,927 192 351 14 5,278 205 Sonat, Inc. 4,884 224 351 16 5,235 240 Sun Co., Inc. 4,134 166 297 12 4,431 178 Union Pacific Resources Group, 14,451 356 1,036 26 15,487 381 Inc. Unocal Corp. 14,066 580 1,011 43 15,077 622 USX - Marathon Group 16,402 586 1,175 42 17,577 630 Williams Cos., Inc. 9,052 461 647 33 9,699 494 5,878 422 6,300 Oil-Integrated Companies (6.0%) Amoco Corp. 27,948 2,562 2,014 185 29,962 2,747 Atlantic Richfield Co. 18,268 1,504 1,314 108 19,582 1,612 Chevron Corp. 37,279 3,092 2,679 222 39,958 3,314 Exxon Corp. 140,891 8,657 10,129 622 151,020 9,278 Mobil Corp. 44,750 3,258 3,215 234 47,965 3,492 Phillips Petroleum Co. 15,001 726 1,076 52 16,077 778 Royal Dutch Petroleum Co., New 122,097 6,425 8,778 462 130,875 6,887 York Shares Texaco, Inc. 30,561 1,740 2,154 123 32,715 1,863 27,964 2,008 29,971 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Oilfield Services & Equipment (1.0%) Baker Hughes, Inc. 9,608 441 690 32 10,298 473 Dresser Industries, Inc. 9,970 420 719 30 10,689 450 Halliburton Co. 14,436 861 1,032 62 15,468 922 Parker-Hannifin Corp. 6,360 266 458 19 6,818 285 Schlumberger, Ltd. 28,189 2,467 2,026 177 30,215 2,645 4,455 320 4,775 Paint, Varnishes, Enamels (0.1%) Sherwin-Williams Co. 9,832 273 704 20 10,536 292 Pharmaceuticals (7.9%) Abbott Laboratories 43,813 2,686 3,154 193 46,967 2,880 Allergan, Inc. 3,693 122 267 9 3,960 130 American Home Products Corp. 36,930 2,737 2,655 197 39,585 2,934 Amgen, Inc.(b) 15,098 744 1,081 53 16,179 797 Bristol-Myers Squibb Co. 56,756 4,980 4,079 358 60,835 5,338 Cognizant Corp. 9,350 366 672 26 10,022 393 Crescendo Pharmaceuticals(b) 230 3 17 0 248 3 Eli Lilly & Co. 63,348 4,236 4,554 305 67,902 4,541 Johnson & Johnson 75,775 4,348 5,447 313 81,222 4,660 Merck & Co., Inc. 68,777 6,139 4,944 440 73,721 6,580 Pfizer, Inc. 73,602 5,207 5,291 374 78,893 5,582 Pharmacia & Upjohn, Inc. 28,910 918 2,077 66 30,987 984 Schering-Plough Corp. 41,718 2,339 2,999 168 44,717 2,507 Warner-Lambert Co. 15,453 2,213 1,108 159 16,561 2,371 37,038 2,661 39,700 Photography (0.3%) Eastman Kodak Co. 18,552 1,110 1,334 80 19,886 1,191 Polaroid Corp. 2,594 117 184 8 2,778 125 1,227 88 1,316 Pollution Control Services & Equipment (0.2%) Browning-Ferris Industries, Inc. 11,313 368 803 26 12,116 394 Safety-Kleen, Corp. 3,319 73 238 5 3,557 79 Waste Management, Inc. 25,820 604 1,855 44 27,675 646 1,045 75 1,119 Precision Instruments & Related (0.0%) Perkin-Elmer Corp. 2,494 156 180 11 2,674 167 Primary Metal & Mineral Production (0.3%) Barrick Gold Corp. 21,225 437 1,522 32 22,747 467 Battle Mountain Gold Co. 13,081 80 938 6 14,019 86 Echo Bay Mines Ltd. 7,937 32 569 2 8,506 35 KEY STOCK INDEX FUND AND VICTORY STOCK INDEX FUND ProForma Combined Schedule of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Freeport-McMoRan Copper & Gold, 11,323 270 817 20 12,140 290 Inc., Class B Homestake Mining Co. 8,356 103 602 7 8,958 111 Inland Steel Industries, Inc. 2,779 55 200 4 2,979 58 Newmont Mining Corp. 8,900 312 637 22 9,537 334 Placer Dome, Inc. 13,638 211 980 15 14,618 227 1,500 108 1,608 Publishing (0.6%) Dun & Bradstreet Corp. 9,708 277 698 20 10,406 297 John H. Harland Co. 1,768 40 126 3 1,894 42 McGraw-Hill Cos., Inc. 5,633 368 408 27 6,041 395 Meredith Corp. 3,049 104 218 7 3,267 111 R.R. Donnelley & Sons Co. 8,331 272 597 19 8,928 291 Time Warner, Inc. 31,877 1,839 2,291 133 34,168 1,972 2,900 209 3,108 Radio & Television (0.4%) Clear Channel Communications, 5,582 368 401 26 5,983 395 Inc.(b) Comcast, Class A Special Shares 19,862 546 1,427 39 21,289 585 U.S. West Media Group(b) 34,529 872 2,482 63 37,011 935 1,786 128 1,915 Railroads (0.7%) Burlington Northern Santa Fe 8,857 841 637 61 9,494 902 CSX Corp. 12,405 678 889 49 13,294 727 Norfolk Southern Corp. 21,468 690 1,536 49 23,004 739 Union Pacific Corp. 14,070 862 1,008 61 15,078 923 3,071 220 3,291 Restaurants (0.5%) Darden Restaurants, Inc. 8,712 99 625 7 9,337 106 McDonald's Corp. 39,176 1,755 2,814 126 41,990 1,882 Tricon Global Restaurants(b) 8,715 264 626 19 9,342 283 Wendy's International, Inc. 7,500 158 536 11 8,036 169 2,276 163 2,440 Retail (1.3%) Costco Cos., Inc.(b) 12,102 466 870 33 12,972 499 Dayton Hudson Corp. 12,395 779 886 56 13,281 834 K-Mart Corp.(b) 27,723 366 1,992 26 29,715 392 Wal-Mart Stores, Inc. 128,951 4,528 9,270 326 138,221 4,856 Woolworth Corp.(b) 7,672 146 550 10 8,222 156 6,285 451 6,737 Retail-Department Stores (0.8%) Dillard's, Inc., Class A 6,362 244 463 18 6,825 262 Federated Department Stores, 11,908 524 856 38 12,764 562 Inc.(b) Harcourt General, Inc. 4,029 202 289 14 4,318 216 J.C. Penney Co., Inc. 14,172 832 1,019 60 15,191 892 May Department Stores Co. 13,243 713 952 51 14,195 765 Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Mercantile Stores Co., Inc. 2,093 123 150 9 2,243 132 Nordstrom, Inc. 4,398 269 322 20 4,720 289 Sears, Roebuck & Co. 22,299 934 1,600 67 23,899 1,000 3,841 277 4,118 Retail-Drug Stores (0.4%) CVS Corp. 9,793 600 703 43 10,496 644 Longs Drug Stores Corp. 2,229 56 159 4 2,388 60 Rite Aid Corp. 7,002 416 501 30 7,503 445 Walgreen Co. 28,031 788 2,009 56 30,040 845 1,860 133 1,994 Retail-Specialty Stores (1.1%) AutoZone, Inc.(b) 8,599 254 616 18 9,215 272 Charming Shoppes, Inc.(b) 6,021 31 431 2 6,452 33 Circuit City Stores, Inc. 5,604 223 400 16 6,004 239 Gap, Inc. 15,267 812 1,098 58 16,365 870 Home Depot, Inc. 41,569 2,314 2,988 168 44,557 2,481 Limited, Inc. 15,462 364 1,108 26 16,570 390 Lowe's Cos., Inc. 9,893 412 707 29 10,600 441 Pep Boys - Manny, Moe & Jack 3,599 91 258 6 3,857 97 TJX Cos., Inc. 9,296 275 668 20 9,964 295 Toys "R" Us, Inc.(b) 16,245 553 1,166 40 17,411 593 5,329 383 5,711 Rubber & Rubber Products (0.1%) Cooper Tire & Rubber Co. 4,484 95 321 7 4,805 102 Goodyear Tire & Rubber Co. 8,882 556 637 40 9,519 596 651 47 698 Semiconductors (1.8%) Applied Materials, Inc.(b) 20,758 693 1,480 49 22,238 742 Intel Corp. 92,983 7,159 6,683 515 99,666 7,674 LSI Logic Corp.(b) 8,083 176 578 13 8,661 189 Micron Technology, Inc.(b) 11,997 322 858 23 12,855 345 8,350 600 8,950 Software & Computer Services (3.0%) Adobe Systems, Inc. 4,150 198 293 14 4,443 212 Autodesk, Inc. 2,731 101 195 7 2,926 108 Ceridian Corp.(b) 4,595 179 329 13 4,924 192 Computer Associates 20,723 1,545 1,484 111 22,207 1,656 International, Inc. HBO & Co 11,167 486 810 35 11,977 521 Microsoft Corp.(b) 68,234 8,871 4,905 638 73,139 9,509 Novell, Inc.(b) 19,833 167 1,429 12 21,262 179 Oracle Corp.(b) 55,793 1,996 4,010 143 59,803 2,140 Parametric Technology Corp.(b) 7,254 320 521 23 7,775 343 Shared Medical Systems Corp. 1,423 78 101 6 1,524 83 Siebel Systems Inc.(b) 14 1 1 0 15 1 13,942 1,002 14,944 Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Steel (0.2%) Allegheny Teledyne, Inc. 10,019 264 718 19 10,737 282 Armco, Inc.(b) 6,097 35 437 3 6,534 38 Bethlehem Steel Corp.(b) 6,413 64 458 5 6,871 69 Nucor Corp. 5,004 261 360 18 5,364 280 USX-U.S. Steel Group, Inc. 4,882 166 350 12 5,232 178 Worthington Industries, Inc. 5,508 114 395 8 5,903 122 904 65 969 Tax Return Preparation (0.0%) H&R Block, Inc. 5,927 219 426 16 6,353 235 Telecommunications (1.5%) Alltel Corp. 10,642 376 761 27 11,403 403 Bell Atlantic Corp. 44,201 3,530 3,178 253 47,379 3,784 DSC Communications Corp.(b) 6,687 163 479 12 7,166 175 Northern Telecom Ltd. 14,928 1,339 1,073 96 16,001 1,435 Scientific-Atlanta, Inc. 4,416 82 316 6 4,732 88 Tellabs, Inc.(b) 10,308 557 737 40 11,045 596 U.S. West Communications Group 27,294 1,087 1,956 78 29,250 1,165 7,134 512 7,646 Telecommunications-Equipment (0.0%) NextLevel Systems, Inc.(b) 8,388 113 602 8 8,990 121 Telecommunications-Services & Equipment (0.0%) Frontier Corp. 9,347 202 670 14 10,017 217 Textile Manufacturing (0.0%) Russell Corp. 2,077 61 149 4 2,226 66 Springs Industries, Inc., Class 1,153 53 83 4 1,236 57 A 114 8 123 Tobacco & Tobacco Products (1.3%) Fortune Brands, Inc. 9,757 323 702 23 10,459 346 Philip Morris Cos., Inc. 137,964 5,467 9,919 394 147,883 5,859 UST, Inc. 10,468 313 749 22 11,217 336 6,103 439 6,541 Tools & Hardware Manufacturing (0.1%) Black & Decker Corp. 5,377 205 385 15 5,762 219 Snap-On Tools, Inc. 3,483 150 248 11 3,731 160 Stanley Works 5,069 214 364 15 5,433 230 569 41 609 Transportation Leasing &Trucking (0.1%) Caliber System, Inc. 2,217 116 159 8 2,376 124 Ryder Systems, Inc. 4,426 154 313 11 4,739 166 270 19 290 Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- Transportation Services (0.0%) Laidlaw, Inc. 18,714 264 1,345 19 20,059 283 Utilities-Electric (2.1%) American Electric Power Co. 10,773 509 771 36 11,544 545 Carolina Power & Light Co. 8,619 308 617 22 9,236 330 Central & South West Corp. 12,086 261 866 19 12,952 279 CINergy Corp. 8,979 296 643 21 9,622 318 Consolidated Edison Co. of New 13,384 458 959 33 14,343 491 York, Inc. Detroit Edison Co. 8,263 254 592 18 8,855 272 Dominion Resources, Inc. 10,579 393 760 28 11,339 422 Duke Power Co. 20,490 990 1,473 72 21,963 1,060 Edison International 22,604 579 1,626 42 24,230 621 Entergy Corp 13,738 336 987 24 14,725 360 FPL Group, Inc. 10,369 536 744 38 11,113 574 Houston Industries, Inc. 16,244 353 1,168 25 17,412 379 Niagara Mohawk Power Corp.(b) 8,224 80 590 6 8,814 85 Northern States Power Co. 4,202 212 301 15 4,503 227 Minnesota Ohio Edison Co. 8,688 215 623 15 9,311 230 PacifiCorp 16,865 366 1,208 26 18,073 392 Peco Energy Co. 12,672 287 908 21 13,580 308 PG&E Corp. 24,965 638 1,795 46 26,760 684 PP&L Resources, Inc. 9,387 203 671 15 10,058 218 Public Service Enterprise Group 13,209 343 947 25 14,156 367 Raychem Corp. 2,485 225 178 16 2,663 241 Southern Co. 38,975 894 2,803 64 41,778 958 Texas Utilities Co. 13,694 491 983 35 14,677 527 Unicom Corp. 12,317 345 883 25 13,200 370 Union Electric Co. 5,816 219 417 16 6,233 235 9,791 703 10,493 Utilities-Electric & Gas (0.1%) Baltimore Gas & Electric Co. 8,409 231 602 17 9,011 247 GPU, Inc. 6,876 249 493 17 7,369 267 480 34 514 Utilities-Natural Gas (0.3%) Consolidated Natural Gas Co. 5,432 294 388 21 5,820 315 Eastern Enterprises 1,164 46 83 3 1,247 49 Enron Corp. 17,423 661 1,252 48 18,675 709 NICOR, Inc. 2,767 107 200 8 2,967 114 Pacific Enterprises 4,744 155 341 11 5,085 166 Peoples Energy Corp. 2,001 72 143 5 2,144 77 1,335 96 1,430 Utilities-Telecommunications (5.0%) AirTouch Communications, Inc.(b) 28,683 1,108 2,061 80 30,744 1,187 Ameritech Corp. 31,313 2,035 2,250 146 33,563 2,182 AT&T Corp. 92,496 4,527 6,650 326 99,146 4,852 BellSouth Corp. 56,451 2,671 4,058 192 60,509 2,863 Victory Stock Victory Stock Key Stock Index Key Stock Index ProForma ProForma Index Index Combined Combined Shares Shares Shares Or Or Or Principal Market Principal Market Principal Market Amount Value Amount Value Amount Value ------ ----- ------ ----- ------ ----- GTE Corp. 54,446 2,311 3,914 166 58,360 2,477 Lucent Technologies, Inc. 36,540 3,012 2,626 216 39,166 3,229 MCI Telecommunications Corp. 39,394 1,398 2,832 101 42,226 1,499 SBC Communications, Inc. 52,041 3,311 3,741 238 55,782 3,549 Sprint Corp. 24,510 1,275 1,758 91 26,268 1,366 WorldCom, Inc.(b) 51,362 1,727 3,692 124 55,054 1,851 23,375 1,680 25,055 Total Common Stocks (Cost 404,137 29,030 433,166 $312,855) U.S. TREASURY BILLS (0.6%) 4.92%, 12/18/97 (c) 2,340 2,325 450 447 2,790 2,772 4.95%, 12/26/97 (c) 215 213 215 213 Total U.S. Treasury Bills (Cost 2,538 447 2,985 $2,971) Total Investments (Cost 463,357 36,918 500,275 $379,963) (a) - 100.0% Other assets in excess of 1,658 198 1,856 liabilities 0.0% TOTAL NET ASSETS - 100.0% 465,015 37,116 502,131 ________________ Number of Market Number of Market Number of Market Contracts Value Contracts Value Contracts Value FUTURES CONTRACTS (13.5%) S & P 500 Index, face amount 260 60,060 17 7,854 277 67,914 $60,872, expiring December 18, 1997 Total Futures Contracts (Cost 60,060 7,854 67,914 $68,827) (a) Represents cost for federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: Unrealized appreciation 127,674 Unrealized depreciation (7,362) Net unrealized appreciation 120,312 SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- COMMERCIAL PAPER (1.9%) FINANCIAL SERVICES (1.9%) General Electric Capital Corp., 15,762 15,762 1,468 1,468 17,229 17,230 ------ ----- ------ 5.79%, 11/3/97 TOTAL COMMERCIAL PAPER (COST 15,762 1,468 17,230 ------ ----- ------ $17,229) COMMON STOCKS (98.1%) AEROSPACE/DEFENSE (3.0%) AlliedSignal, Inc. 452,200 16,279 452,200 16,279 B.F. Goodrich Inc. 167,500 7,464 167,500 7,464 Boeing Co. 72,000 3,447 72,000 3,447 ----- ----- 27,190 27,190 ------ ------ ALUMINUM (1.1%) Aluminum Co. of America 115,000 8,395 115,000 8,395 ----- Reynolds Metal Co. 25,000 1,523 25,000 1,523 ----- ----- 9,918 AUTOMOBILES (1.3%) General Motors Corp. 180,000 11,554 180,000 11,554 ------ ------ BANKS (8.7%) Banc One Corp. 215,000 11,207 215,000 11,207 Chase Manhattan Corp. 90,000 10,384 90,000 10,384 First Union Corp. 260,000 12,755 260,000 12,755 Mellon Bank Corp. 204,000 10,519 204,000 10,519 NationsBank Corp. 185,000 11,077 185,000 11,077 Norwest Corp. 320,200 10,266 320,200 10,266 PNC Bank Corp. 235,000 11,163 235,000 11,163 ------ ------ 77,371 77,371 ------ ------ BEVERAGES (3.2%) Anheuser-Busch Cos., Inc. 350,000 13,978 350,000 13,978 PepsiCo, Inc. 400,000 14,725 400,000 14,725 ------ ------ 28,703 28,703 ------ ------ BROKERAGE SERVICES (0.9%) Bear Stearns Cos., Inc. 192,428 7,637 192,428 7,637 ----- ----- CHEMICALS-GENERAL (2.4%) Air Products & Chemicals, Inc. 80,000 6,080 80,000 6,080 Nalco Chemical Co. 255,900 10,236 255,900 10,236 RPM Inc. 277,750 5,208 277,750 5,208 ----- ----- 21,524 21,524 ------ ------ COMPUTERS & PERIPHERALS (9.2%) Cabletron Systems, Inc.(b) 224,000 6,496 224,000 6,496 Cisco Systems, Inc.(b) 25,000 2,051 20,000 1,641 45,000 3,692 Compaq Computer Corp.(b) 150,000 9,563 150,000 9,563 SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY KEY SBSF KEY SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- Computer Sciences Corp.(b) 130,000 9,222 130,000 9,222 Dell Computer, Inc.(b) 96,000 7,692 96,000 7,692 Hewlett-Packard Co. 110,000 6,786 110,000 6,786 International Business Machines 275,000 26,965 38,200 3,746 313,200 30,711 ----- Corp. Seagate Technology, Inc.(b) 245,000 6,646 245,000 6,646 ----- ----- 75,421 5,387 80,808 ------ ----- ------ CONGLOMERATES (4.9%) Canadian Pacific, Ltd. 113,600 3,387 113,600 3,387 Corning, Inc. 145,000 6,543 30,000 1,354 175,000 7,897 General Electric Co. 126,600 8,174 126,600 8,174 Noel Group, Inc.(b) 225,000 886 225,000 886 Tenneco, Inc. 65,000 2,921 65,000 2,921 Textron, Inc. 85,000 4,914 30,000 1,734 115,000 6,648 ----- Westinghouse Electric Corp. 512,500 13,549 512,500 13,549 ------ ------ 36,101 7,361 43,462 ------ ----- ------ CONTAINERS-METAL, GLASS, PAPER, PLASTIC (2.0%) Crown Cork & Seal, Inc. 250,000 11,266 250,000 11,266 Sonoco Products Co. 203,000 6,534 203,000 6,534 ----- ----- 17,800 17,800 ------ ------ ELECTRONIC & ELECTRICAL-GENERAL (1.8%) Andrew Corp.(b) 260,000 6,029 260,000 6,029 Motorola, Inc. 30,000 1,853 30,000 1,853 Texas Instruments, Inc. 60,000 6,400 60,000 6,400 ----- Vishay Intertechnology, Inc.(b) 69,300 1,659 69,300 1,659 ----- ----- 14,282 1,659 15,941 ------ ----- ------ ENTERTAINMENT (0.8%) Viacom, Inc., Class B(b) 96,700 2,925 96,700 2,925 Walt Disney Co. 50,000 4,113 50,000 4,113 ----- ----- 7,038 7,038 ----- ----- FINANCIAL SERVICES (1.2%) Franklin Resources, Inc. 25,000 2,247 25,000 2,247 Travelers Group, Inc. 100,000 7,000 20,000 1,400 120,000 8,400 ----- ----- ----- 9,247 1400 10,647 ----- ---- ------ FOOD PROCESSING & PACKAGING (1.6%) Sara Lee Corp. 235,000 12,014 40,000 2,045 275,000 14,059 ------ ----- ------ FOREST PRODUCTS-LUMBER & PAPER (1.5%) Bowater, Inc. 97,600 4,081 97,600 4,081 International Paper Co. 213,400 9,603 213,400 9,603 ----- ----- 13,684 13,684 ------ ------ HEALTH CARE (0.7%) Columbia/HCA Healthcare Corp. 200,000 5,650 200,000 5,650 ----- Healthplan Services Corp. 45,869 966 45,869 966 --- --- 6,616 SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- HOTELS & MOTELS (0.1%) Mirage Resorts, Inc.(b) 50,000 1,250 50,000 1,250 ----- ----- HOUSEHOLD GOODS-APPLIANCES, FURNISHINGS & ELECTRONICS (0.9%) Whirlpool Corp. 130,600 7,918 130,600 7,918 ----- ----- INDUSTRIAL GOODS & SERVICES (0.5%) Dover Corp. 15,300 1,033 15,300 1,033 Hexcel Corp.(b) 121,300 3,252 121,300 3,252 ----- ----- 4,285 4,285 ----- ----- INSURANCE (3.6%) American International Group, 128,025 13,066 30,000 3,062 158,025 16,128 Inc. General Re Corp. 49,500 9,761 49,500 9,761 ----- Partner Re Ltd. 115,500 4,735 115,500 4,735 RenaissanceRe Holdings Ltd. 27,000 1,175 27,000 1,175 ----- ----- 22,827 8,972 31,799 ------ ----- ------ INSURANCE-MULTI-LINE (1.3%) Marsh & McLennan Cos., Inc. 160,000 11,360 160,000 11,360 ------ ------ INSURANCE-PROPERTY, CASUALTY, HEALTH (1.6%) Everest Reinsurance Holdings, 228,500 8,598 228,500 8,598 Inc. Travelers Property Casualty 147,000 5,310 147,000 5,310 ----- ----- Corp., Class A 13,908 13,908 ------ ------ INVESTMENT COMPANY (0.5%) TCI Ventures Group, Class A(b) 158,252 3,650 29,104 671 187,356 4,321 ----- --- ----- MACHINE TOOLS (0.5%) Kennametal, Inc. 100,000 4,850 100,000 4,850 ----- ----- MANUFACTURING-MISCELLANEOUS (0.9%) Millipore Corp. 215,000 8,412 215,000 8,412 ----- ----- MEDICAL LABS & TESTING SERVICES (0.7%) Biogen, Inc.(b) 44,800 1,501 44,800 1,501 Genzyme Corp. - Tissue Repair(b) 2,280 20 2,280 20 Genzyme Corp.(b) 76,000 2,081 76,000 2,081 SmithKline Beecham Plc 60,000 2,856 60,000 2,856 ----- ----- 6,458 6,458 ----- ----- MEDICAL SERVICES (0.3%) Tenet Healthcare Corp. 100,000 3,056 100,000 3,056 ----- ----- MEDICAL SUPPLIES (0.7%) Biomet, Inc. 247,600 6,175 247,600 6,175 ----- ----- METALS & MINING (0.3%) Cleveland Cliffs, Inc. 60,000 2,606 60,000 2,606 ----- ----- SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- NEWSPAPERS (0.8%) Dow Jones & Co., Inc. 160,000 7,440 160,000 7,440 ----- ----- OIL & GAS EXPLORATION, PRODUCTION & SERVICES (4.6%) Anadarko Petroleum Corp. 40,000 2,930 40,000 2,930 Enron Corp. 380,700 14,467 380,700 14,467 Forcenergy, Inc.(b) 90,000 2,936 90,000 2,936 Noble Affiliates, Inc. 74,200 3,047 74,200 3,047 ----- Unocal Corp. 420,000 17,325 420,000 17,325 ------ ------ 31,792 8,913 40,705 ------ ----- ------ OIL-INTEGRATED COMPANIES (3.2%) Atlantic Richfield Co. 30,800 2,535 30,800 2,535 Exxon Corp. 76,000 4,669 76,000 4,669 Phillips Petroleum Co. 179,500 8,683 179,500 8,683 Royal Dutch Petroleum Co., New 40,000 2,105 40,000 2,105 York Shares Texaco, Inc. 181,000 10,306 181,000 10,306 ------ ------ 28,298 28,298 ------ ------ OILFIELD SERVICES & EQUIPMENT (3.6%) Baker Hughes, Inc. 300,000 13,781 300,000 13,781 Dresser Industries, Inc. 225,600 9,503 225,600 9,503 Schlumberger, Ltd. 105,000 9,188 105,000 9,188 ----- ----- 32,472 32,472 ------ ------ PHARMACEUTICALS (5.8%) Abbott Laboratories 65,000 3,985 65,000 3,985 American Home Products Corp. 185,000 13,713 25,000 1,853 210,000 15,566 ----- Merck & Co., Inc. 85,000 7,586 85,000 7,586 Pfizer, Inc. 350,000 24,763 350,000 24,763 ------ ------ 50,047 1,853 51,900 ------ ----- ------ POLLUTION CONTROL SERVICES & EQUIPMENT (1.9%) Browning-Ferris Industries, Inc. 123,400 4,011 123,400 4,011 Waste Management, Inc. 475,000 11,103 75,000 1,753 550,000 12,856 ------ ----- ------ 15,114 1,753 16,867 ------ ----- ------ PUBLISHING (1.1%) Time Warner, Inc. 170,000 9,807 170,000 9,807 ----- ----- RADIO & TELEVISION (0.8%) Tele-Communications, Inc., Class 276,748 6,348 50,896 1,168 327,644 7,515 ----- ----- ----- A(b) REAL ESTATE (0.3%) Beazer Homes USA, Inc. 125,000 2,391 125,000 2,391 ----- ----- REAL ESTATE INVESTMENT TRUSTS (1.1%) Avatar Holdings Inc.(b) 119,347 3,759 119,347 3,759 Cousins Properties, Inc. 100,000 3,138 100,000 3,138 Security Capital Industrial Trust 108,333 2,661 108,333 2,661 ----- ----- 9,558 9,558 ----- ----- SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- RETAIL (1.8%) Dayton Hudson Corp. 35,800 2,249 35,800 2,249 Wal-Mart Stores, Inc. 400,000 14,050 400,000 14,050 ------ ------ 16,299 16,299 ------ ------ RETAIL-DEPARTMENT STORES (0.6%) Nordstrom, Inc. 90,000 5,513 90,000 5,513 ----- ----- RETAIL-DRUG STORES (0.6%) Walgreen Co. 185,000 5,203 185,000 5,203 ----- ----- RETAIL-SPECIALTY STORES (2.7%) AutoZone, Inc.(b) 315,000 9,312 315,000 9,312 Lowe's Cos., Inc. 208,000 8,658 208,000 8,658 OfficeMax, Inc.(b) 450,000 6,019 450,000 6,019 ----- ----- 23,989 23,989 ------ ------ SEMICONDUCTORS (2.3%) Intel Corp. 80,000 6,160 46,000 3,542 126,000 9,702 LSI Logic Corp.(b) 400,000 8,725 80,000 1,745 480,000 10,470 ----- ----- ------ 14,885 5,287 20,172 ------ ----- ------ SOFTWARE & COMPUTER SERVICES (1.6%) America Online Inc(b) 125,000 9,625 125,000 9,625 Computer Associates 61,000 4,548 61,000 4,548 ----- ----- International, Inc. 14,173 14,173 ------ ------ STEEL (0.3%) J&L Speciality Steel, Inc. 235,000 2,967 235,000 2,967 ----- ----- TELECOMMUNICATIONS (0.3%) Bell Atlantic Corp. 28,400 2,268 28,400 2,268 ----- ----- TOBACCO & TOBACCO PRODUCTS (0.7%) UST, Inc. 207,000 6,197 207,000 6,197 ----- ----- UTILITIES-ELECTRIC (1.7%) CINergy Corp. 121,700 4,016 121,700 4,016 Houston Industries, Inc. 100,000 2,175 100,000 2,175 Northeast Utilities 225,000 2,588 225,000 2,588 ----- Southern Co. 204,300 4,686 204,300 4,686 Texas Utilities Co. 58,500 2,099 58,500 2,099 ----- ----- 12,976 2,588 15,564 ------ ----- ------ UTILITIES-TELECOMMUNICATIONS (6.1%) AirTouch Communications, Inc.(b) 140,000 5,408 140,000 5,408 Ameritech Corp. 208,600 13,559 208,600 13,559 GTE Corp. 500,000 21,218 48,500 2,058 548,500 23,276 ----- MCI Telecommunications Corp. 350,000 12,425 350,000 12,425 ------ ------ 47,202 7,466 54,668 ------ ----- ------ SBSF FUND AND VICTORY DIVERSIFIED STOCK FUND ProForma Combined Schedules of Portfolio Investments October 31, 1997 (Amounts in Thousands, except shares) VICTORY VICTORY SBSF SBSF PROFORMA PROFORMA DIVERSIFIED DIVERSIFIED FUND FUND COMBINED COMBINED STOCK STOCK SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL AMORTIZED PRINCIPAL MARKET AMOUNT VALUE AMOUNT COST AMOUNT VALUE ------ ----- ------ ---- ------ ----- TOTAL COMMON STOCKS (COST 781,716 92,601 874,317 ------- ------ ------- $700,679) TOTAL INVESTMENTS (COST 797,478 94,068 891,546 $717,908) (A) - 100.0% OTHER ASSETS IN EXCESS OF (5,010) (380) (5,389) ------- ----- ------- LIABILITIES 0.0% TOTAL NET ASSETS - 100.0% 792,468 93,689 886,157 ------- ------ -------- - ---------------- (A) REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES AND DIFFERS FROM VALUE BY NET UNREALIZED APPRECIATION OF SECURITIES AS FOLLOWS: Unrealized appreciation 193,778 Unrealized depreciation (20,140) Net unrealized appreciation 173,638 KEY CAPTIAL GROWTH FUND AND VICTORY SPECIAL GROWTH FUND ProForma Combined Schedule of Portfolio Invesments October 31, 1997 (Amounts in Thousands, except shares) VICTORY SPECIAL VICTORY SPECIAL KEY CAPITAL KEY CAPITAL PROFORMA PROFORMA GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- ------ ----- COMMERCIAL PAPER (7.6%) FINANCIAL SERVICES (7.6%) General Electric Capital Corp., 5.79%, 7,821 7,821 3,256 3,256 11,077 11,077 ----- ----- ------ 11/3/97 TOTAL COMMERCIAL PAPER (COST $11,077) 7,821 3,256 11,077 ----- ----- ------ COMMON STOCKS (92.4%) AIRLINES (0.9%) Trans World Airlines, Inc.(b) 120,000 893 50,000 372 170,000 1,264 --- --- ----- APPAREL (1.0%) Ashworth, Inc.(b) 100,000 994 50,000 497 150,000 1,491 --- --- ----- APPAREL-FOOTWEAR (0.7%) Steven Madden Ltd.(b) 100,000 700 40,000 280 140,000 980 --- --- --- BANKS (0.8%) U.S. Trust Corp. 20,000 1,170 20,000 1,170 ----- ----- BROADCASTING & PUBLISHING (1.2%) Westwood One, Inc.(b) 35,000 1,074 20,000 614 55,000 1,688 ----- --- ----- BROKERAGE SERVICES (1.6%) Donaldson, Lufkin & Jenrette, Inc. 25,000 1,756 8,000 562 33,000 2,318 ----- --- ----- CHEMICALS-GENERAL (0.9%) Brunswick Technologies, Inc.(b) 54,000 999 20,000 370 74,000 1,369 --- --- ----- COMMERCIAL SERVICES (3.6%) Cornell Corrections Inc.(b) 60,000 1080 25,000 450 85,000 1,530 Hooper Holmes, Inc. 100,000 1,474 40,000 590 140,000 2,065 Substance Abuse Technologies(b) 250,000 63 100,000 25 350,000 88 Venture Seismic(b) 120,000 1,058 50,000 441 170,000 1,498 ----- --- ----- 3,675 1,506 5,181 ----- ----- ----- COMPUTERS & PERIPHERALS (4.9%) Creative Technology Ltd.(b) 60,000 1,526 25,000 636 85,000 2,161 Eltron International, Inc.(b) 40,000 1,165 15,000 437 55,000 1,602 Standard Microsystems Corp.(b) 80,200 927 33,400 386 113,600 1,314 UniComp, Inc.(b) 140,000 1,374 70,000 687 210,000 2,061 ----- --- ----- 4,992 2,146 7,138 ----- ----- ----- CONSTRUCTION (0.5%) Schuff Steel Co.(b) 50,000 550 20,000 220 70,000 770 --- --- --- CONTAINERS (1.1%) Mercury Interactive Corp.(b) 50,000 1,125 20,000 450 70,000 1,575 ----- --- ----- COSMETICS & RELATED (1.1%) French Fragrances, Inc.(b) 100,000 1,069 50,000 534 150,000 1,603 ----- --- ----- ELECTRICAL EQUIPMENT (2.0%) Printrak International, Inc.(b) 68,200 691 29,000 294 97,200 984 Semitool Inc.(b) 75,000 1,293 35,000 603 110,000 1,898 ----- --- ----- 1,984 897 2,882 ----- --- ----- ELECTRONIC & ELECTRICAL-GENERAL (3.2%) Sipex Corp.(b) 60,000 1,972 25,000 822 85,000 2,794 Uniphase Corp.(b) 20,000 1,343 8,000 537 28,000 1,880 ----- --- ----- 3,315 1,359 4,674 ----- ----- ----- ENTERTAINMENT (0.8%) Speedfam International Inc.(b) 30,000 1,114 30,000 1,114 ----- FINANCIAL SERVICES (1.0%) Hambrecht & Quist Group(b) 35,000 1,103 12,000 378 47,000 1,481 ----- --- ----- LEISURE-RECREATION, GAMING (2.8%) Anchor Gaming(b) 20,000 1,570 7,000 550 27,000 2,120 The North Face, Inc.(b) 60,000 1,418 25,000 590 85,000 2,008 ----- --- ----- 2,988 1,140 4,128 ----- ----- ----- MACHINERY & ENGINEERING (0.5%) Middleby Corp.(b) 50,000 506 20,000 203 70,000 709 --- --- --- MANUFACTURING-MISCELLANEOUS (0.8%) Flanders Corp.(b) 100,000 800 40,000 320 140,000 1,120 --- --- ----- CAPTIAL GROWTH FUND AND VICTORY SPECIAL GROWTH FUND ProForma Combined Schedule of Portfolio Invesments October 31, 1997 (Amounts in Thousands, except shares) VICTORY SPECIAL VICTORY SPECIAL SBSF CAPITAL SBSF CAPITAL PROFORMA PROFORMA GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- ------ ----- MEDICAL LABS & TESTING SERVICES (1.3%) Matritech Inc(b) 120,300 812 52,700 355 173,000 1,168 Renex Corporation,(b) 70,000 543 30,000 233 100,000 775 --- --- --- 1,355 588 1,943 ----- --- ----- MEDICAL SUPPLIES (3.6%) Bionx Implants, Inc.(b) 40,000 835 15,000 313 55,000 1,148 Martek Biosciences Corp.(b) 100,000 1,113 40,000 445 140,000 1,558 Spine-Tech, Inc.(b) 25,000 778 10,000 311 35,000 1,089 --- Wesley Jessen VisionCare, Inc.(b) 50,000 1,462 50,000 1,462 ----- ----- 4,188 1,069 5,257 ----- ----- ----- METALS-NONFERROUS (1.0%) International Precious Metals Corp.(b) 200,000 938 100,000 469 300,000 1,406 --- --- ----- OIL & GAS EXPLORATION, PRODUCTION & SERVICES (7.6%) Bellwether Exploration(b) 80,000 1,000 40,000 500 120,000 1,500 Continental Natural Gas, Inc.(b) 80,000 930 35,000 407 115,000 1,337 Diamond Offshore Drilling, Inc. 10,000 623 10,000 623 Magnum Hunter Resources Inc(b) 80,000 565 35,000 247 115,000 812 Marine Drilling Cos., Inc.(b) 50,.000 1,481 20,000 593 70,000 2,074 Noble Drilling Corp.(b) 50,000 1,778 20,000 711 70,000 2,487 Swift Energy Co.(b) 60,000 1,556 25,000 648 85,000 2,205 ----- --- ----- 7,310 3,729 11,038 ----- ----- ------ OILFIELD SERVICES & EQUIPMENT (11.8%) Cal Dive International, Inc.(b) 20,000 625 20,000 625 Energy Ventures, Inc.(b) 10,000 642 6,000 385 16,000 1,027 Global Industries Ltd.(b) 70,000 1,409 35,000 704 105,000 2,113 Grey Wolf, Inc.(b) 200,000 1,650 80,000 660 280,000 2,310 Midcoast Energy Resources, Inc. 56,600 1,362 12,000 289 68,600 1,651 Patterson Energy, Inc.(b) 40,000 2,239 12,000 672 52,000 2,910 Pool Energy Services Co.(b) 50,000 1,697 15,000 509 65,000 2,206 Pride International, Inc.(b) 40,000 1,320 18,000 594 58,000 1,914 Varco International, Inc.(b) 30,000 1,828 10,000 609 40,000 2,438 ----- --- ----- 12,147 5,047 17,194 ------ ----- ------ PHARMACEUTICALS (2.9%) Collagenex Pharmaceuticals, Inc.(b) 50,000 600 50,000 600 DUSA Pharmaceuticals, Inc.(b) 100,000 1,213 40,000 485 140,000 1,698 Vivus, Inc.(b) 50,000 1,318 20,000 528 70,000 1,846 ----- --- ----- 3,131 1,013 4,144 ----- ----- ----- RADIO & TELEVISION (2.6%) Echostar Communications(b) 75,000 1,425 30,000 570 105,000 1,995 Jacor Communications, Inc.(b) 30,000 1,256 12,000 503 42,000 1,759 ----- --- ----- 2,681 1,073 3,754 ----- ----- ----- RETAIL-SPECIALTY STORES (1.1%) Claire's Stores, Inc. 50,000 1,106 20,000 443 70,000 1,549 ----- --- ----- SOFTWARE & COMPUTER SERVICES (16.2%) Accelr8 Technology Corp.(b) 75,000 1,491 40,000 794 115,000 2,286 Ciber, Inc.(b) 30,000 1,328 15,000 664 45,000 1,991 Hyperion Software Corp.(b) 50,000 1,904 20,000 763 70,000 2,667 Intelligent Electronics, Inc.(b) 250,000 1,328 100,000 531 350,000 1,859 Intuit, Inc.(b) 40,000 1,305 15,000 489 55,000 1,794 ISG International Software Group 100,000 1,250 40,000 500 140,000 1,750 Ltd.(b) Keane, Inc.(b) 20,000 593 20,000 593 Lycos, Inc.(b) 40,000 1,045 15,000 392 55,000 1,437 NEXTLINK Communications, Inc.(b) 20,000 453 20,000 453 ONTRACK Data International, Inc.(b) 50,000 1,019 50,000 1,019 Platinum Technology, Inc. (b) 50,000 1,213 20,000 485 70,000 1,698 SEEC, Inc.(b) 70,000 1,636 30,000 701 100,000 2,338 Summit Design, Inc.(b) 60,000 870 30,000 435 90,000 1,305 Versant Object Technology Corp.(b) 70,000 1,173 70,000 1,173 Visio Corp.(b) 30,000 1,116 16,000 595 46,000 1,711 ------ ----- ------ 16,677 7,395 24,072 ------ ----- ------ CAPTIAL GROWTH FUND AND VICTORY SPECIAL GROWTH FUND ProForma Combined Schedule of Portfolio Invesments October 31, 1997 (Amounts in Thousands, except shares) VICTORY SPECIAL VICTORY SPECIAL SBSF CAPITAL SBSF CAPITAL PROFORMA PROFORMA GROWTH GROWTH GROWTH GROWTH COMBINED COMBINED SHARES SHARES SHARES OR OR OR PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- ------ ----- STEEL (1.2%) NS Group, Inc.(b) 49.500 1,324 15,000 401 64,500 1,725 ----- --- ----- TELECOMMUNICATIONS (6.3%) American Communications Services, 120,000 1,350 50,000 563 170,000 1,913 Inc.(b) Digital Microwave Corp.(b) 30,000 1,080 15,000 540 45,000 1,620 Mobile Telecommunication Technologies 75,000 1,247 30,000 499 105,000 1,746 Corp.(b) Paging Network, Inc.(b) 100,000 1,238 40,000 495 140,000 1,733 Tekelec(b) 100,000 1,465 15,000 627 50,000 2,091 ----- --- ----- 6,380 2,724 9,104 ----- ----- ----- TELECOMMUNICATIONS-SERVICES & EQUIPMENT (1.3%) Star Telecommunications Inc.(b) 60,000 1,388 24,000 555 84,000 1,943 ----- --- ----- TOBACCO & TOBACCO PRODUCTS (2.9%) 800-JR CIGAR, Inc.(b) 40,000 1,250 18,000 563 58,000 1,813 ----- General Cigar Holdings, Inc.(b) 60,000 1,736 25,000 722 85,000 2,458 ----- --- ----- 4,199 1,770 5,969 ----- ----- ----- TRANSPORTATION LEASING &TRUCKING (1.3%) Budget Group Inc., Class A,(b) 40,000 1,400 15,000 525 55,000 1,925 ----- --- ----- UTILITIES-TELECOMMUNICATIONS (1.4%) Pacific Gateway Exchange, Inc.(b) 40,000 1,530 15,000 574 55,000 2,104 ----- --- ----- TOTAL COMMON STOCKS (COST $110,849) 95,349 38,738 134,086 ------ ------ ------- RIGHTS & WARRANTS (0.0%) Morrison Knudsen Corp., Expire 158 1 158 1 - - 3/11/03(b) TOTAL RIGHTS & WARRANTS (COST $0) 1 1 - - TOTAL INVESTMENTS (COST $121,926) 103,171 41,994 145,165 (A) - 100.0% OTHER ASSETS IN EXCESS OF 1,394 680 2,074 ----- --- ----- LIABILITIES 0.0% TOTAL NET ASSETS - 100.0% 104,565 42,674 147,239 ------- ------ -------- - ---------------- (A) REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES AND DIFFERS FROM VALUE BY NET UNREALIZED APPRECIATION OF SECURITIES AS FOLLOWS: Unrealized appreciation 31,912 Unrealized depreciation (8,673) Net unrealized appreciation 23,239 VICTORY/KEY FUNDS NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) ------ 1. BASIS OF COMBINATION: The unaudited Pro Forma Combining Statements of Assets and Liabilities, Statements of Operations, and Schedules of Portfolio Investments reflect the accounts of three investment portfolios offered by The Victory Portfolios (the "Company"): the Diversified Stock Fund, the Special Growth Fund and the Stock Index Fund (the "Surviving Funds") and three investment portfolios offered by The Key Mutual Funds: the SBSF Fund, the Capital Growth Fund and the Stock Index Fund (the "Transferor Funds"), (collectively,"Funds") as if the proposed reorganization occurred as of and for the year ended October 31, 1997. These statements have been derived from books and records utilized in calculating daily net asset value at October 31, 1997, The Plan of Reorganization provides that at the time the reorganization becomes effective (the "Effective Time of the Reorganization"), all of the assets and liabilities will be transferred as follows such that at and after the Effective Time of Reorganization, the assets and liabilities of the Transferor Fund will become the assets and liabilities of the Surviving Fund the SBSF Fund will be transferred to the Diversified Stock Fund, the Capital Growth Fund will be transferred to the Victory Special Growth Fund, and the Key Stock Index Fund will be transferred to the Victory Stock Index Fund. In exchange for the transfer of assets and liabilities, the Company will issue to the Transferor Funds full and fractional shares of the corresponding Surviving Funds, and the Transferor Funds will make a liquidating distribution of such shares to its shareholders. The number of shares of the Surviving Funds so issued will be equal in value to the full and fractional shares of the Transferor Funds that are outstanding immediately prior to the Effective Time of the reorganization at and after the Effective Time of the Reorganization, all debts, liabilities and obligations of the Transferor Funds will attach to the Surviving Funds and may thereafter be enforced against the Surviving Funds to the same extent as if they had been incurred by it. The pro forma statements give edict to the proposed transfer described above. Under the purchase method of accounting for business combinations under generally accepted accounting principles, the basis on the part of the Surviving Funds, of the assets of the Transferor Funds will be the fair market value of such assets on the closing date of the transaction. The Surviving Funds will recognize no gain or loss for federal tax purposes on its issuance of shares in the reorganization, and the basis to the Surviving Funds of the assets of the Transferor Funds received pursuant to the reorganization will equal the fair market value of the consideration furnished, and costs incurred, by the Surviving Funds in the reorganization -- i.e., the sum of the liabilities assumed, the fair market value of the Surviving Funds shares issued, and such costs. For accounting purposes, the Surviving Funds are the survivor reorganization. The pro forma statements reflect the combined results of operations of VICTORY/KEY FUNDS NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) the Transferor Funds and the Surviving Funds. However, should such reorganization be effected, the statements of operations of the Surviving Funds will not be restated for precombination period results of the corresponding Transferor Funds The Pro Forma Combining Statements of Assets and Liabilities, Statements of Operations, and Schedules of Portfolio Investments should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The Transferor Funds and the Surviving Funds are each separate portfolios of the Key Mutual Funds and the Victory Portfolios respectively, which are registered as an open-end management companies under the Investment Company Act of 1940 (the "1940 Act"). The investment objective of the Victory Diversified Stock Fund is to provide long term growth of capital. The investment objective of the SBSF Fund is to provide a high total return over the long term consistent with reasonable risk. The investment objective of the Victory Special Growth Fund and the SBSF Capital Growth Fund is to provide capital appreciation. The investment objective of the Victory Stock Index Fund and the Key Stock Index Fund is to provide long term capital appreciation by attempting to match the investment performance of the Standard & Poor's 500 Composite Stock Index. The purchase and redemption policies of each of these Funds are the same and the service providers for each of the Funds are the same. EXPENSES KeyCorp Mutual Fund Advisers, Inc., (the "Adviser"), a wholly-owned subsidiary of KeyBank National Association ("Key"), serves as the Funds' investment adviser. Key and its affiliated brokerage and banking companies also serve as Shareholder Servicing Agent for the Funds. BISYS Fund Services (the "Administrator"), an indirect, wholly-owned subsidiary of The BISYS Group, Inc. (BISYS) serves as the administrator and distributor to the Funds. BISYS Fund Service Ohio, Inc. (The Company), an affiliate of BISYS, serves the Funds as Mutual Fund Accountant. ORGANIZATIONAL EXPENSES Organization costs cannot be carried over when being merged with another fund. Therefore, in the Statements of Operations, the organization costs were amortized for the SBSF Capital Growth Fund, Key Stock Index Fund, and SBSF Fund, rather than being carried forward. TRANSFEROR FUNDS: The Transferor Funds issue one class of shares. The one class of the Transferor Funds has rights and privileges analogous to those of Class A shares of the Surviving Funds. Under the terms of the investment advisory agreement, the Adviser is entitled to receive fees computed at the annual rate of 0.75% for the Key SBSF Fund and the Key Capital Growth Fund, and 0.10% for the Key Stock Index Fund. Such fees are accrued daily and paid monthly. For the year ended October 31, 1997, total investment advisory fees incurred by the Funds were as follows: - 2 - VICTORY/KEY FUNDS NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) Total Fees Waiver ---------- ------ SBSF 775 4 Capital Growth 289 0 Stock Index 26 26 Under the terms of the administration agreement the Administrator's fees are computed at the annual rate of 0.25% of each funds average daily net uses of $50 million and less, 0.15% of each funds average daily net assets in excess of $50 million. For the year ended October 31 1997, the Administrator's fees earned from the Funds were as follows: Total Fees Waiver ---------- ------ SBSF 205 0 Capital Growth 96 0 Stock Index 38 38 SURVIVING FUNDS The Victory Stock Index and Special Growth Funds issue one class of shares. The Victory Diversified Stock Fund is authorized to issue two classes of shares: Class A shares and Class B shares. Each class of shares has identical rights and privileges except with respect to fees paid under shareholder servicing or distribution plans, expenses allocable exclusively to each class of shares, voting rights on matters affecting a single class of spares, and the exchange privilege of each class of shares. Class A shares are subject to an initial sales charge, upon purchase Class B shares are subject to a contingent deferred sales change (CDSC). Under the terms of the investment advisory agreement, the Adviser is entitled to receive fees computed at the annual rate of 0.65% of the average daily net assets of the Diversified Stock Fund, 1.00% of the Special Growth Fund and 0.60% of the Stock Index Fund. Such fees are accrued daily and paid monthly. For the year ended October 31, 1997, total investment advisory fees incurred by the funds were as follows: Total Fees Waiver ---------- ------ Diversified Stock 4,561 0 Special Growth 921 0 Stock Index 290 574 Under the terms of the administration agreement, effective October 1, 1997, the Administrator's fees are computed at the annual rate of 0.15% of each funds average daily net assets of $300 million and less 0.12% of each funds average daily net assets between $300 million and $600 million and 0.10% of each funds average daily net assets greater than $600 million. Prior to October 1, 1997, the Administrator's fees were computed at the annual rate of - 3 - VICTORY/KEY FUNDS NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) 0.15% of each funds average daily net assets. For the year ended October 31, 1997, the Administrator's fees were as follows: Total Fees Waiver ---------- ------ Diversified Stock l,035 0 Special Growth 138 0 Stock Index 568 568 PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS The pro forma adjustments and pro forma combined columns of the statements of operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Transferor Funds were included in the Surviving Funds for the year ended October 31, 1997. Investment advisory and shareholder service and 12b- 1 fees in the pro forma combined column are calculated at the rates that would be in effect for the Surviving Funds based upon the combined net assets of the Transferor Funds and the Surviving Funds. Certain pro forma adjustments were made to estimate the benefit of combining operations of separate funds into one survivor fund. For the year ended October 31, 1997, approximately $1,667 of the investment advisory fees on a pro forma combined basis for the Surviving Funds were waived. The pro forma schedules of portfolio investments give effect to the proposed transfer of such assets as if the reorganization had occurred at October 31, 1997. 2. PORTFOLIO VALUATION, SECURITIES TRANSACTIONS AND RELATED INCOME: Investments in common and preferred stocks, corporate bonds, commercial paper, municipal and foreign government bonds, U.S. Government securities and securities of U.S. Government agencies are valued at their market values determined on the basis of the latest available bid prices in the principal market (closing sales prices if the principal market is an exchange) in which such securities are normally traded or on the basis of valuation procedures approved by the Board of Trustees. Investments in investment companies are valued at their respective net asset values as reported by such companies. The differences between the cost and market values of investments are reflected as either unrealized appreciation or depreciation, Securities transactions are accounted for on the date the security is purchased or sold (trade date). Interest income is recognized on the accrual basis and includes, where - 4 - VICTORY/KEY FUNDS NOTES TO PRO FORMA FINANCIAL STATEMENTS (Unaudited) applicable, the pro rata amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date, net of foreign taxes withheld. Gains or losses realized from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. 3. CAPITAL SHARES: The pro forma net asset values per share assume the issuance of shares of the Surviving Funds which would have occurred at October 31, 1997 in connection with the proposed reorganization. The pro forma number of shares outstanding consists of the following: ================================================================================ Shares Additional Shares outstanding at Assumed in the October 31, Reorganization Proforma Shares at 1997 (000) (000) October 31, 1997 - -------------------------------------------------------------------------------- Diversified Stock Fund 44,638 5,275 49,913 - -------------------------------------------------------------------------------- Special Growth Fund 6,420 2,620 9,040 - -------------------------------------------------------------------------------- Stock Index Fund 24,807 1,980 26,787 ================================================================================ - 5 - Part C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement. THE VICTORY PORTFOLIOS PART C Item 15. Indemnification. Article X, Section 10.02 of the Registrant's Delaware Trust Instrument, incorporated herein as Exhibit 1 hereto, provides for the indemnification of Registrant's Trustees and officers, as follows: "Section 10.02 Indemnification. (a) Subject to the exceptions and limitations contained in Subsection 10.02(b): (i) every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as a "Covered Person") shall be indemnified by the Trust to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof; (ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Covered Person: (i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or (ii) in the event of a settlement, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, (A) by the court or other body approving the settlement; (B) by at least a majority of those Trustees who are neither Interested Persons of the Trust nor are parties to the matter based upon a review of readily available facts (as opposed to a full trial-type inquiry); or (C) by written opinion of independent legal counsel based upon a review of readily available facts (as opposed to a full trial-type inquiry). (c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be a Covered Person and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust personnel, other than Covered Persons, and other persons may be entitled by contract or otherwise under law. (d) Expenses in connection with the preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in Subsection (a) of this Section 10.02 may be paid by the Trust or Series from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or Series if it is ultimately determined that he is not entitled to indemnification under this Section 10.02; provided, however, that either (i) such Covered Person shall have provided appropriate security for such undertaking, (ii) the Trust is insured against losses arising out of any such advance payments or (iii) either a majority of the Trustees who are neither Interested Persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such Covered Person will be found entitled to indemnification under this Section 10.02." Indemnification of the Registrant's principal underwriter, custodian, fund accountant, and transfer agent is provided for, respectively, in Section V of the Distribution Agreement incorporated by reference as Exhibit 7(a) hereto, Section 28 of the Custody Agreement incorporated by reference as Exhibit 9 hereto, Section 5 of the Registrant's Fund Accounting Agreement dated May 31, 1995 between the Registrant and BISYS Fund Services Ohio, Inc. which was filed as Exhibit 9(d) to Post-Effective Amendment No. 22 of the Registrant's Registration Statement on Form N-1A filed on August 28, 1995, and Section 7 of the Transfer Agency and Service Agreement dated July 12, 1996 between the Registrant and State Street Bank and Trust Company filed as Exhibit 6(a) to Post-Effective Amendment No. 30 to the Registrant's Registration Statement on Form N-1A. Registrant has obtained from a major insurance carrier a trustee's and officer's liability policy covering certain types of errors and omissions. In no event will Registrant indemnify any of its trustees, officers, employees or agents against any liability to which such person would otherwise be subject by reason of his willful misfeasance, bad faith, or gross negligence in the performance of his duties, or by reason of his reckless disregard of the duties involved in the conduct of his office or under his agreement with Registrant. Registrant will comply with Rule 484 under the Securities Act of 1933 and Release 11330 under the Investment Company Act of 1940 in connection with any indemnification. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers, and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Investment Company Act of 1940, as amended, and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Investment Company Act of 1940, as amended, and will be governed by the final adjudication of such issue. Item 16. Exhibits. Exhibit No. EX-99.1 Delaware Trust Instrument dated December 6, 1995 is incorporated herein by reference to Exhibit 99.B1(a) to Post-Effective Amendment No. 26 to the Registrant's Registration Statement on Form N-1A filed electronically on December 28, 1995, accession number 0000950152-95-003085. EX-99.2 By-Laws adopted December 6, 1995 are incorporated herein by reference to Exhibit 99.B2 to Post-Effective Amendment No. 26 to the Registrant's Registration Statement on Form N-1A filed electronically on December 28, 1995, accession number 0000950152-95-003085. EX-99.3 Inapplicable. EX-99.4 Agreement and Plan of Reorganization and Liquidation (filed herewith as Exhibit A to Part A). EX-99.5 Inapplicable. EX-99.6(a) Investment Advisory Agreement dated as of March 1, 1997, between the Registrant and Key Asset Management Inc. is incorporated herein by reference to Exhibit 99.B(5)(a) to Post-Effective Amendment No. 34 to the Registrant's Registration Statement on Form N-1A filed electronically on December 12, 1997, accession number 0000922423-97-001015. EX-99.7(a) Distribution Agreement dated June 1, 1996 between the Registrant and BISYS Fund Services Limited Partnership is incorporated herein by reference to Exhibit 99.B6(a) to Post-Effective Amendment No. 30 to the Registrant's Registration Statement on Form N-1A filed electronically on July 30, 1996, accession number 0000922423-96-000344. EX-99.7(b) Form of Broker-Dealer Agreement is incorporated herein by reference to Exhibit 99.B6(b) to Post-Effective Amendment No. 27 to the Registrant's Registration Statement on Form N-1A filed electronically on January 31, 1996, accession number 0000922423-96-000047. EX-99.8 Inapplicable. EX-99.9(a) Amended and Restated Mutual Fund Custody Agreement dated May 24, 1995 by and between the Registrant and Key Trust Custody of Ohio, N.A. is incorporated herein by reference to Exhibit 8(a) to Post-Effective Amendment No. 22 to the Registrant's Registration Statement on Form N-1A filed on August 28, 1995. EX-99.9(b) Custody Agreement dated May 31, 1996 between Morgan Stanley Trust Company and Key Trust Company of Ohio is incorporated herein by reference to Exhibit 99.B8(c) to Post-Effective Amendment No. 30 to the Registrant's Registration Statement on Form N-1A filed electronically on July 30, 1996, accession number 0000922423-96-000344. EX-99.10(a) Inapplicable. EX-99.10(b) Custody Agreement dated May 31, 1996 between Morgan Stanley Trust Company and Key Trust Company of Ohio is incorporated herein by reference to Exhibit 99.B8(c) to Post-Effective Amendment No. 30 to the Registrant's Registration Statement on Form N-1A filed electronically on July 30, 1996, accession number 0000922423-96-000344. EX-99.B10(c) Amended and Restated Rule 18f-3 Multi-Class Plan effective as of February 14, 1996 is incorporated herein by reference to Exhibit 99.B18(c) to Post-Effective Amendment No. 28 to the Registrant's Registration Statement on Form N-1A filed electronically on February 28, 1996, accession number 0000922423-96-000106. EX-99.11(a) Opinion of Kramer, Levin, Naftalis & Frankel as to the legality of the securities being issued. EX-99.11(b) Opinion of Morris, Nichols, Arscht & Tunnell as to the legality of the securities being issued. EX-99.11(c) Opinion of Morrison & Foerster as to the legality of the securities is to be filed by amendment. EX-99.11(d) Opinion of Ballard Spahr Ingersoll & Andrews as to the legality of the securities is to be filed by amendment. EX-99.12 Opinion of Kramer, Levin, Naftalis & Frankel as to tax consequences. EX-99.13 Inapplicable. EX-99.14 Consent of Coopers & Lybrand L.L.P. EX-99.15 Inapplicable. EX-99.16(a) Power of Attorney of Leigh A. Wilson is incorporated herein by reference to Exhibit 99.B P of A to Post-Effective Amendment No. 27 to Registrant's Registration Statement on Form N-1A and Powers of Attorney of Robert G. Brown, Edward P. Campbell, Harry Gazelle, Stanley I. Landgraf, Thomas F. Morrissey and H. Patrick Swygert are incorporated herein by reference to Exhibit 99.B P of A to Post-Effective Amendment No. 26 to the Registrant's Registration Statement on Form N-1A filed electronically on January 31, 1996, accession number 0000922423-96-000047 and December 28, 1995, accession number 0000950152-95-003085, respectively. EX-99.16(a) Powers of Attorney of Roger Noall, Eugene J. McDonald, and Frank A. Weil. EX-99.17(a) Form of Proxy Card is to be filed by amendment. EX-99.17(b) Registrant's Registration Statement Part A and Part B relating to the Victory Stock Index Fund, Victory Special Growth Fund, and Victory Diversified Stock Fund is incorporated herein by reference to Post-Effective Amendment No. 31 to the Registrant's Registration Statement on Form N-1A as filed electronically on February 7, 1997, accession number 0000922423-97-000066, as supplemented by Post-Effective Amendment No. 32 to the Registrant's Registration Statement on Form N-1A as filed electronically on June 27, 1997, accession number 0000922423-97-000530, as supplemented on August 29, 1997, accession number 0000922423-97-000710, and as supplemented on December 1, 1997, accession number 0000922423-97-000986. EX-99.17(c) Registration Statement of the SBSF Funds, Inc. (d/b/a Key Mutual Funds) Part A and Part B, including audited financial statements as of November 30, 1996 are incorporated herein by reference to Post-Effective Amendment No. 30 to Key Mutual Fund's Registration Statement on Form N-1A as filed electronically on March 28, 1997, accession number 0000950152-97-002413, as supplemented on August 29, 1997, accession number 0000925421-97-000046, and on October 1, 1997 accession number 0000925421-97-000054. EX-99.17(d) Audited annual reports of Key Mutual Funds relating to the Key Stock Index Fund, accession number 00000906197-98-000011, Key Money Market Mutual Fund, accession number 0000906197-98-000010, KeyChoice Growth Fund, KeyChoice Income and Growth Fund, and KeyChoice Moderate Growth Fund, accession number 0000906197-98-000012, SBSF Fund, SBSF Convertible Securities Fund, and SBSF Capital Growth Fund, accession number 0000906197- 98-000013, as of November 30, 1997 are incorporated herein by reference to Key Mutual Funds' Form N-30D filings as filed electronically on January 28, 1998. EX-99.17(e) Audited annual report of The Victory Portfolios relating to all of the portfolios as of October 31, 1997 is incorporated herein by reference to The Victory Portfolios' Form N-30D as filed electronically on December 24, 1997, accession number 0000906197-97-000068. EX-99.17(f) Unaudited semi-annual report of Key Mutual Funds relating to the SBSF Fund and SBSF Capital Growth Fund as of May 31, 1997 is incorporated herein by reference to Key Mutual Funds' Form N-30D as filed electronically on July 31, 1997, accession number 0000906197-97-000047. Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES As required by the Securities Act of 1933, the Registrant has duly caused this Registration Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, the ___ day of _________, 1998. THE VICTORY PORTFOLIOS (Registrant) By: /s/Leigh A. Wilson -------------------- Leigh A. Wilson President and Trustee As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the ___ day of _________, 1998. /s/Roger Noall Chairman of the Board and Trustee - ------------------------ Roger Noall /s/Leigh A. Wilson President and Trustee - ------------------------ Leigh A. Wilson /s/Thomas E. Line Treasurer - ------------------------ Thomas E. Line * Trusteee - ------------------------ Robert G. Brown * Trustee - ------------------------ Edward P. Campbell * Trustee - ------------------------ Harry Gazelle * Trustee - ------------------------ Thomas F. Morrisey * Trustee - ------------------------ H. Patrick Swygert * Trustee - ------------------------ Frank A. Weil * Trustee - ------------------------ Eugene J. McDonald *By: /s/ Carl Frischling - ------------------------ Carl Frischling Attorney-in-Fact Exhibit 99.11(a) Kramer, Levin, Naftalis & Frankel 919 THIRD AVENUE NEW YORK, N.Y. 10022 - 3852 (212) 715 - 9100 Arthur H. Aufses III Monica C. Lord Sherwin Kamin Thomas D. Balliett Richard Marlin Arthur B. Kramer Jay G. Baris Thomas Moers Mayer Maurice N. Nessen Philip Bentley Thomas E. Molner Founding Partners Saul E. Burian Thomas H. Moreland Counsel Barry Michael Cass Ellen R. Nadler _____ Thomas E. Constance Gary P. Naftalis Michael J. Dell Michael J. Nassau Martin Balsam Kenneth H. Eckstein Michael S. Nelson Joshua M. Berman Charlotte M. Fischman Jay A. Neveloff Jules Buchwald David S. Frankel Michael S. Oberman Rudolph de Winter Marvin E. Frankel Paul S. Pearlman Meyer Eisenberg Alan R. Friedman Susan J. Penry-Williams Arthur D. Emil Carl Frischling Bruce Rabb Maria T. Jones Mark J. Headley Allan E. Reznick Maxwell M. Rabb Robert M. Heller Scott S. Rosenblum James Schreiber Philip S. Kaufman Michele D. Ross Counsel Peter S. Kolevzon Howard J. Rothman _____ Kenneth P. Kopelman Max J. Schwartz Michael Paul Korotkin Mark B. Segall M. Frances Buchinsky Shari K. Krouner Judith Singer Abbe L. Dienstag Kevin B. Leblang Howard A. Sobel Ronald S. Greenberg David P. Levin Jeffrey S. Trachtman Debora K. Grobman Ezra G. Levin Jonathan M. Wagner Christian S. Herzeca Randy Lipsitz Harold P. Weinberger Jane Lee Larry M. Loeb E. Lisk Wyckoff, Jr. Pinchas Mendelson Lynn R. Saidenberg Special Counsel ----- FAX (212) 715-8000 --- WRITER'S DIRECT NUMBER (212)715-9100 ------------- January 30, 1998 The Key Mutual Funds 3435 Stelzer Road Columbus, Ohio 43219-3035 Dear Ladies and Gentlemen: Reference is made to the Registration Statement on Form N-14, Registration No. 333-42837, under the Securities Act of 1933, as amended (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") on December 19, 1997, registering shares of beneficial interest, no par value, (the "Shares") of The Victory Portfolios (the "Trust"), a Delaware business trust. The Shares are to be issued in connection with an Agreement and Plan of Reorganization and Liquidation (the "Plan") whereby all of the then-existing assets of the Key Mutual Funds, a Maryland corporation (the "Company"), for itself and on behalf of each of its existing investment portfolios, Key Stock Index Fund, SBSF Capital Growth Fund, SBSF Fund, KeyChoice Growth Fund, KeyChoice Income and Growth Fund, KeyChoice Moderate Growth Fund, Key Money Market Mutual Fund, and SBSF Convertible Securities Fund (each an "Acquired Portfolio," and collectively the "Acquired Portfolios"), will be transferred to a corresponding series of the Trust, Victory Stock Index Fund-Class A, Victory Special Growth Fund-Class A, Victory Diversified Stock Fund-Class A, Victory LifeChoice Growth Investor Fund-Class A, Victory LifeChoice Conservative Investor Fund-Class A, Victory LifeChoice Moderate Investor Fund-Class A, Victory Federal Money Market Fund-Investor Class, and Victory Convertible Securities Fund-Class A (each an "Acquiring Portfolio," and collectively the "Acquiring Portfolios"), in exchange for (i) the assumption of all the obligations and stated liabilities of the Acquired The Key Mutual Funds January 30, 1998 Page 2 Portfolios and (ii) the issuance and delivery to each Acquired Portfolio of full and fractional shares of the Acquiring Portfolio's Shares (as described in the Plan); such Shares will be distributed by the Acquired Portfolio pro rata to its shareholders upon its liquidation. The Plan was approved by the Board of Directors of the Company on December 2, 1997, and by the Board of Trustees of the Trust on December 3, 1997, and must be approved by the shareholders of the Acquired Portfolios at a special meeting of shareholders called for that purpose. We have reviewed the Declaration of Trust of the Trust, its By-Laws, resolutions of the Trustees of the Trust, and the Registration Statement (including exhibits thereto). We have also made such inquiries and have examined originals, certified copies or copies otherwise identified to our satisfaction of such documents, records and other instruments as we have deemed necessary or appropriate for the purposes of this opinion. For purposes of such examination, we have assumed the genuineness of all signatures on original documents and the conformity to the original documents of all copies submitted. In addition, we have assumed that the representations to be made as of the closing date by the Trust will be made by such parties in form acceptable to us and that the Trust's activities in connection with the Plan and the transactions contemplated therein have been and will be conducted in the manner provided in such documents and as set forth herein. The opinions expressed herein are limited to matters of law which govern the due organization of the Trust and the authorization and issuance of the Shares. We are members of the Bar of the State of New York and do not hold ourselves out as experts as to the law of any other state or jurisdiction. As to matters of Delaware law, we have relied upon the opinion of Morris, Nichols, Arsht & Tunnell. Based upon and subject to the foregoing and provided that the terms of reorganization occur in accordance with the terms of the Plan, we are of the opinion that, and so advise you as follows: (1) The Trust is a business trust validly existing under the laws of the State of Delaware and is duly registered as an open-end, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and each Acquiring Portfolio is a validly existing series of shares of the Trust representing interests in the Acquiring Portfolio under the laws of the State of Delaware; (2) The execution, delivery and performance of the Plan will not result in a violation of the Trust's Declaration of Trust or By-Laws, each as amended to date; (3) The execution, delivery and performance of the Plan has been duly authorized by all necessary action on the part of the Trust and each Acquiring Portfolio, and the Plan has been duly executed and delivered by the Trust and is a valid and binding The Key Mutual Funds January 30, 1998 Page 3 obligation of the Trust and each Acquiring Portfolio, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors' rights or remedies and to general equity principles (regardless of whether considered at a proceeding in law or equity), equitable defenses or waivers and the discretion of the court before which any proceeding for specific performance, injunctive and other forms of equitable relief may be brought; and (4) The Acquiring Portfolio Shares to be issued and delivered pursuant to the terms of the Plan will have been duly authorized as of the closing date of the Reorganization and Liquidation, and, when so issued and delivered, will be validly issued, fully paid and non-assessable (except as disclosed in the Acquiring Portfolio's then current Prospectus and Statement of Additional Information). This opinion is solely for your information and is not to be quoted in whole or in part, summarized or otherwise referred to, nor is it to be filed with or supplied to or relied upon by any governmental agency or other person without the prior written consent of this firm. This opinion is as of the date hereof. We disclaim any responsibility to update or supplement this opinion to reflect any events or state of facts which may hereafter come to our attention, or any changes in statutes or regulations or any court decisions which may hereafter occur. Very truly yours, ------------------------------------ /s/ Kramer, Levin, Naftalis & Frankel Exhibit 99.11(b) January 22, 1998 The Victory Portfolios 3435 Stelzer Road Columbus, Ohio 43219-3035 Re: The Victory Portfolios ---------------------- Ladies and Gentlemen: We have acted as special Delaware counsel to The Victory Portfolios, a Delaware business trust (the "Trust"), in connection with certain matters relating to the creation of the Trust and the issuance of Shares by the Trust. Capitalized terms used herein and not otherwise herein defined are used as defined in the Trust Instrument of the Trust dated December 6, 1995 (the "Governing Instrument"). We understand that, pursuant to an Agreement and Plan of Reorganization and Liquidation (the "Plan") to be entered into among SBSF Funds, Inc. for itself and on behalf of each of its existing investment portfolios identified by Schedule A thereto (each individually an "Acquired Portfolio" and collectively, the "Acquired Portfolios") and the Trust for itself and on behalf of each of its existing investment portfolios set forth on Schedule A thereto (each individually an "Acquiring Fund" and collectively the "Acquiring Funds"), and subject to the conditions set forth therein, Shares of each of the Acquiring Funds will be distributed to the Shareholders of each corresponding Acquired Portfolio in connection with the liquidation and termination of each of the Acquired Portfolios. In rendering this opinion, we have examined copies of the following documents, each in the form provided to us: the Certificate of Trust of the Trust as filed in the Office of the The Victory Portfolios January 22, 1998 Page 2 Secretary of State of the State of Delaware (the "Recording Office") on December 21, 1995 (the "Certificate"); the Governing Instrument; the Bylaws of the Trust; certain resolutions of the Trustees of the Trust; the Plan; Post-Effective Amendment No. 26 to the Registration Statement on Form N-1A of The Victory Portfolios, a Massachusetts business trust and the predecessor to the Trust (the "Predecessor Trust") by which the Trust adopted such Registration Statement and the Predecessor Trust's Notification of Registration and Registration Statement under the Investment Company Act of 1940, as filed with the Securities and Exchange Commission on December 28, 1995; the Trust's Registration Statement on Form N-14 as filed with the Securities and Exchange Commission on December 19, 1997 (the "Registration Statement"); and a certification of good standing of the Trust obtained as of a recent date from the Recording Office. In such examinations, we have assumed the genuineness of all signatures, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, and the legal capacity of natural persons to complete the execution of documents. We have further assumed for the purpose of this opinion: (i) the due authorization, execution and delivery by, or on behalf of, each of the parties thereto of the above-referenced instruments, certificates and other documents, including, without limitation, the Plan, and of all documents contemplated by the Governing Instrument and applicable resolutions of the Trustees to be executed by investors desiring to become Shareholders; (ii) the transfer of the assets of each Acquired Portfolios to the corresponding Acquiring Fund, the satisfaction of all conditions precedent to the issuance of Shares pursuant to the Plan and compliance with all other terms, conditions and restrictions set forth in the Plan and the Governing Instrument and all applicable resolutions of the Trustees in connection with the issuance of Shares (including, without limitation, the taking of all appropriate action by the Trustees to designate Series of Shares, including the Acquiring Funds, and the rights and preferences attributable thereto as contemplated by the Governing Instrument); (iii) that appropriate notation of the names and addresses of, the number of Shares held by, and the consideration paid by, Shareholders will be maintained in the appropriate registers and other books and records of the Trust in connection with the issuance or transfer of Shares; (iv) that, subsequent to the filing of the Certificate, no event has occurred, or prior to the issuance of Shares pursuant to the Plan will occur, that would cause a termination or dissolution of the Trust under Sections 11.04 or 11.05 of the Governing Instrument; (v) that the activities of the The Victory Portfolios January 22, 1998 Page 3 Trust have been and will be conducted in accordance with the terms of the Governing Instrument and the Delaware Act; and (vi) that each of the documents examined by us is in full force and effect and has not been amended, supplemented or otherwise modified, except as herein referenced. No opinion is expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. Further, we express no opinion on the sufficiency or accuracy of the Registration Statement, or any other registration or offering documentation relating to the Trust or the Shares. As to any facts material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained. Based on and subject to the foregoing, and limited in all respects to matters of Delaware law, it is our opinion that: 1. The Trust is a duly created and validly existing business trust in good standing under the laws of the State of Delaware. 2. The Shares to be issued pursuant to the Plan will, upon issuance, constitute legally issued, fully paid and non-assessable Shares of beneficial interest in the Trust. 3. Under the Delaware Act and the terms of the Governing Instrument, each Shareholder of the Trust, in such capacity, will be entitled to the same limitation of personal liability as that extended to stockholders of private corporations for profit organized under the general corporation law of the State of Delaware; provided, however, that we express no opinion with respect to the liability of any Shareholder who is, was or may become a named Trustee of the Trust. We consent to the filing of a copy of this opinion with the Securities and Exchange Commission as an exhibit to a pre-effective amendment to the Registration Statement. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as provided in this paragraph, the opinion set forth above is expressed solely for the benefit of the addressee hereof in connection with the matters contemplated hereby and may not be The Victory Portfolios January 22, 1998 Page 4 relied upon by, or filed with, any other person or entity or for any other purpose without our prior written consent. Sincerely, /s/MORRIS, NICHOLS, ARSHT & TUNNELL Exhibit 99.12 Kramer, Levin, Naftalis & Frankel 919 THIRD AVENUE NEW YORK, N.Y. 10022 - 3852 (212) 715 - 9100 Arthur H. Aufses III Monica C. Lord Sherwin Kamin Thomas D. Balliett Richard Marlin Arthur B. Kramer Jay G. Baris Thomas Moers Mayer Maurice N. Nessen Philip Bentley Thomas E. Molner Founding Partners Saul E. Burian Thomas H. Moreland Counsel Barry Michael Cass Ellen R. Nadler _____ Thomas E. Constance Gary P. Naftalis Michael J. Dell Michael J. Nassau Martin Balsam Kenneth H. Eckstein Michael S. Nelson Joshua M. Berman Charlotte M. Fischman Jay A. Neveloff Jules Buchwald David S. Frankel Michael S. Oberman Rudolph de Winter Marvin E. Frankel Paul S. Pearlman Meyer Eisenberg Alan R. Friedman Susan J. Penry-Williams Arthur D. Emil Carl Frischling Bruce Rabb Maria T. Jones Mark J. Headley Allan E. Reznick Maxwell M. Rabb Robert M. Heller Scott S. Rosenblum James Schreiber Philip S. Kaufman Michele D. Ross Counsel Peter S. Kolevzon Howard J. Rothman _____ Kenneth P. Kopelman Max J. Schwartz Michael Paul Korotkin Mark B. Segall M. Frances Buchinsky Shari K. Krouner Judith Singer Abbe L. Dienstag Kevin B. Leblang Howard A. Sobel Ronald S. Greenberg David P. Levin Jeffrey S. Trachtman Debora K. Grobman Ezra G. Levin Jonathan M. Wagner Christian S. Herzeca Randy Lipsitz Harold P. Weinberger Jane Lee Larry M. Loeb E. Lisk Wyckoff, Jr. Pinchas Mendelson Lynn R. Saidenberg Special Counsel ----- FAX (212) 715-8000 --- WRITER'S DIRECT NUMBER (212)715-9100 ------------- March __, 1998 Key Mutual Funds 3435 Stelzer Road Columbus, Ohio 43219 and The Victory Portfolios 3435 Stelzer Road Columbus, Ohio 43219 Ladies and Gentlemen: This opinion is being furnished to you in connection with the reorganization (the "Reorganization") of each series of SBSF Funds, Inc., doing business as Key Mutual Funds, a Maryland corporation ("Key," and each such series, a "Transferor"), into a corresponding series of The Victory Portfolios, a Delaware business trust ("Victory," and each such series, a "Transferee"), pursuant to the Agreement and Plan of Reorganization and Liquidation (the "Reorganization Plan") dated as of _____, 1998, by and among Key, for itself and on behalf of each Transferor, and Victory, for itself and on behalf of each Transferee. In the Reorganization, each Transferor will transfer substantially all of its assets to a corresponding Transferee in exchange for stock of such Transferee and the KRAMER, LEVIN, NAFTALIS & FRANKEL Key Mutual Funds and The Victory Portfolios March __, 1998 Page 2 assumption by such Transferee of the liabilities of Transferor.1 Each Transferor will distribute the stock of the Transferee received in the Reorganization pro rata to its shareholders in exchange for their Transferor stock in complete liquidation of Transferor. Certain Transferors are reorganizing into new Transferees created to carry on the operations of the corresponding Transferor (each such Transferee, a "New Transferee"), as follows: (1) KeyChoice Growth Fund into Victory LifeChoice Growth Investor Fund; (2) KeyChoice Income and Growth Fund into Victory LifeChoice Conservative Investor Fund; (3) KeyChoice Moderate Growth Fund into Victory LifeChoice Moderate Investor Fund; (4) Key Money Market Mutual Fund into Victory Federal Money Market Fund; and (5) SBSF Convertible Securities Fund into Victory Convertible Securities Fund. Each of the other Transferors is reorganizing into an existing Transferee (each such Transferee, an "Existing Transferee"), as follows: (1) SBSF Fund into Victory Diversified Stock Fund; (2) SBSF Capital Growth Fund into Victory Special Growth Fund; and (3) Key Stock Index Fund into Victory Stock Index Fund. All capitalized terms used in this opinion and not defined herein have the respective meanings assigned to them in the Reorganization Plan and the Combined Prospectus/Proxy Statement included in the registration statement on Form N-14, as amended, filed by Victory with The Securities and Exchange Commission on December 19, 1997 (the "Proxy Statement"). For purposes of the opinion set forth below, we have reviewed and relied upon (i) the Reorganization Plan, (ii) the Proxy Statement, and (iii) such other documents, records, and instruments as we have deemed necessary or appropriate as a basis for our opinion. In - -------- 1 Pursuant to section 851(g)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), each Transferor and each Transferee is treated as a separate corporation. Under Delaware law, ownership interests in a Transferee constitute shares of beneficial interest. Such interests are considered stock for federal income tax purposes and are referred to as "stock" or "shares" in this letter. KRAMER, LEVIN, NAFTALIS & FRANKEL Key Mutual Funds and The Victory Portfolios March __, 1998 Page 3 addition, in rendering our opinion we have relied upon certain statements and representations, which we have neither investigated nor verified, made by Key, Victory, and Key Asset Management, Inc., the investment adviser to each of the Transferees and Transferors (the "Certified Representations"), including, inter alia, that with respect to each Transferor and its corresponding Transferee: (i) there is no plan or intention by the holders of shares of Transferor to sell, exchange, or otherwise dispose of a number of shares of Transferee stock received in the Reorganization that would reduce the Transferor shareholders' ownership of Transferee stock to a number of shares having a value, as of the date of the Reorganization, of less than 50 percent of the value of all of the formerly outstanding stock of Transferor as of the same date, (ii) the fair market value of Transferee stock received by each shareholder of Transferor will be approximately equal to the fair market value of the Transferor stock surrendered in the Reorganization, (iii)each of Transferor and Transferee is qualified as a regulated investment company, as defined in section 851 of the Code; and (iv) Transferee will acquire at least 90 percent of the fair market value of the net assets and at least 70 percent of the fair market value of the gross assets held by Transferor immediately prior to the Reorganization, calculated in accordance with the relevant provisions of Rev. Proc. 77-37, 1977-2 C.B. 568, as amended. We have also obtained such additional information and representations as we have deemed relevant and necessary through consultation with the officers and directors of Key and Victory, as well as with other professionals engaged by them. We have assumed, with your consent, that all documents reviewed by us are originals or photocopies that faithfully reproduce the originals thereof, that all such documents have been or will be duly executed to the extent required, that all representations and statements set forth in such documents are true, correct, complete, and not breached, that no actions that are inconsistent with such representations and statements will be taken, and that all obligations imposed by any such documents on the parties thereto have been or will be performed or satisfied in accordance with their terms. We have further assumed that all representations made in the KRAMER, LEVIN, NAFTALIS & FRANKEL Key Mutual Funds and The Victory Portfolios March __, 1998 Page 4 Certified Representations "to the best knowledge of" any person will be true, correct, and complete as if made without such qualification. Based upon the foregoing, and subject to the qualifications set forth below, it is our opinion that, with respect to each Transferor and its corresponding Transferee, for federal income tax purposes: (i) the transfer by Transferor of substantially all of its assets to Transferee in exchange for shares of Transferee and the assumption by Transferee of the liabilities of Transferor, and the subsequent liquidation of Transferor, pursuant to the Plan, will constitute a reorganization within the meaning of section 368(a)(1) of the Code, and Transferor and Transferee will each be "a party to a reorganization" within the meaning of section 368(b) of the Code; (ii) Transferor will not recognize any gain or loss as a result of the Reorganization; (iii)Transferee will not recognize any gain or loss on the receipt of the assets of Transferor in exchange for shares of Transferee and the assumption of the liabilities of Transferor; (iv) the shareholders of Transferor will not recognize any gain or loss on the exchange of their shares of Transferor for shares of Transferee in the Reorganization; (v) the aggregate tax basis of the shares of Transferee received by each shareholder of Transferor will be the same as the aggregate tax basis of the shares of Transferor exchanged therefor; (vi) Transferee's adjusted tax bases in the assets received from Transferor in the Reorganization will be the same as the adjusted tax bases of such assets in the hands of Transferor immediately prior to the Reorganization; (vii)the holding period of each former shareholder of Transferor in the shares of Transferee received in the Reorganization will include the period during which such shareholder held the Transferor shares exchanged therefor, if such shares were held as a capital asset at the time of the Reorganization; and KRAMER, LEVIN, NAFTALIS & FRANKEL Key Mutual Funds and The Victory Portfolios March __, 1998 Page 5 (viii) Transferee's holding periods in the assets received from Transferor in the Reorganization will include the holding periods of such assets in the hands of Transferor immediately prior to the Reorganization. Our opinion, which is not binding on the Internal Revenue Service or the courts, is based upon existing statutory, regulatory, and administrative and judicial authority, any of which may be changed at any time with retroactive effect to the detriment of Transferee, Transferor, and/or their shareholders. We do not undertake to advise you as to any changes after the date of this opinion in the above-referenced authorities that may affect our opinion unless we are specifically requested to do so. As noted above, our opinion is based solely on the documents that we have examined, the assumptions we have made, the additional information that we have obtained, and the representations that have been made to us. Our opinion cannot be relied upon if any of the facts contained in such documents, such additional information, or any of our assumptions or the representations made to us is, or later becomes, inaccurate. Finally, our opinion is limited to the tax matters specifically stated above, and we have not been asked to address, nor have we addressed, any other matters relating to the Reorganization, Transferees, Transferors, or any investment in or by Transferees or Transferors. This opinion is intended for the exclusive use of Key and Victory. This opinion may not be circulated or relied upon by any other person or entity or for any other purpose without our prior consent. We hereby authorize you to attach this opinion as an exhibit to the Registration Statement on Form N-14. Very truly yours, Exhibit 99.14(a) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Pre-Effective Amendment No. 1 to the Registration Statement of The Victory Portfolios on Form N-14 (File No. 333-42837) of our report dated December 15, 1997 on our audits of the financial statements and financial highlights of The Victory Portfolios (comprising, respectively, the Institutional Money Market Fund, U.S. Government Obligations Fund, Prime Obligations Fund, Financial Reserves Fund, Tax-Free Money Market Fund, Ohio Municipal Money Market Fund, Limited Term Income Fund, Intermediate Income Fund, Investment Quality Bond Fund, Government Mortgage Fund, Fund for Income, National Municipal Bond Fund, New York Tax-Free Fund, Ohio Municipal Bond Fund, Balanced Fund, Stock Index Fund, Diversified Stock Fund, Value Fund, Growth Fund, Special Value Fund, Special Growth Fund, Ohio Regional Stock Fund, International Growth Fund, Lakefront Fund, and Real Estate Investment Fund) which report is included in the Annual Report to Shareholders for the year ended October 31, 1997 which is incorporated by reference in the Registration Statement. We also consent to the reference to our Firm under the caption "Financial Statements" in this Registration Statement on Form N-14 (File No. 333-42837). /s/COOPERS & LYBRAND L.L.P. Columbus, Ohio January 30, 1998 Exhibit 99.14(a) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Pre-Effective Amendment No. 1 to the Registration Statement of The Victory Portfolios on Form N-14 (File No. 333-42837) of our report dated January 16, 1998 on our audits of the financial statements and financial highlights of Key Mutual Funds (SBSF Funds, Inc.) (comprising, respectively, the Key Money Market Mutual Fund, Key Stock Index Fund, KeyChoice Income & Growth Fund, KeyChoice Moderate Growth Fund, KeyChoice Growth Fund, SBSF Fund, SBSF Convertible Securities Fund, and SBSF Capital Growth Fund) which report is included in the Annual Report to Shareholders for the year ended November 30, 1997 which is incorporated by reference in the Registration Statement. We also consent to the reference to our Firm under the caption "Financial Statements" in this Registration Statement on Form N-14 (File No. 333-42837). /s/COOPERS & LYBRAND L.L.P. Columbus, Ohio January 30, 1998 Exhibit 99.16(a) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities as a trustee of the Trust, to sign for me and in my name in the appropriate capacity, any and all Pre-Effective Amendments to any Registration Statement of the Trust, any and all Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, and that have been approved by the Board of Trustees of the Trust or by the appropriate officers of the Trust, acting in good faith and in a manner they reasonably believe to be in the best interests of the Trust, upon the advice of counsel, such approval to be conclusively evidenced by their execution thereof, to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. Witness my hand on this 2nd day of January, 1998. /s/ Roger Noall --------------- Roger Noall Exhibit 99.16(a) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities as a trustee of the Trust, to sign for me and in my name in the appropriate capacity, any and all Pre-Effective Amendments to any Registration Statement of the Trust, any and all Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, and that have been approved by the Board of Trustees of the Trust or by the appropriate officers of the Trust, acting in good faith and in a manner they reasonably believe to be in the best interests of the Trust, upon the advice of counsel, such approval to be conclusively evidenced by their execution thereof, to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. Witness my hand on this 2nd day of January, 1998. /s/ Eugene J. McDonald ---------------------- Eugene J. McDonald Exhibit 99.16(a) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned Trustee of THE VICTORY PORTFOLIOS, a Delaware business trust, (the "Trust") constitutes and appoints Carl Frischling and Jay G. Baris my true and lawful attorneys-in-fact, with full power of substitution and resubstitution, for me and in my name, place and stead, in any and all capacities as a trustee of the Trust, to sign for me and in my name in the appropriate capacity, any and all Pre-Effective Amendments to any Registration Statement of the Trust, any and all Post-Effective Amendments to said Registration Statements, any Registration Statements on Form N-14, and any supplements or other instruments in connection therewith, and generally to do all such things in my name and behalf in connection therewith as said attorneys-in-fact deem necessary or appropriate, and that have been approved by the Board of Trustees of the Trust or by the appropriate officers of the Trust, acting in good faith and in a manner they reasonably believe to be in the best interests of the Trust, upon the advice of counsel, such approval to be conclusively evidenced by their execution thereof, to comply with the provisions of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all related requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or their substitutes may do or cause to be done by virtue hereof. Witness my hand on this 2nd day of January, 1998. /s/ Frank A. Weill ---------------------- Frank A. Weill EX-99.17(a) ================================================================================ IMPORTANT NOTICE: Please take a moment now to vote your shares. You may vote directly over the telephone by calling 1-800-733-8481, Ext. 431. Representatives are available from 9 a.m. to 11 p.m. Eastern Time. You may also fax your ballot to 1-800-733-1885 or return it in the enclosed postage paid envelope. Your vote is important. Thank you for your prompt action. ================================================================================ KEY MUTUAL FUNDS KeyChoice Growth Fund KeyChoice Income and Growth Fund KeyChoice Moderate Growth Fund Key Stock Index Fund SBSF Capital Growth Fund SBSF Fund Key Money Market Mutual Fund ----------------------------------------------- SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON MARCH 6, 1998 ------------------------------------------ Please refer to the Combined Prospectus/Proxy Statement for a discussion of these matters. THE UNDERSIGNED CONSTITUTES AND APPOINTS KAREN HABER AND MARILYN FARMER, OR EITHER OF THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED WITH FULL POWER OF SUBSTITUTION, TO VOTE THE SHARES LISTED BELOW AS DIRECTED AT THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AT 3435 STELZER ROAD, COLUMBUS, OHIO ON MARCH 6, 1998, AT 8:30 A.M. EASTERN TIME, AND AT ANY AND ALL ADJOURNMENTS THEREOF, AND HEREBY REVOKES ANY PRIOR PROXIES. To vote, mark an x in blue or black ink on the proxy card below. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF KEY MUTUAL FUNDS. 1. To approve an Agreement and Plan of Reorganization and Liquidation of each Key Fund following the distribution of shares of beneficial interest in the corresponding series of the Victory Portfolios to the holder of such shares in capital stock and, upon the dissolution to Key Mutual Funds. FOR AGAINST ABSTAIN |_| |_| |_| Please sign exactly as your name appears on this card. When account is joint tenants, all should sign. When signing as executor, administrator, trustee, or guardian, please give title. If a corporation or partnership, sign entity's name and by authorized person. X___________________________________________ Signature X___________________________________________ Signature (if jointly held) Date:________________, 1998