AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996.
FILE NO. 33-8982
ICA NO. 811-4852
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. _____ [ ]
POST-EFFECTIVE AMENDMENT NO. 30 [X]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 31
THE VICTORY PORTFOLIOS
(EXACT NAME OF REGISTRANT AS SPECIFIED N TRUST INSTRUMENT)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(800) 362-5365
(AREA CODE AND TELEPHONE NUMBER)
COPY TO:
GEORGE O. MARTINEZ, ESQ. CARL FRISCHLING, ESQ.
BISYS FUND SERVICES KRAMER, LEVIN, NAFTALIS & FRANKEL
3435 STELZER ROAD 919 THIRD AVENUE
COLUMBUS, OHIO 43219 NEW YORK,NEW YORK 10022
(NAME AND ADDRESS OF AGENT FOR SERVICE)
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
|_| IMMEDIATELY UPON FILING PURSUANT TO |X| ON AUGUST 1, 1996 PURSUANT TO
PARAGRAPH (B) PARAGRAPH (B)
|_| 60 DAYS AFTER FILING PURSUANT TO |_| ( ) PURSUANT TO
PARAGRAPH (A)(1) PARAGRAPH (A)(1)
|_| 75 DAYS AFTER FILING PURSUANT TO |_| ON ( ) PURSUANT TO
PARAGRAPH (A)(2) PARAGRAPH (A)(2) OF RULE 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
|_| THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST- EFFECTIVE AMENDMENT.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES PURSUANT TO RULE 24F-2
AND ITS RULE 24F-2 NOTICE FOR ITS OCTOBER 31, 1995 FISCAL YEAR WAS FILED ON
DECEMBER 29, 1995, IN ACCORDANCE WITH RULE 24F-2.
<PAGE>
THE VICTORY PORTFOLIOS
THE VICTORY PORTFOLIOS
CROSS-REFERENCE SHEET
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
i. Cover Page Cover Page
ii. Synopsis Fund Expenses
iii. Condensed Financial Information Financial Highlights
iv. General Description of Registrant Investment Objective; Investment
Policies and Risk Factors; Limiting
Investment Risks; Fund Organization
and Fees; Additional Information
v. Management of the Fund Fund Organization and Fees
v.A. Management's Discussion of Fund Inapplicable
Performance
vi. Capital Stock and Other Securities How to Invest, Exchange and Redeem;
Dividends, Distributions and Taxes;
Fund Organization and Fees;
Additional Information
vii. Purchase of Securities Being Offered How to Invest, Exchange and Redeem
viii Redemption or Repurchase How to Invest, Exchange and Redeem
ix. Pending Legal Proceedings Inapplicable
<PAGE>
THE VICTORY PORTFOLIOS
CROSS REFERENCE SHEET
THE VICTORY PORTFOLIOS - STATEMENT OF
ADDITIONAL INFORMATION
Form N-1A Part B Item
x. Cover Page Cover Page
xi. Table of Contents Table of Contents
xii. General Information and History Additional Information
xiii. Investment Objectives and Policies Investment Objective and
Policies; Investment
Limitations and Restrictions
xiv. Management of the Fund Trustees and Officers
xv. Control Persons and Principal Additional Information
Holders of Securities
xvi. Investment Advisory and Other Advisory and Other Contracts
Services
xvii. Brokerage Allocation and Other Practices Advisory and Other Contracts
xviii.Capital Stock and Other Securities Valuation of Portfolio
Securities; Additional
Purchase, Exchange and
Redemption Information;
Additional Information
xix. Purchase, Redemption and Pricing Valuation of Portfolio
of Securities Being Offered Securities; Additional
Purchase, Exchange and
Redemption Information;
Performance; Additional
Information
xx. Tax Status Dividends and Distributions
xxi. Underwriters Advisory and Other Contracts
xxii. Calculation of Performance Data Performance; Additional
Information
xxiii.Financial Statements
<PAGE>
MANAGED BY KEYCORP
THE VICTORY BALANCED FUND
JULY 30, 1996
<PAGE>
THE VICTORY PORTFOLIOS
PART A
<PAGE>
THE
VICTORY
PORTFOLIOS
BALANCED FUND
PROSPECTUS FOR CURRENT YIELD, PURCHASE AND REDEMPTION INFORMATION,
JULY 30, 1996 CALL 800-539-FUND OR 800-539-3863
THE VICTORY PORTFOLIOS (the "Victory Portfolios") is a registered open-end
management investment company that offers investors a selection of money market,
fixed-income, municipal bond, domestic and international equity portfolios. This
Prospectus relates to the BALANCED FUND (the "Fund"), a diversified portfolio.
KeyCorp Mutual Fund Advisers, Inc., Cleveland, Ohio, an indirect subsidiary of
KeyCorp, is the investment adviser to the Fund ("Key Advisers" or the
"Adviser"). Society Asset Management, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment sub-adviser to the Fund (the
"Sub-Adviser" or "Society"). BISYS Fund Services ("BISYS") is the Fund's
administrator (the "Administrator") and distributor (the "Distributor").
The Fund seeks to provide income and long-term growth of capital. The Fund
pursues this objective by investing primarily in common stocks and fixed income
securities.
The Fund offers two classes of shares: (1) Class A shares, which are offered at
net asset value plus the applicable sales charge (maximum of 4.75% of public
offering price) and (2) Class B shares, which are offered at net asset value
with a maximum contingent deferred sales charge ("CDSC") of 5.0% imposed on
certain redemptions. At the end of the sixth year after purchase, the CDSC will
no longer apply to redemptions. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert to Class A shares eight years after
purchase.
Please read this Prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
July 30, 1996) for the Fund , an audited annual report for the Fund's fiscal
year ended October 31, 1995 and an unaudited semi-annual report for the six
months ended April 30, 1996 have been filed with the Securities and Exchange
Commission (the "Commission") and are incorporated herein by reference. The
Statement of Additional Information is available without charge upon request by
writing to The Victory Funds, P.O. Box 8527, Boston, MA 02266-8527, or by
calling 800-539-3863.
SHARES OF THE FUND ARE:
O NOT INSURED BY THE FDIC;
O NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP
BANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
O SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- 2 -
<PAGE>
TABLE OF CONTENTS PAGE
- ----------------- ----
Fund Expenses........................................................... 4
Financial Highlights.................................................... 6
Investment Objective.................................................... 7
Investment Policies and Risk Factors.................................... 7
How to Invest, Exchange and Redeem...................................... 14
Dividends, Distributions and Taxes...................................... 26
Performance............................................................. 28
Fund Organization and Fees.............................................. 29
Additional Information.................................................. 33
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<PAGE>
FUND EXPENSES
The table below summarizes the expenses associated with the Fund. This standard
format was developed for use by all mutual funds to help an investor make
investment decisions. You should consider this expense information along with
other important information in this Prospectus, including the Fund's investment
objective, policies and risk factors.
SHAREHOLDER TRANSACTION EXPENSE(1)
CLASS A CLASS B
------- -------
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price)...........4.75% none
Maximum Sales Charge Imposed on Reinvested
Dividends.........................................none none
Deferred Sales Charge...............................none 5% in the first
year, declining
to 1% in the
sixth year and
eliminated
thereafter
Redemption Fees.....................................none none
Exchange Fee........................................none none
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE WAIVERS AND REIMBURSEMENTS (as a
percentage of average daily net assets)
CLASS A CLASS B
------- -------
Management Fees(2).................................. .85% .85%
Administration Fees ................................ .15% .15%
Rule 12b-1 Distribution Fees........................ .00% .75%
Other Expenses(3)................................... .25% .45%
---- ----
Total Fund Operating Expenses(2)(3).................1.25% 2.20%
==== =====
(1) Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent, including affiliated banks and
non-bank affiliates of Key Advisers and KeyCorp. (See "How to Invest,
Exchange and Redeem.")
(2) The Adviser has agreed to reduce its investment advisory fees for the
indefinite future. Absent the voluntary reduction of investment
advisory fees, "Management Fees" as a percentage of average daily net
assets would be 1.00%, and "Total Fund Operating Expenses" as a
percentage of average daily net assets for Class A and Class B shares
would be 1.65% and 2.35%, respectively.
(3) These amounts include an estimate of the shareholder servicing fees the
Fund expects to pay (see "Fund Organization and Fees -- Shareholder
Servicing Plan").
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) full redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Balanced Fund -- Class A Shares $60 $85 $113 $191
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<PAGE>
Balanced Fund -- Class B Shares $72 $99 $138 $229
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Fund Organization and Fees" for a more complete discussion of
annual operating expenses of the Fund. The foregoing example is based upon
expenses for the fiscal year ended October 31, 1995 for Class A shares, the
period ended April 30, 1996 for Class B shares and expenses that the Fund is
expected to incur during the current fiscal year. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
financial highlights for the Fund for the periods indicated. The information
below for Class A Shares for the fiscal year ended October 31, 1995 has been
derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for the Victory Portfolios, whose report thereon,
together with the financial statements of the Fund, is incorporated by reference
into the Statement of Additional Information. The information below for Class B
Shares for the fiscal period ended April 30, 1996 has not been audited. The
information set forth below is for a Class A share and a Class B share
outstanding for each period indicated.
<TABLE>
<CAPTION>
THE VICTORY BALANCED FUND
CLASS B SHARES CLASS A SHARES
-------------------------- -------------------------------------------------
MARCH 1, 1996 DECEMBER 10, 1993
TO YEAR ENDED TO
APRIL 30, 1996(A)(E) OCTOBER 31, 1995 OCTOBER 31, 1994(A)
-------------------- ---------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $11.51 $ 9.62 $ 10.00
------ --------
Income from Investment Activities
Net investment income............................ 0.04 0.41 0.33
Net realized and unrealized gains (losses)
on investments and foreign currencies....... 0.14 1.40 (0.39)
------ -------- -------
Total from Investment Activities............ 0.18 1.81 (0.06)
------ -------- -------
Distributions
Net investment income....................... (0.05) (0.42) (0.32)
Net realized gains............................... -- -- --
------ -------- --------
Total Distributions......................... (0.05) (0.42) (0.32
----- -------- --------
NET ASSET VALUE, END OF PERIOD................... $11.64 $ 11.01 $ 9.62
====== ======== ========
Total Return (Excludes Sales Charge)............. (3.31)%(b) 1.70% (0.57%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000).................. $ 617 $201,073 $127,285
Ratio of expenses to average net assets (c)...... 1.89%(c) 0.98% 0.87%(c)
Ratio of net investment income to average
net assets (c).............................. 1.75%(c) 4.05% 3.97%(c)
Ratio of expenses to average net assets 2.08%(c) 1.36% 1.49%(c)
(c)(d)..........................................
Ratio of net investment income to average
net assets (c)(d).......................... 1.56% 3.67% 3.35%(c)
Portfolio turnover............................... 49.95% 69.22% 118.49%
</TABLE>
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(e) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
- 6 -
<PAGE>
INVESTMENT OBJECTIVE
The Fund seeks to provide income and long-term growth of capital. The investment
objective of the Fund is fundamental and may not be changed without a vote of
the holders of a majority of its outstanding voting securities (as defined in
the Statement of Additional Information). There can be no assurance that the
Fund will achieve its investment objective.
INVESTMENT POLICIES AND RISK FACTORS
SUMMARY OF PRINCIPAL INVESTMENT POLICIES
The Fund will invest primarily in common stocks and fixed income securities. The
Fund may invest in any type or class of security.
Under normal market conditions, the Fund will invest in common stocks, fixed
income securities and securities convertible into common stock (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible fixed
income securities, options and rights). At least 25% of the value of the Fund's
assets will be invested in fixed income securities, primarily preferred stock of
United States corporations and debt securities, such as bonds, notes and
debentures of United States corporations and bonds and notes issued or
guaranteed by the United States Government or its agencies or instrumentalities.
It is anticipated that between 40% to 70% of the total asset value of the Fund
will be invested in common stocks. The average weighted maturity of the Fund's
investment in fixed income securities is expected to be in the range of seven to
twelve years under normal market conditions, but this range may be altered by
Key Advisers or the Sub-Adviser in response to changes in market conditions.
Investments in equity-based securities (which are both common stocks and those
debt securities and preferred stocks which are convertible into common stocks)
will be based on such factors as (1) the growth and profitability prospects for
the economic sector and markets in which the company operates, and for the
products or services it provides; (2) the financial condition of the company and
its ability to meet its liabilities; and (3) the price of the security, how that
price compares to historical price levels, to current price levels in the
general market, to prices of competing companies, projected earnings estimates
and earnings growth rate for the company.
It is anticipated that the Fund will invest in debt securities of United States
corporations which are "investment grade." The Fund expects to dispose of any
debt security that is no longer "investment grade," as defined under "Additional
Information Regarding the Fund's Investment." Investments in preferred stock
will be based on considerations by Key Advisers or the Sub-Adviser of matters
such as the issuer's financial strength, including its historic and current
financial condition, its projected earnings, cash flow and borrowing
requirements, as well as the issuer's continuing ability to meet its
obligations.
Changes in the value of portfolio securities will not affect cash income, if
any, derived from these securities but will affect the Fund's net asset value.
The value of a convertible security is dependent upon interest rates and the
value of the equity securities into which the debt instrument is convertible.
ADDITIONAL INFORMATION REGARDING THE FUND'S INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which the Fund may invest in accordance with its investment
objective, policies and limitations, including certain transactions it may make
and strategies it may adopt. The following also contains a brief description of
certain risk factors. The Fund may, following notice to its shareholders, take
- 7 -
<PAGE>
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in this Prospectus.
O SHORT-TERM OBLIGATIONS. There may be times when, in Key Advisers' or the
Sub-Adviser's opinion, market conditions warrant that, for temporary defensive
purposes, the Fund may hold more than 20% of its total assets in short-term
obligations. To the extent that the Fund's assets are so invested, they will not
be invested so as to meet its investment objective. The instruments may include
"high-quality" liquid debt securities such as commercial paper, certificates of
deposit, bankers' acceptances, repurchase agreements which mature in less than
seven days and United States Treasury Bills. Bankers' acceptances are
instruments of United States banks which are drafts or bills of exchange
"accepted" by a bank or trust company as an obligation to pay on maturity. For a
discussion of repurchase agreements, see below.
O INVESTMENT GRADE AND HIGH QUALITY SECURITIES. "Investment Grade" obligations
are those rated at the time of purchase within the four highest rating
categories assigned by a nationally recognized statistical ratings organization
("NRSRO") or, if unrated, are obligations that Key Advisers or the Sub-Adviser
determine to be of comparable quality. The applicable securities ratings are
described in the Appendix to the Statement of Additional Information. "High-
quality" short-term obligations are those obligations which, at the time of
purchase, (1) possess a rating in one of the two highest ratings categories from
at least one NRSRO (for example, commercial paper rated "A-1" or "A-2" by
Standard & Poor's Corporation or "P-1" or "P-2" by Moody's Investors Service,
Inc.) or (2) are unrated by an NRSRO but are determined by Key Advisers or the
Sub-Adviser to present minimal credit risks and to be of comparable quality to
rated instruments eligible for purchase by the Fund under guidelines adopted by
the Board of Trustees (the "Trustees").
O FOREIGN SECURITIES. The Fund may invest in equity securities of foreign
issuers, including securities traded in the form of American Depository
Receipts. The Fund will limit its investments in such securities to 20% of its
total assets. The Fund will not hold foreign currency as a result of investment
in foreign securities.
Investments in securities of foreign companies generally involve greater risks
than are present in U.S. investments. Compared to U.S. and Canadian companies,
there is generally less publicly available information about foreign companies
and there may be less governmental regulation and supervision of foreign stock
exchanges, brokers and listed companies. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid, and their prices more
volatile, than securities of comparable U.S. companies. Settlement of
transactions in some foreign markets may be delayed or may be less frequent than
in the U.S., which could affect the liquidity of the Fund's investment. In
addition, with respect to some foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation; limitations on the
removal of securities, property or other assets of the Fund; political or social
instability; increased difficulty in obtaining legal judgments; or diplomatic
developments which could affect U.S. investments in those countries. Key
Advisers or the Sub-Adviser will take such factors into consideration in
managing the Fund's investments.
O FUTURES CONTRACTS. The Fund may also enter into contracts for the future
delivery of securities or foreign currencies and futures contracts based on a
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<PAGE>
specific security, class of securities, foreign currency or an index, purchase
or sell options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Fund may enter into futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, the Fund can seek to offset a decline
in the value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give the Fund
the right (but not the obligation), for a specified price, to sell or to
purchase the underlying futures contract, upon exercise of the option, at any
time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of the Fund's total assets (other than in
connection with bona fide hedging purposes), and the value of securities that
are the subject of such futures and options (both for receipt and delivery) may
not exceed one-third of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities or foreign
currencies, limiting the Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
O ZERO COUPON BONDS. The Fund is permitted to purchase both zero coupon U.S.
government securities and zero coupon corporate securities ("zero coupon
bonds"). Zero coupon bonds are purchased at a discount from the face amount
because the buyer receives only the right to a fixed payment on a certain date
in the future and does not receive any periodic interest payments. The effect of
owning instruments which do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on
accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the zero coupon bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest periodically. The amount of price
fluctuation tends to increase as maturity of the security increases.
O RECEIPTS. In addition to bills, notes and bonds issued by the U.S. Treasury,
the Fund may also purchase separately traded interest and principal component
parts of such obligations that are transferable through the Federal book entry
system, known as Separately Traded Registered Interest and Principal Securities
- 9 -
<PAGE>
("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES"). These instruments
are issued by banks and brokerage firms and are created by depositing Treasury
notes and Treasury bonds into a special account at a custodian bank; the
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-paying U.S.
Treasury obligations. The Fund will limit its investment in such instruments to
20% of its total assets.
O SECURITIES LENDING. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities. The Fund must receive collateral
equal to 100% of the securities' value in the form of cash or U.S. Government
securities, plus any interest due, which collateral must be marked to market
daily by Key Advisers or the Sub-Adviser. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund amounts equal to any dividends or interest paid on such securities plus any
interest negotiated between the parties to the lending agreement. Loans are
subject to termination by the Fund or the borrower at any time. While the Fund
does not have the right to vote securities on loan, the Fund intends to
terminate any loan and regain the right to vote if that is considered important
with respect to the Fund's investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which Key Advisers
or the Sub-Adviser has determined are creditworthy under guidelines established
by the Victory Portfolios' Trustees. The Fund will limit its securities lending
to 331/3% of total assets.
O WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued or
delayed-delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. The Fund
engages in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.
O VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase investment grade
variable and floating rate notes. The interest rates on these securities may be
reset daily, weekly, quarterly, or some other reset period, and may be subject
to a floor or ceiling. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. There may
be no active secondary market with respect to a particular variable or floating
rate note. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other illiquid
securities held by the Fund, does not exceed 15% of the Fund's net assets unless
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<PAGE>
such notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days after demand therefor. These
securities are included among those which are sometimes referred to as
"derivative securities."
O REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, the Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements may be
considered by the staff of the Commission to constitute loans by the Fund.
O REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account assets
having a value equal to the repurchase price (including accrued interest); the
collateral will be marked to market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940, as amended (the "1940 Act").
O INVESTMENT COMPANY SECURITIES. The Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies. Pursuant to
an exemptive order received by the Victory Portfolios from the Commission, the
Fund may invest in the money market funds of the Victory Portfolios. Key
Advisers or the Sub-Adviser will waive its fee attributable to the Fund's assets
invested in a money market fund of the Victory Portfolios, and, to the extent
required by the laws of any state in which shares of the Fund are sold, Key
Advisers or the Sub-Adviser will waive its investment advisory fees as to all
assets invested in other investment companies. Because such other investment
companies employ an investment adviser, such investment by the Fund will cause
shareholders to bear duplicative fees, such as management fees, to the extent
such fees are not waived by Key Advisers or the Sub-Adviser.
O PRIVATE PLACEMENT INVESTMENTS. The Fund may invest in high quality commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). Section 4(2)
commercial paper ("commercial paper") is generally sold to institutional
investors, such as the Fund, that agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in commercial
paper, thus providing liquidity. The Fund believes that commercial paper and
possibly certain other restricted securities (as defined in the Statement of
Additional Information) that meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat the restricted
securities that meet the criteria for liquidity established by the Trustees,
including commercial paper, as determined by Key Advisers or the Sub-Adviser,
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as liquid and not subject to the investment limitation applicable to illiquid
securities. See "Investment Limitations".
O OPTIONS. The Fund may write call options from time to time. The Fund will
write only "covered" call options (options on securities owned by the Fund) and
index options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction," i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously wrote on any
particular security. When a portfolio security subject to a call option is sold,
the Fund will effect a closing purchase transaction to close out any existing
call option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Upon
the exercise of an option, the Fund is not entitled to the gains, if any, on
securities underlying the options. The Fund intends to limit its investments in
call and index options to 25% of its total assets.
Certain investment management techniques which the Fund may use, such as the
purchase and sale of futures and options (described above), may expose the Fund
to special risks. These products may be used to adjust the risk and return
characteristics of the Fund's portfolio of investments. These various products
may increase or decrease exposure to fluctuation in security prices, interest
rates, or other factors that affect security values, regardless of the issuer's
credit risk. Regardless of whether the intent was to decrease risk or increase
return, if market conditions do not perform consistently with expectations,
these products may result in a loss. In addition, losses may occur if
counterparties involved in transactions do not perform as promised. These
products may expose the Fund to potentially greater risk of loss than more
traditional equity investments.
The options and futures contracts described in this section are frequently
referred to as derivative securities. In general, derivative securities are
instruments whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates or currency exchange rates), security,
commodity, or other assets.
O PORTFOLIO TRANSACTIONS. The Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to take advantage of what Key Advisers or the Sub-Adviser believes
are changes in market, industry or individual company conditions or outlook. Any
such trading would increase the Fund's turnover rate and its transaction costs.
High turnover will generally result in higher brokerage costs and possible tax
consequences for the Fund. In the fiscal year ended October 31, 1995, the
portfolio turnover rate was 69.22% compared to 118.49% in the fiscal period
December 10, 1993 to October 31, 1994.
From time to time, the Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which Key Advisers or the Sub-Adviser or its affiliates have a lending
relationship.
NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Fund and risk factors. The investment
policies and limitations of the Fund may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
policy of the Fund or (2) a policy is expressly deemed to be changeable only by
such majority vote.
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<PAGE>
INVESTMENT LIMITATIONS
The following summarizes some of the Fund's principal investment limitations.
The Statement of Additional Information contains a complete listing of the
Fund's investment limitations and provides additional information about
investment restrictions designed to reduce the risk of an investment in the
Fund.
1. The Fund may not borrow money other than (a) by entering into
commitments to purchase securities in accordance with its investment
program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of such
commitments do not exceed 33 1/3% of the Fund's total assets; and (b)
for temporary or emergency purposes in an amount not exceeding 5% of
the value of the Fund's total assets.
2. The Fund will not purchase a security if, as a result, more than 15% of
its net assets would be invested in illiquid securities. Illiquid
securities are investments that cannot be readily sold within seven
days in the usual course of business at approximately the price at
which the Fund has valued them. Under the supervision of the Trustees,
Key Advisers or the Sub-Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell
them promptly at an acceptable price.
3. The Fund is "diversified" within the meaning of the 1940 Act. With
respect to 75% of its total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
4. The Fund's policy regarding concentration of investments provides that
the Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements secured
thereby) if, as a result, more than 25% of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry.
Each of the investment limitations indicated above in this subsection are
fundamental, except for the limitation pertaining to illiquid securities.
Non-fundamental limitations may be changed without shareholder approval.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the investment and any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations, except in the case of borrowing (or other
activities that may be deemed to result in the issuance of a "senior security"
under the 1940 Act). If the value of the Fund's illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due to
subsequent fluctuations in value or other reasons, the Trustees will consider
what actions, if any, are appropriate to maintain adequate liquidity.
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HOW TO INVEST, EXCHANGE AND REDEEM
HOW TO INVEST
The Fund offers investors two different classes of shares. The different classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses and will likely have different share prices.
O CLASS A SHARES AND CLASS B SHARES. If Class A shares are purchased, there is
an initial sales charge (on investments up to $1 million). If Class B shares are
purchased, there is no sales charge at the time of purchase, but if the shares
are redeemed within six years, you will normally pay a contingent deferred sales
charge ("CDSC") that varies depending on how long you own your shares.
O WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser:
1. AMOUNT OF INVESTMENT. If you plan to invest a substantial amount, the
reduced sales charges available for larger purchases of Class A shares
may be more beneficial to you. Any order for $1 million or more will
only be accepted as Class A shares for that reason.
2. INVESTMENT HORIZON. While future financial needs cannot be predicted
with certainty, investors who prefer not to pay an initial sales charge
and who plan to hold their shares for more than six years might
consider Class B shares. Investors who plan to redeem shares within
eight years might prefer Class A shares.
3. DIFFERENCES IN ACCOUNT FEATURES. The dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B
shares are subject, as described below and in the Statement of
Additional Information.
A salesperson, financial planner, investment adviser or trust officer who
provides you with information regarding the investment of your assets (an
"Investment Professional") or other person who is entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one class than for selling another class. Both the CDSC (an asset-based
sales charge) for Class B shares and the front-end sales charge on sales of
Class A shares are used primarily to compensate such persons.
O HOW ARE SHARES PURCHASED? Shares may be purchased directly or through an
Investment Professional of a securities broker or other financial institution
that has entered into a selling agreement with the Fund or the Distributor.
Shares are also available to clients of bank trust departments. The minimum
investment is $500 ($250 for Individual Retirement Accounts) for the initial
purchase and $25 thereafter. Accounts set up through a bank trust department or
an Investment Professional may be subject to different minimums. When you buy
shares, be sure to specify Class A or Class B shares. If you do not make a
selection, your investment will be made in Class A shares.
O INVESTING THROUGH YOUR INVESTMENT PROFESSIONAL. Your Investment Professional
will place your order with the Transfer Agent on your behalf (see "Fund
Organization and Fees -- Transfer Agent"). You may be required to establish a
brokerage or agency account. Your Investment Professional will notify you
whether subsequent trades should be directed to the Investment Professional or
directly to the Fund's Transfer Agent. Accounts established with Investment
Professionals may have different features, requirements and fees. In addition,
Investment Professionals may charge for their services. Information regarding
these features,
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<PAGE>
requirements and fees will be provided by the Investment Professional. If you
are purchasing shares of any Fund through a program of services offered or
administered by your Investment Professional, you should read the program
materials in conjunction with this Prospectus. You may initiate any transaction
by telephone either through your bank trust department or through your
Investment Professional. See "Special Investor Services" for more information
about telephone transactions.
O INVESTING THROUGH YOUR BANK TRUST DEPARTMENT. Your bank trust department may
require a different minimum investment and may charge additional fees. Fee
schedules for such accounts are available upon request and are detailed in the
agreements by which a client opens the desired account. Your bank trust
department may require a completed and signed application for the Fund in which
an investment is made. Additional documents may be required from corporations,
associations, and certain fiduciaries. Any account information, such as
balances, should be obtained through your bank trust department. Additional
purchases, exchanges or redemptions should also be coordinated through your bank
trust department. Contact your bank trust department for instructions.
The services rendered by a bank trust department, including Key Trust Company of
Ohio, N.A. and other affiliates of Key Advisers or the Sub-Adviser are not
duplicative of any of the services for which Key Advisers or the Sub-Adviser as
the investment adviser or sub-adviser, respectively, is compensated for advising
the Fund. The charges paid by clients of bank trust departments, or their
affiliates, should also be considered by the investor in addition to the net
yield and return on the investment in the Fund, although such charges do not
affect the Fund's dividends or distributions.
O INVESTING THROUGH THE SYSTEMATIC INVESTMENT PLAN. You can use the Systematic
Investment Plan to purchase shares directly from your bank account. Please refer
to "The Systematic Investment Plan" below for more details.
INVESTING DIRECTLY
O BY MAIL:
You may purchase shares by completing and signing an Account
Application (initial purchase only) and mailing it, together with a check (or
other negotiable bank draft or money order) in the amount of at least the
minimum investment requirement to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
O BY WIRE:
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS. Federal Funds
should be wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit to DDA Account # 9905-201-1
For further credit to Account # (insert your account
number, name and control number assigned by the
Transfer Agent)
The Fund does not impose a fee for wire transactions, although your bank may
charge you a fee for this service.
o BY ACH:
The purchase amount will be transferred between the bank account designated and
your fund account via Automated Clearing House ("ACH"). Only a bank account
maintained in a domestic financial institution which is an ACH member may be so
designated. The Fund may modify or terminate the telephone and/or ACH privilege
at any time or charge a service fee upon notice to shareholders. No such fee is
currently contemplated. If the designated bank account does not contain
sufficient assets at the time your order is processed, the order may be
cancelled, and you could be liable for resulting fees and/or losses. NOTE THAT
THIS SERVICE REQUIRES APPROXIMATELY 15 DAYS TO ESTABLISH. THEREFORE, IT MAY NOT
BE APPLICABLE TO REQUEST YOUR INITIAL PURCHASE UTILIZING THIS METHOD.
Class A shares are sold at the public offering price based on the net asset
value that is next determined after the Transfer Agent receives the purchase
order. Class B shares are sold at net asset value per share, but may be subject
to a CDSC (see "Class B Shares"). In most cases, to receive that day's offering
price, the
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<PAGE>
Transfer Agent must receive your order as of the close of regular trading of the
New York Stock Exchange ("NYSE") which is normally 4:00 p.m. Eastern time (the
"Valuation Time") on each Business Day (as defined in "Shareholder Account Rules
and Policies -- Share Price"). If you buy shares through an Investment
Professional, the Investment Professional must receive your order in a timely
fashion on a regular Business Day. It is the responsibility of your Investment
Professional to transmit your order to purchase shares to the Transfer Agent in
a timely fashion in order for you to receive that day's share price. The
Transfer Agent may reject any purchase order for the Fund's shares, in its sole
discretion.
INVESTMENT REQUIREMENTS
All purchases made by check must be in U.S. dollars and made payable to the
Victory Funds, or in the case of a retirement account, the custodian or trustee.
Third party checks will not be accepted. Checks must be drawn on U.S. banks. No
cash will be accepted. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. The Fund or the Transfer Agent reserves the right to limit the
number of checks processed at one time. If your check does not clear, your
purchase will be canceled and you could be liable for any losses or fees
incurred. Payment for the purchase is expected at the time of the order. If
payment is not received within three business days of the date of the order, the
order may be canceled, and you could be held liable for resulting fees and/or
losses.
CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. When you invest, the Fund receives the net
asset value for your account. The sales charge varies depending on the amount of
your purchase and a portion may be retained by the Distributor and allocated to
your Investment Professional. The Victory Portfolios has a reinstatement policy
which allows an investor who redeems shares originally purchased with a sales
charge to reinvest within 90 days without incurring an additional sales charge.
The current sales charge rates and commissions paid to Investment Professionals
are as follows:
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<PAGE>
CLASS A SALES CHARGE DEALER
-------------------- REALLOWANCE
AS A % OF AS A % OF AS A %
OFFERING NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------ ----- -------- -----
Less than $49,999............ 4.75% 4.99% 4.00%
$50,000 to $99,999........... 4.50% 4.71% 4.00%
$100,000 to $249,999......... 3.50% 3.63% 3.00%
$250,000 to $499,999......... 2.25% 2.30% 2.00%
$500,000 to $999,999......... 1.75% 1.78% 1.50%
$1,000,000 and above......... 0.00% 0.00% (1)
(1) There is no initial sales charge on purchases of $1 million or more.
Investment Professionals will be compensated at the rate of up to 0.25%
on such purchases.
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
The Distributor may pay all or a portion of any applicable sales charges and
service fees to Investment Professionals who sell shares of the Fund and provide
ongoing sales support services or shareholder support services. For the
three-year period commencing April 30, 1994, for activities in maintaining and
servicing accounts of customers invested in the Fund, First Albany Corporation
("First Albany") and PFIC Securities Corporation ("PFIC") may receive payments
from the Distributor equal to two-thirds of the Dealer Retention (as defined
below) on any shares of the Fund (and other funds of the Victory Portfolios)
sold by First Albany or PFIC and their broker-dealer affiliates. "Dealer
Retention" is an amount equal to the difference between the applicable sales
charge and such part of the sales charge which is reallowed to broker-dealers.
REDUCED SALES CHARGES FOR CLASS A SHARES. You may be eligible to buy Class A
shares at reduced sales charge rates in one or more of the following ways:
O LETTER OF INTENT FOR CLASS A SHARES. An investor may obtain a reduced sales
charge by means of a written Letter of Intent which expresses the investor's
intention to invest a specified amount within a 13-month period, which if made
at one time, would qualify for a reduced sales charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of the total amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such escrowed
shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends (if any) on escrowed shares, whether paid in cash or
reinvested in additional shares, are not subject to escrow. The escrowed shares
will not be available for redemption, exchange or other disposal by the investor
until all purchases pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. A Letter of Intent may include purchases
of shares made not more than 90 days prior to the date the investor signs a
Letter of Intent; however, the 13-month period during which the Letter of Intent
is in effect will begin on the date of the earliest purchase to be included. An
investor may combine purchases that are made in an individual capacity with (1)
purchases that are made by members of the investor's immediate family and (2)
purchases made by businesses that the investor owns as sole proprietorships, for
purposes of obtaining reduced sales charges by means of a written Letter of
Intent. In order to accomplish this,
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<PAGE>
however, investors must designate on the Account Application the accounts that
are to be combined for this purpose. Investors can only designate accounts that
are open at the time the Letter of Intent is executed.
If an investor qualifies for a further reduced sales charge because the investor
has either purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional shares of the Fund on behalf of the
investor; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For further information about Letters of Intent, interested investors should
contact the Transfer Agent at 800-539-3863. This program, however, may be
modified or eliminated at any time without notice.
O RIGHT OF ACCUMULATION AND CONCURRENT PURCHASES. A shareholder may qualify for
a reduced sales charge on purchases of Class A Shares of the Fund, and Class A
shares of other funds of the Victory Portfolios, by combining a current purchase
with purchases of another fund(s), or with certain prior purchases of shares of
the Victory Portfolios. The applicable sales charge is based on the sum of (1)
the purchaser's current purchase plus (2) the current public offering price of
the purchaser's previous purchases of (a) all shares held by the purchaser in
the Fund and (b) all shares held by the purchaser in Class A shares of any other
funds of the Victory Portfolios (except money market funds).
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must provide the Transfer Agent with sufficient
information at the time of purchase to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor. See "Combined Purchases" and "Rights of Accumulation" in the
Statement of Additional Information.
O WAIVERS OF CLASS A SALES CHARGES. No sales charge is imposed on sales of Class
A shares to the following categories of persons (which categories may be changed
or eliminated at any time):
(1) Current or retired Trustees of the Victory Portfolios; employees,
directors, trustees, and their family members of KeyCorp or an
"Affiliated Provider" ("Affiliated Providers" refer to affiliates and
subsidiaries of KeyCorp and service providers to the Victory Portfolios
and the Victory Shares (collectively, the "Victory Group")), dealers
having an agreement with the Distributor and any trade organization to
which Key Advisers, the Sub-Adviser or the Administrator belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with KeyCorp or any of its
affiliates;
(3) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust
or custody account that was either (a) maintained by KeyCorp or an
Affiliated Provider, or (b) invested in a fund of the Victory Group;
(4) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon
redemption of shares;
(5) Shareholders of the former Investors Preference Fund For Income, Inc.
and the Investors Preference New York Tax-Free Fund, Inc. who have
continuously maintained accounts with a fund or funds of the Victory
Group with a balance
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<PAGE>
of $250,000 or more (investors with less than $250,000 will pay any
applicable sales charges);
(6) Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of
such investment advisers or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment adviser or financial planner on the books and records
of the broker or agent. Such accounts include retirement and deferred
compensation plans and trusts used to fund those plans, including, but
not limited to, those defined in section 401(a), 403(b), or 457 of the
Internal Revenue Code and "rabbi trusts."
CLASS B SHARES. Class B shares are sold at net asset value per share without an
initial sales charge. However, if Class B shares are redeemed within six years
of their purchase, a CDSC will be deducted from the redemption proceeds. That
sales charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the original purchase
price. The CDSC is not imposed on the amount of the redeemed shares represented
by the increase in net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains distributions).
The Class B CDSC is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the CDSC applies to a redemption, the Victory Portfolios
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for over six years,
and (3) shares held the longest during the 6-year period. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASE ON REDEMPTIONS IN THAT YEAR
PAYMENT WAS MADE (AS % OF AMOUNT SUBJECT TO CHARGE)
---------------- ----------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. Purchases will age based on trade
date of purchase. For example, a purchase made on January 1 will be one year old
on January 1 of the following year.
O WAIVERS OF CLASS B CDSC. The Class B CDSC will be waived if the shareholder
requests it for any of the following redemptions: (1) distributions to
participants or beneficiaries from Retirement Plans, if the distributions are
made (a) under an Automatic Withdrawal Plan after the participant reaches age 59
1/2, as long as the payments are no more than 12% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue Code) of
the participant or the beneficial owner; (2) redemptions from accounts other
than Retirement Plans following the death or disability of the shareholder (as
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<PAGE>
evidenced by a determination of disability by the Social Security
Administration), (3) returns of excess contributions to Retirement Plans; and
(4) distributions of not more than 12% of the account value annually under an
automatic withdrawal plan.
The CDSC is also waived on Class B shares in the following cases: (1) shares
sold to Key Advisers, the Sub-Adviser or their affiliates; (2) shares issued in
plans of reorganization to which the Victory Portfolios is a party; and (3)
shares redeemed in involuntary redemptions as described above.
O AUTOMATIC CONVERSION OF CLASS B SHARES. Eight years after Class B shares are
purchased, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution Plan, described
below. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements -- Class B Conversion
Feature" in the Statement of Additional Information.
O DISTRIBUTION PLAN FOR CLASS B SHARES. The Victory Portfolios has adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act for Class B
shares to compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Victory Portfolios
pays the Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares. This fee is computed on the average daily net assets of Class B
shares and paid monthly. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares. The asset-based sales charge
increases Class B expenses by up to 0.75% of average net assets per year.
The Distributor pays sales commissions of 4.00% of the purchase price to dealers
from its own resources at the time of sale. For maintaining and servicing
accounts of customers invested in the Fund, First Albany and PFIC Securities
Corporation may receive payments from the Distributor equal to two-thirds of the
excess of the scheduled CDSC over any commission payment to the selling broker.
The Distributor retains the asset-based sales charge to recoup the sales
commissions it pays and its financing costs. If the Plan is terminated by the
Victory Portfolios, it provides that the Trustees may elect to continue payments
for certain expenses already incurred. The payments under the Plan increase the
annual expenses of Class B shares. For more details, please refer to "Advisory
and Other Contracts - Class B Shares Distribution Plan" in the Statement of
Additional Information.
SPECIAL INVESTOR SERVICES
O THE SYSTEMATIC INVESTMENT PLAN. You can make regular investments in the Fund
with the Systematic Investment Plan by completing the appropriate section of the
Account Application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is jointly
owned, be sure that all owners sign. You must first meet the Fund's initial
investment requirement , then investments may be made monthly, quarterly,
semi-annually or annually by automatically deducting $25 or more from your bank
account. For officers, trustees, directors and employees, including retired
directors and employees, of the Victory Group, KeyCorp and its affiliates, and
the Administrator and its affiliates (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required. You may change the amount of your purchase
at any time. Your bank account will be debited on the date indicated on your
Account Application. Shares will be purchased at the offering price next
determined
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following receipt of the order by the Transfer Agent. You may cancel the
Systematic Investment Plan at any time without payment of a cancellation fee.
Your monthly account statement will reflect systematic investment transactions,
and a debit entry will appear on your bank statement.
O THE SYSTEMATIC WITHDRAWAL PLAN. You can make regular withdrawals from your
account with the Systematic Withdrawal Plan by completing the appropriate
section of the Account Application. If you own shares in a fund worth $5,000 or
more, you can have monthly, quarterly, semi-annual or annual payments sent from
your account directly to you, to a person named by you, or to your bank checking
account. The minimum withdrawal is $25. If you are having funds sent to your
bank checking account, attach a voided personal check with your bank's magnetic
ink coding number across the front. The proceeds will be transferred between
your fund account and the bank account via ACH. If your account is jointly
owned, be sure that all owners sign. You may obtain information about the
Systematic Withdrawal Plan by contacting the Transfer Agent. Your Systematic
Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends and capital gain dividend
distributions earned on your Fund shares, your account eventually may be
exhausted. If any applicable sales charges are applied to new purchases of
shares of the Fund, it is to your disadvantage to buy shares of the Fund while
also making systematic redemptions. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan.
Your account will be debited on the date you indicate on your Account
Application. Shares will be redeemed at the net asset value per share (the
"NAV") as determined on the debit date indicated on your Account Application.
You may cancel the Systematic Withdrawal Plan at any time without payment of a
cancellation fee. Each Systematic Withdrawal Plan transaction will appear as a
debit entry on your monthly account statement.
O TELEPHONE TRANSACTIONS. You can initiate most transactions by telephone. You
may call the Transfer Agent toll-free at 800-539-3863 or call your Investment
Professional or bank trust department. Telephone transaction privileges for
purchases, redemptions or exchanges may be modified, suspended or terminated by
the Fund at any time. If an account has more than one owner, the Fund and the
Transfer Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer representative of
record for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
Generally, neither the Fund, the bank trust department nor the Transfer Agent
will be responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. The Transfer Agent and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The identification procedures may include, but are not limited to,
the following: account number, registration and address, personalized security
codes, taxpayer identification number and other information particular to the
account. Your Investment Professional, bank trust department or the Transfer
Agent may also record calls, and you should verify the accuracy of your
confirmation statements immediately after you receive them.
O RETIREMENT PLANS. Retirement plans can be among the best tax-planning vehicles
available to individuals. Call your Investment Professional for more information
on the plans and their benefits, provisions and fees. Your Investment
Professional can set up your new account in the Fund under one of several
tax-sheltered plans. These plans let you invest for retirement and shelter your
investment income from current taxes. Plans include Individual Retirement
Accounts (IRAs) , Rollover IRAs, and other retirement plans such as Simplified
Employee Pension Plans
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(SEP/IRA), Salary Reduction SEP (SAR-SEP/IRA), 401(k) Plans and 403(b) Plans.
Other fees may be charged by the IRA custodian or trustee.
HOW TO EXCHANGE
Shares of the Fund may be exchanged for shares of certain funds of the Victory
Group at net asset value per share at the time of exchange, without a sales
charge. To exchange shares, you must meet several conditions:
(1) Shares of the fund selected for exchange must be available for sale in
your state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you
purchase by exchange.
(5) The registration and tax identification numbers of the two accounts
must be identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH
TO PURCHASE BY EXCHANGE.
SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE SAME CLASS
IN THE OTHER FUNDS OF THE VICTORY GROUP. For example, you can exchange Class A
shares of this Fund only for Class A shares of another fund. At present, not all
of the funds offer the same two classes of shares. If a fund has only one class
of shares that does not have a class designation, they are "Class A" shares for
exchange purposes. In some cases, sales charges may be imposed on exchange
transactions. Certain funds offer Class A or Class B shares and a list can be
obtained by calling the Transfer Agent at 800-539-3863. Please refer to the
Statement of Additional Information for more details about this policy.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to the Valuation Time
on any Business Day (See "Shareholder Account Rules and Policies -- Share
Price").
You can obtain a list of eligible funds of the Victory Group by calling the
Transfer Agent at 800-539-3863. Key Mutual Funds, which is managed by Key
Advisers and Spears Benzak Salomon & Farrell, both affiliates of KeyCorp, is a
part of the Victory Group. BISYS Fund Services is the Administrator and
Distributor for Key Mutual Funds. Exchange privileges applicable to the Victory
Group will also apply to Key Mutual Funds. Exchanges of shares involve a
redemption of the shares of the Fund and a purchase of shares of the other fund
of the Victory Group.
There are certain exchange policies you should be aware of:
O Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally as of 4:00 p.m. Eastern
time) that is in proper form, but either fund may delay the issuance of shares
of the fund into which you are exchanging if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For example,
the receipt of multiple exchange requests from a dealer in a "market-timing"
strategy might
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create excessive turnover in the Fund's portfolio and associated expenses
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm shareholders, the
Victory Portfolios reserves the right to refuse any exchange request that will
impede the Fund's ability to invest effectively or otherwise have the potential
to disadvantage the Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Victory Portfolios may amend, suspend or terminate the exchange privilege
at any time upon 60 days' written notice to shareholders.
o If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible for exchange will be
exchanged.
o Each exchange may produce a gain or loss for tax purposes.
Shareholders of the former Investors Preference Fund for Income, Inc. and
Investors Preference New York Tax-Free Fund, Inc. will not be subject to any
additional sales charge upon an exchange of shares attributable to an Investors
Preference Funds account for shares of other funds of the Victory Portfolios.
HOW TO REDEEM
You may redeem all or a portion of your shares on any day that the Fund is open
for business (see the definition of "Business Day" under "Shareholder Account
Rules and Policies -- Share Price"). Shares will be redeemed at the NAV
next calculated after the Transfer Agent has received the redemption request.
You may redeem shares in several ways:
O BY MAIL. Send a written request to: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
Write a "letter of instruction" with your name, the Fund's name, your Fund
account number, the dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular account. You will need the
letter of instruction signed by all persons required to sign for transactions,
exactly as their names appear on the Account Application. A signature guarantee
is required if: you wish to redeem more than $10,000 worth of shares; your Fund
account registration has changed within the last 60 days; the check is not being
mailed to the address on your account; the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
Victory Group account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public. A signature guarantee is designed to
protect you, the Fund and its agents from fraud. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
O BY WIRE. You may make redemptions by wire provided you have established a Fund
account to accommodate wire transactions. If telephone instructions are received
before Valuation Time (normally 4:00 p.m. Eastern time), proceeds of the
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redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. You may change the bank account
designated to receive an amount redeemed at any time by sending a letter of
instruction with a signature guarantee to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527.
O BY TELEPHONE. To redeem by telephone, you may call the Transfer Agent toll
free at 800-539-3863 or call your Investment Professional or bank trust
department. See "Special Investor Services" for more information about telephone
transactions.
O ADDITIONAL REDEMPTION REQUIREMENTS. When purchases are made by check or
periodic account investment, payments on redemptions may be delayed until the
investment being redeemed has been in the account for 15 calendar days. Also,
when the New York Stock Exchange ("NYSE") is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances as determined by the Commission to merit
such action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed 7 days. In addition, the Fund
reserves the right to advance the time on that day by which purchase and
redemption orders must be received. To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, the Fund's NAV may be
affected on days when investors do not have access to the Fund to purchase or
redeem shares.
If you are unable to reach the Transfer Agent by telephone (for example, during
times of unusual market activity), consider placing your order by mail directly
to the Transfer Agent. In case of suspension of the right of redemption, you may
either withdraw your request for redemption or receive payment based on the NAV
next determined after the termination of the suspension. If your balance in the
Fund falls below $500, you may be given 60 days' notice to reestablish the
minimum balance (except with respect to officers, trustees, directors and
employees, including retired directors and employees, of the Victory Portfolios,
KeyCorp and its affiliates, and the Administrator and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). If you do not increase
your balance, your account may be closed and the proceeds mailed to you at the
address on record. Shares will be redeemed at the last calculated NAV on the day
the account is closed.
SHAREHOLDER ACCOUNT RULES AND POLICIES
O SHARE PRICE. The term "net asset value per share," or "NAV", means the value
of one share. The NAV of each class of shares is calculated by adding the value
of all the Fund's investments, plus cash and other assets, deducting liabilities
of the Fund and of the class, and then dividing the result by the number of
shares of the class outstanding. The NAV of the Fund is determined and its
shares are priced as of the close of regular trading of the NYSE (normally 4:00
p.m. Eastern time) (the "Valuation Time") on each Business Day of the Fund. A
"Business Day" is a day on which the NYSE is open for trading and any other day
(other than a day on which no shares of the Fund are tendered for redemption and
no order to purchase any shares is received) during which there is sufficient
trading in its portfolio instruments that the Fund's net asset value per share
might be materially affected. The NYSE will not be open in observance of the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund's securities are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method that the Board of Trustees
believes accurately reflects fair value. Fair value of these portfolio
securities is determined by an independent pricing service based primarily upon
information concerning market transactions and dealers quotations for comparable
securities.
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<PAGE>
o The offering of shares may be suspended during any period in which the
determination of NAV is suspended, and the offering may be suspended by the
Trustees at any time the Trustees believe it is in the Fund's best interest to
do so.
o If your account is established with an Investment Professional or a bank, you
may or may not be able to purchase, exchange or sell shares on other holidays
when the Federal Reserve Bank of Cleveland is closed, including Martin Luther
King, Jr. Day, Columbus Day and Veterans Day.
o Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the Transfer
Agent in its discretion may waive certain of the requirements for redemptions
stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Victory Portfolios if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the value of
the securities in the Fund fluctuates, and the value of your shares may be more
or less than their original cost.
o Payment for redeemed shares is ordinarily made in cash and forwarded by check
within three business days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances determined by
the Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 15 days from the date
the shares were purchased. That delay may be avoided if you arrange with your
bank to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o If your account value has fallen below $500, you may be given 60 days' notice
to reestablish the minimum balance. If you do not increase your minimum balance,
your account may be closed and the proceeds mailed to you at the record address.
In some cases involuntary redemptions may be made to repay the Distributor for
losses from the cancellation of share purchase orders. Under certain
circumstances, shares of the Fund may be redeemed "in kind," which means that
the redemption proceeds will be paid with securities from the Fund. Please refer
to the Statement of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of 31%
from dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Victory Portfolios with a certified Social Security or
taxpayer identification number when you sign your Account Application, or if you
violate Internal Revenue Service regulations on tax reporting of dividends.
o The Victory Portfolios does not charge a redemption fee, but if an Investment
Professional handles your redemption, the Investment Professional may charge a
separate service fee. Under the circumstances described in "How to Invest," you
may be subject to a CDSC when redeeming Class B shares.
o The Distributor, at its expense, may also provide additional cash compensation
to dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 4.00% of the offering price. In
addition, the Distributor will, from time to time and at its own expense,
provide compensation, including financial assistance, to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the
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<PAGE>
public, advertising campaigns regarding one or more Victory Portfolios and/or
other dealer-sponsored special events including payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will include the following types of non-cash compensation offered through sales
contests: (1) vacation trips including the provision of travel arrangements and
lodging; (2) tickets for entertainment events (such as concerts, cruises and
sporting events) and (3) merchandise (such as clothing, trophies, clocks and
pens). Dealers may not use sales of the Fund's shares to qualify for this
compensation if prohibited by the laws of any state or any self-regulatory
organization, such as the National Association of Securities Dealers, Inc. None
of the aforementioned compensation is paid for by the Fund or its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income monthly. The Fund may make distributions
at least annually out of any realized capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the end of
its fiscal year.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividend distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your income and capital gain dividends, if any,
will be automatically reinvested in additional shares of the Fund.
Income and capital gain dividends will be reinvested at the net asset
value of your class of shares of the Fund as of the day after the
record date. If you do not indicate a choice on your Account
Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each income or capital gain
dividend, if any. Distribution checks will be mailed no later than 7
days after the dividend payment date which may be more than 7 days
after the dividend record date.
3. INCOME EARNED OPTION. You will have your capital gain dividend distri-
butions, if any, reinvested automatically in the Fund at the NAV of
your class of shares of the Fund as of the day after the record date,
and have your income dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have income and capital gain
dividends, or only capital gain dividends, automatically reinvested in
shares of another fund of the Victory Group. Shares will be purchased
at the NAV as of the day after the record date. If you are reinvesting
dividends of a fund sold without a sales charge in shares of a fund
sold with a sales charge, the shares will be purchased at the public
offering price. If you are reinvesting dividends of a fund sold with a
sales charge in shares of a fund sold with or without a sales charge,
the shares will be purchased at the net asset value of the fund.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your income and capital
gain dividends, or only your income dividends, automatically
transferred to your bank checking or savings account. The amount will
be determined on the dividend record date and will normally be
transferred to your account within
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7 days of the dividend record date. Dividend distributions can be
directed only to an existing account with a registration that is
identical to that of your Fund account. Please call or write the
Transfer Agent to learn more about this dividend distribution option.
Any election or revocation of any of the above dividend distribution options may
be made in writing to the Fund and sent to The Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863, and
will become effective with respect to dividends having record dates after
receipt of the Account Application or request by the Transfer Agent.
Reinvested dividend distributions receive the same tax treatment as dividend
distributions paid in cash.
O STATEMENTS AND REPORTS. You will receive a monthly statement reflecting all
transactions that affect the share balance or the registration of your Fund
account. You will receive a confirmation after every transaction that affected
the share balance of your Fund account, except for dividend reinvestment,
systematic investment and systematic withdrawal transactions. These transactions
will be detailed in your Fund account statement. Transactions that affect the
share balance of your Fund investment in an account established with an
Investment Professional or financial institution will be detailed in regular
statements or through confirmation procedures of the financial institution.
Certificates representing shares of the Fund will not be issued. An IRS Form
1099-DIV with federal tax information will be mailed to you by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
will receive the Fund's financial reports.
O REDEMPTIONS OR EXCHANGES. Investors may realize a gain or loss when redeeming
(selling) or exchanging shares. For most types of accounts, the Fund reports the
proceeds to the IRS annually. Because the shareholders' tax treatment also
depends on their purchase price and personal tax positions, shareholders should
keep their regular account statements to use in determining their tax. See
"Buying a Dividend."
O COMPLETE REDEMPTIONS. If you request a complete redemption of all your Fund
shares, any dividend accrued to your account will be included in the redemption
check.
O BUYING A DIVIDEND. On the record date for a distribution of ordinary income or
capital gains dividend, the net asset value of the Fund is reduced by the amount
of the distribution. An investor who buys shares just before the record date
("buying a dividend") will pay the full price for the shares and then receive a
portion of the purchase price back as a taxable distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "IRS Code"). The Fund contemplates the distribution of all of its net
investment income and capital gains, if any, in accordance with the timing
requirements imposed by the IRS Code, so that it will not be subject to federal
income taxes or the 4% excise tax on undistributed income.
Distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but only a portion thereof may
qualify for the 70% dividends received deduction for corporate shareholders
(which portion may not exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund and must be designated by the Fund as
so qualifying).
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<PAGE>
Distributions by the Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gain, regardless
of the length of time shareholders have held their shares. Such distributions
are not eligible for the dividends-received deduction. If a shareholder disposes
of shares in the Fund at a loss before holding such shares for more than six
months, the loss will be treated as a long-term capital loss to the extent that
the shareholder has received a capital gain dividend on those shares.
Distributions to shareholders of the Fund will be treated in the same manner for
federal income tax purposes whether received in cash or in additional shares and
may also be subject to state and local taxes. Distributions received by
shareholders of the Fund in January of a given year will be treated as received
on December 31 of the preceding year provided that they were declared to
shareholders of record on a date in October, November or December of such
preceding year. The Fund sends tax statements to its shareholders (with copies
to the Internal Revenue Service (the "IRS")) by January 31 showing the amounts
and tax status of distributions made (or deemed made) during the preceding
calendar year.
Income from securities of foreign issuers may be subject to foreign withholding
taxes. Credit for such foreign taxes, if any, will not pass through to the
shareholders.
O OTHER TAX INFORMATION. The information above is only a summary of some of the
federal income tax consequences generally affecting the Fund and its U.S.
shareholders, and no attempt has been made to discuss individual tax
consequences. A prospective investor should also review the more detailed
discussion of federal income tax considerations in the Statement of Additional
Information. In addition to the federal income tax, a shareholder may be subject
to state or local taxes on his or her investment in the Fund, depending on the
laws of the shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN
THE FUND SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS
SUITABLE TO THEIR PARTICULAR TAX SITUATION.
When investors sign their Account Application, they are asked to provide their
correct social security or taxpayer identification number and other required
certifications. If investors do not comply with IRS regulations, the IRS
requires the Fund to withhold 31% of amounts distributed to them by the Fund as
dividends or in redemption of their shares.
PERFORMANCE
From time to time, performance information for each class of shares of the Fund
showing total return of each class of shares may be presented in advertisements,
sales literature and in reports to shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance.
Average annual total return will be calculated over a stated period of more
than one year. Average annual total return is measured by comparing the value of
an investment in a class at the beginning of the relevant period (as adjusted
for sales charges, if any) to the redemption value of the investment at the end
of the period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing that figure. Cumulative total return is
calculated similarly to average annual total return, except that the resulting
difference is not annualized.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent thirty-day period by the Fund's maximum offering price
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last day of the period and annualizing the result.
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Investors may also judge, and the Victory Portfolios may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and is not necessarily representative of future
results. Any fees charged by service providers with respect to customer accounts
for investing in shares of the Fund will not be reflected in performance
calculations.
Additional information regarding the performance of each fund of the Victory
Portfolios is included in the Victory Portfolios' annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
FUND ORGANIZATION AND FEES
The Victory Portfolios is an open-end management investment company, commonly
known as a mutual fund, and currently consisting of twenty-four series
portfolios. The Victory Portfolios has been operating continuously since 1986,
when it was created under Massachusetts law as a Massachusetts business trust
although certain of its funds have a prior operating history from their
predecessor funds. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware business trust. The Victory
Portfolios' offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Overall responsibility for management of the Victory Portfolios rests with its
Board of Trustees, who are elected by the shareholders of the Victory
Portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the Fund. Key
Advisers directs the investment of the Fund's assets, subject at all times to
the supervision of the Victory Portfolios' Board of Trustees. Key Advisers
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of the Fund's investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is an indirect wholly-owned subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers
manage approximately $48 billion for numerous clients including large corporate
and public retirement plans, Taft-Hartley plans, foundations and endowments,
high net worth individuals and mutual funds.
For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Victory Portfolios respecting the Fund, Key
Advisers is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of one percent (1.00%) of the average daily net assets of the Fund.
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<PAGE>
The investment advisory fee paid by the Fund is higher than the advisory fees
paid by most mutual funds, although the Victory Portfolios' Board of Trustees
believes such fees to be comparable to advisory fees paid by many funds having
similar objectives and policies. The advisory fees for the Fund have been
determined to be fair and reasonable in light of the services provided to the
Fund. Key Advisers may periodically waive all or a portion of its advisory fee
with respect to the Fund. Prior to January 1, 1996, Society Asset Management,
Inc. served as investment adviser to the Fund. During the Fund's fiscal period
ended October 31, 1995, Class A shares of the Fund paid investment advisory fees
aggregating .62% of the average daily net assets.
Under the investment advisory agreement between the Victory Portfolios, on
behalf of the Fund and Key Advisers (the "Investment Advisory Agreement"), the
Adviser may delegate a portion of its responsibilities to a sub-adviser. Key
Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc., a registered investment adviser, on
behalf of the Fund (the "Sub-advisory Agreement"). The Sub-Adviser is a
wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. The
Investment Advisory Agreement and the Sub-Advisory Agreement, respectively,
provide that Key Advisers and the Sub-Adviser, respectively, may render services
through their own employees or the employees of one or more affiliated companies
that are qualified to act as an investment adviser of the Fund and are under the
common control of KeyCorp as long as all such persons are functioning as part of
an organized group of persons, managed by authorized officers of Key Advisers
and the Sub-Adviser, respectively. Key Advisers and the Sub-Adviser,
respectively, will be as fully responsible to the Fund for the acts and
omissions of such persons as they are for their own acts and omissions.
For its services under the investment sub-advisory agreement, Key Advisers pays
the Sub-Adviser fees as a percentage of average daily net assets as follows:
.65% of the first $10 million of average daily net assets; .50% of the next $15
million of average daily net assets; .40% of the next $25 million of average
daily net assets; and .35% of average daily net assets in excess of $50 million.
The persons primarily responsible for the investment management of the Fund as
well as their previous experience is as follows:
PORTFOLIO MANAGING
MANAGER FUND SINCE PREVIOUS EXPERIENCE
- ------- ---------- -------------------
Denise Coyne January, 1995 Portfolio Manager for Society Asset
Management, Inc., since 1995; Vice
President, Equity Research, for Society
National Bank since 1992; Research
Analyst with Ameritrust Company National
Association since 1985.
Vice President and Portfolio Manager for
Richard T. Heine Commencement Society Asset Management, Inc. since
of 1993; Vice President and Portfolio
Operations Manager for Society National Bank since
1992; with Ameritrust Company National
Association from 1973 to 1992.
- 30 -
<PAGE>
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, custodian or shareholder
servicing agent to such an investment company or from purchasing shares of such
a company as agent for and upon the order of their customers, nor should they
prevent Key Advisers, the Sub-Adviser or the Fund from compensating third
parties for performing such functions. Key Advisers, the Sub-Adviser and their
affiliates are subject to such banking laws and regulations.
Key Advisers and the Sub-Adviser believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory Agreement
without violating the Glass-Steagall Act or other applicable banking laws or
regulations and that they or their affiliates can perform the other services
indicated above. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations could prevent Key
Advisers, the Sub-Adviser and their affiliates from continuing to perform all or
a part of the above services for their customers and/or the Fund. In such event,
changes in the operation of the Fund may occur, including the possible
alteration or termination of any service then being provided by Key Advisers,
the Sub-Adviser and their affiliates, and the Trustees would consider alternate
investment advisers and other means of continuing available services. It is not
expected that the Fund's shareholders would suffer any adverse financial
consequences (if other service providers are retained) as a result of any of
these occurrences.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the Administrator, principal underwriter and Distributor
for the Fund.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses incurred and services provided as Administrator
pursuant to its management and administration agreement with the Victory
Portfolios, the Administrator receives a fee from the Fund, computed daily and
paid monthly, at an annual rate of fifteen one-hundredths of one percent (.15%)
of the Fund's average daily net assets. The Administrator may periodically waive
all or a portion of its administrative fee with respect to the Fund.
BISYS Fund Services sells shares of the Fund as agent on behalf of the Victory
Portfolios at no cost to the Fund. Key Advisers and the Sub-Adviser neither
participate in nor are responsible for the underwriting of Fund shares.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110-3875
("State Street" or the "Transfer Agent") serves as the Transfer Agent for the
Fund, and receives a fee for such services based on various criteria, including
assets, transactions and number of accounts. Boston Financial Data Services,
Inc., Two Heritage Drive, Quincy, MA 02171 ("BFDS") is the dividend disbursing
agent and provides certain shareholder services to the Fund.
- 31 -
<PAGE>
SHAREHOLDER SERVICING PLAN
The Victory Portfolios has adopted a Shareholder Servicing Plan for each class
of shares of the Fund. In accordance with the Shareholder Servicing Plan, the
Fund may enter into Shareholder Service Agreements under which the Fund pays
fees of up to .25% of the average daily net assets of each class for fees
incurred in connection with the personal service and maintenance of accounts
holding the shares of such class. Such agreements are entered into between the
Victory Portfolios and various shareholder servicing agents, including the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each, a "Shareholder Servicing
Agent"). Each Shareholder Servicing Agent generally will provide support
services to shareholders by establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
arranging for bank wires, responding to routine inquires, forwarding shareholder
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting shareholders in changing dividend options, account
designations and addresses. Shareholder Servicing Agents may periodically waive
all or a portion of their respective shareholder servicing fees with respect to
the Fund.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219, provides
certain accounting services for the Fund pursuant to a Fund Accounting Agreement
and receives a fee for such services.
CUSTODIAN
Key Trust Company of Ohio, N.A., an affiliate of the Adviser and Sub-Adviser,
serves as custodian for the Fund and receives fees for the services it performs
as custodian.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
BUSINESS MANAGEMENT AGREEMENT
In connection with its obligations under the investment sub-advisory agreement,
the Sub-Adviser has entered into a Business Management Agreement with Key
Advisers pursuant to which Key Advisers provides certain administrative and
support services to the Sub-Adviser. Such services include preparing reports to
the Victory Portfolios' Board of Trustees, recordkeeping services, services
rendered in connection with the preparation of regulatory filings and other
reports, and regulatory, compliance, and other administrative and support
services.
For such services, the Sub-Adviser pays fees to Key Advisers as follows: .45% on
the first $10 million of average daily net assets; .30% of the next $15 million
of average daily net assets; .20% of the next $25 million of average daily net
assets; and .15% of average daily net assets in excess of $50 million.
EXPENSES
For the fiscal year ended October 31, 1995, total operating expenses for Class A
shares were 1.36% of average net assets, excluding certain voluntary fee
reductions or reimbursements. For the fiscal period ended April 30, 1996, total
operating expenses for Class B shares were 2.08% of average net assets,
excluding certain voluntary fee reductions or reimbursements.
- 32 -
<PAGE>
ADDITIONAL INFORMATION
The Victory Portfolios may issue an unlimited number of shares and classes of
the Fund. Shares of each class of the Fund participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
and paid for, shares will be fully paid and nonassessable by the Victory
Portfolios and will have no preference, conversion, exchange or preemptive
rights. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. For those investors with qualified
trust accounts, the trustee will vote the shares at meetings of the Fund's
shareholders in accordance with the shareholder's instructions or will vote in
the same percentage as shares that are not so held in trust. The trustee will
forward to these shareholders all communications received by the trustee,
including proxy statements and financial reports. The Victory Portfolios and the
Fund are not required to hold annual meetings of shareholders and in ordinary
circumstances do not intend to hold such meetings. The Trustees may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Trust Instrument. Under certain circumstances, the Trustees
may be removed by action of the Trustees or by the shareholders. Shareholders
holding 10% or more of the Victory Portfolios' outstanding shares may call a
special meeting of shareholders for the purpose of voting upon the question of
removal of Trustees.
The Victory Portfolio's Board of Trustees may authorize the Victory Portfolios
to offer other funds which may differ in the types of securities in which their
assets may be invested.
Key Advisers, the Sub-Adviser and the Victory Portfolios have each adopted a
Code of Ethics (the "Codes") which require investment personnel (a) to pre-clear
all personal securities transactions, (b) to file reports regarding such
transactions, and(c) to refrain from personally engaging in (i) short-term
trading of a security, (ii) transactions involving a security within seven days
of a Fund transaction involving the same security, and (iii) transactions
involving securities being considered for investment by a Victory fund. The
Codes also prohibit investment personnel from purchasing securities in an
initial public offering. Personal trading reports are reviewed periodically by
Key Advisers and the Sub-Adviser, and the Trustees review their Codes and any
substantial violations of the Code. Violations of the Codes may result in
censure, monetary penalties, suspension or termination of employment.
DELAWARE LAW
On February 29, 1996, the Victory Portfolios converted to a Delaware business
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to stockholders of Delaware corporations and the Trust Instrument
provides that shareholders will not be personally liable for liabilities of the
Victory Portfolios. In light of Delaware law, the nature of the Victory
Portfolios' business, and the nature of its assets, management of Victory
Portfolios believes that the risk of personal liability to a Fund shareholder
would be extremely remote.
In the unlikely event a shareholder is held personally liable for the Victory
Portfolios' obligations, the Delaware successor to the Victory Portfolios will
be required to use its property to protect or compensate the shareholder. On
request, the Delaware successor to the Victory Portfolios will defend any claim
made and pay any judgment against a shareholder for any act or obligation of the
Victory Portfolios. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Delaware successor to the Victory Portfolios
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
- 33 -
<PAGE>
Delaware law authorizes electronic or telephone communications between
shareholders and the Victory Portfolios. Under Delaware law, the Delaware
successor to the Victory Portfolios will have the flexibility to respond to
future business contingencies. For example, the Trustees will have the power to
incorporate the Victory Portfolios, to merge or consolidate it with another
entity, to cause each fund to become a separate trust, and to change the Victory
Portfolio's domicile without a shareholder vote. This flexibility could help
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
MISCELLANEOUS
Prior to March 1, 1996, Class A and Class B shares were the only classes of
shares offered by the Fund. The Fund also offers the Key Class which has
different charges and other expenses. These different charges and expenses would
affect investment performance. The Key Class may not be available through your
investment professional. Subsequent to the date of this Prospectus, the Fund may
offer additional classes of shares through a separate prospectus. Any such
additional classes may have different charges and other expenses, which would
affect investment performance. To obtain a free prospectus of another class of
shares or to obtain additional information, call your Investment Professional ,
call (800) 539-3863 or write to the address listed on the cover of this
Prospectus.
Shareholders will receive Semi-Annual Reports, which are unaudited, and Annual
Reports, which are audited by independent accountants ("Reports"), describing
the investment operations of the Fund. Each of these Reports, when available for
a particular fiscal year end or the end of a semi-annual period, is incorporated
herein by reference. The Victory Portfolios may include information in their
Reports to shareholders that (a) describes general economic trends, (b)
describes general trends within the financial services industry or the mutual
fund industry, (c) describes past or anticipated portfolio holdings for the Fund
or (d) describes investment management strategies for the Victory Portfolios.
Such information is provided to inform shareholders of the activities of the
Victory Portfolios for the most recent fiscal year or semi-annual period and to
provide the views of Key Advisers, the Sub-Adviser and/or the Victory
Portfolios' officers regarding expected trends and strategies.
The Fund intends to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Reports at no cost by writing to the Fund at the address listed on page 1 of
this Prospectus or by calling 800-539-3863.
Inquiries regarding the Victory Portfolios or the Fund may be directed in
writing to the Victory Portfolios at the Victory Funds , P.O. Box 8527, Boston,
MA 02266-8527, or by telephone, toll-free, at 800-539-3863.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY
PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE VICTORY PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- 34 -
<PAGE>
MANAGED BY KEYCORP
THE VICTORY INTERNATIONAL GROWTH FUND
JULY 30, 1996
<PAGE>
THE
VICTORY
PORTFOLIOS
INTERNATIONAL GROWTH FUND
PROSPECTUS For current yield, purchase, and redemption information,
July 30, 1996 call 800-539-FUND or 800-539-3863
THE VICTORY PORTFOLIOS (the "Victory Portfolios") is a registered open-end
management investment company that offers investors a selection of money market,
fixed-income, municipal bond, domestic and international equity portfolios. This
Prospectus relates to the INTERNATIONAL GROWTH FUND (the "Fund"), a diversified
portfolio. KeyCorp Mutual Fund Advisers, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment adviser to the Fund ("Key Advisers" or
the "Adviser"). Society Asset Management, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment sub-adviser to the Fund (the
"Sub-Adviser"). BISYS Fund Services ("BISYS") is the Fund's administrator (the
"Administrator") and distributor (the "Distributor").
The Fund seeks to provide capital growth consistent with reasonable investment
risk. The Fund pursues this objective by investing primarily in equity
securities of foreign corporations, most of which will be denominated in foreign
currencies.
The Fund offers two classes of shares: (1) Class A shares, which are offered at
net asset value plus the applicable sales charge (maximum of 4.75% of public
offering price) and (2) Class B shares, which are offered at net asset value
with a maximum contingent deferred sales charge ("CDSC") of 5.0% imposed on
certain redemptions. At the end of the sixth year after purchase, the CDSC will
no longer apply to redemptions. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert to Class A shares eight years after
purchase.
Please read this Prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
July 30, 1996) for the Fund, an audited annual report for the Fund's fiscal year
ended October 31, 1995 and an unaudited semi-annual report for the six months
ended April 30, 1996 have been filed with the Securities and Exchange Commission
(the "Commission") and are incorporated herein by reference. The Statement of
Additional Information is available without charge upon request by writing to
the Victory Funds at P.O. Box 8527, Boston, MA 02266-8527, or by calling
800-539-3863.
SHARES OF THE FUND ARE:
O NOT INSURED BY THE FDIC;
O NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP
BANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
O SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
- ----------------- ----
Fund Expenses.............................................................. 3
Financial Highlights....................................................... 5
Investment Objective....................................................... 6
Investment Policies and Risk Factors....................................... 6
How to Invest, Exchange and Redeem......................................... 12
Dividends, Distributions and Taxes......................................... 24
Performance................................................................ 26
Fund Organization and Fees................................................. 27
Additional Information..................................................... 30
- 2 -
<PAGE>
FUND EXPENSES
The table below summarizes the expenses associated with the Fund. This
standard format was developed for use by all mutual funds to help an investor
make investment decisions. You should consider this expense information along
with other important information in this Prospectus, including the Fund's
investment objectives, policies and risk factors.
SHAREHOLDER TRANSACTION EXPENSES(1)
CLASS A CLASS B
------- -------
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price)........ 4.75% None
Maximum Sales Charge Imposed on Reinvested
Dividends...................................... none none
Deferred Sales Charge.......................... none 5% in the first
year, declining
to 1% in the
sixth year and
eliminated
thereafter
Redemption Fees................................ none none
Exchange Fee................................... none none
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average daily net assets)
CLASS A CLASS B
------- -------
Management Fees................................ 1.10% 1.10%
Administrative Fees.......................... .15% .15%
Rule 12b -1 Distribution Fees................ .00% .75%
Other Expenses(2)............................ .45% 1.10%
---- ----
Total Fund Operating Expenses(2)............... 1.70% 3.10%
==== ====
(1) Investors may be charged a fee if they effect transactions in
Fund shares through a broker or agent, including affiliated
banks and non-bank affiliates of Key Advisers and KeyCorp.
(See "How to Invest, Exchange and Redeem.")
(2) These amounts include an estimate of the shareholder servicing
fees the Fund expects to pay. (See "Fund Organization and Fees
-- Shareholder Servicing Plan.")
EXAMPLE: You would pay the following expenses on a $1,000 investment,
assuming (1) a 5% annual return and (2) full redemption at the end of each time
period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
International Growth Fund --
Class A Shares $64 $ 99 $135 $239
International Growth Fund --
Class B Shares $81 $126 $183 $308
The purpose of the table above is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. See "Fund Organization and Fees" for a more
complete discussion of annual operating expenses of the Fund. The foregoing
example is based upon expenses for the fiscal year ended October 31, 1995 for
Class A shares, the period ended April 30, 1996 for Class B shares and expenses
that the Fund is expected to incur during the current fiscal year. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- 3 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect
to the financial highlights for the Fund for the periods indicated. For Class A
shares, the information below for the fiscal year ended October 31, 1995 has
been derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for the Victory Portfolios, whose report thereon,
together with the financial statements of the Fund, is incorporated by reference
into the Statement of Additional Information. For Class B shares, the
information below for the fiscal period ended April 30, 1996 has not been
audited. The information set forth below is for a Class A share and a Class B
share outstanding for each period indicated.
<TABLE>
<CAPTION>
THE VICTORY INTERNATIONAL GROWTH FUND
Class A Shares
Year Ended October 31,
Class B Shares --------------------------------------------------------------- MAY 18, 1990
March 1, 1996 TO
to OCTOBER 31,
April 30, 1996(a)(d) 1995(e) 1994 1993 1992 1991 1990(a)(g)
------------------- ------- ---------- ---------- ----------- --------- -------------
(unaudited)
NET ASSET VALUE, BEGINNING OF
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD...... $12.79 $13.32 $11.93 $ 8.93 $ 9.20 $ 9.46 $10 .00
------ ------ ------ ------ ------ ------ --- ---
Investment Activities
Net investment income (loss)...... -- 0.05 (0.01) (0.03) (0.02) 0.51 0 .09
Net realized and unrealized
gains (losses) on investments
and foreign currencies... 0.54 (0.42) 1.40 3.03 (0.17) (0.25) (0.55)
---- ----- ---- ---- ----- ----- -----
Total from Investment Activities.. 0.54 (0.37) 1.39 3.00 (0.19) 0.26 (0.46)
---- ----- ---- ---- ----- ---- -----
Distributions:
Net investment income............. -- (0.01) (0.52) (0.08)
Net realized gains................ -- (0.62) (0.07)
---- ----- ----- ----- -----
Total Distributions.......... -- (0.62) . . (0.08) (0.52) (0.08)
---- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD.... $13.33 $12.33 $13.32 $11.93 $ 8.93 $ 9.20 $ 9.46
====== ====== ====== ====== ====== ====== ======
Total Return (Excludes Sales
Charge)...... 4.22%(b) (2.50%) 11.65% 33.59% (2.08%) 2.93% (4.54%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000)... $64.00 $106,477.00 $81,307.00 $30,629.00 $11,091.00 $5,682.00 $9,878 .00
Ratio of expenses to average
net assets... 2.45%(c) 1.53% 1.48% 1.46% 1.56% 1.72% 1.70%(e)
Ratio of net investment income
(loss) to average net assets).... 0.27%(c) 0.75% (0.51%) (0.74%) (0.20%) 5.97% 2.51%(e)
Ratio of expenses to average net
assets(d)..................... 3.20%(c) 1.65% 1.83% 1.63% 1.72%
Ratio of net investment loss to
average net assets(d)............ (0.49)%(c) 0.63% (0.86%) (0.91%) (0.35%)
Portfolio turnover................ 101.51% 68.09% 50.66% 45.43% 91.92% 102.53% 12.16%
</TABLE>
- -------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been as indicated.
(e) Effective June 5, 1995, the Victory Foreign Markets Portfolio merged
into the Fund. Financial highlights for the periods prior to June 5,
1995 represent the Fund.
(f) Effective March 1, 1996, the Fund designated the existing shares as
Class A Shares and commenced offering Class B shares.
- 4 -
<PAGE>
(g) This information is not included in the financial statements audited by
Coopers & Lybrand L.L.P.
- 5 -
<PAGE>
INVESTMENT OBJECTIVE
The Fund seeks to provide capital growth consistent with reasonable investment
risk. The investment objective of the Fund is fundamental and may not be changed
without a vote of the holders of a majority of its outstanding voting securities
(as defined in the Statement of Additional Information). There can be no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES AND RISK FACTORS
SUMMARY OF PRINCIPAL INVESTMENT POLICIES
The Fund pursues its objective by investing primarily in equity securities of
foreign corporations, most of which will be denominated in foreign currencies.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in securities of companies which derive more than 50% of their gross
revenues from or have more than 50% of their assets outside the United States
including in the form of American Depository Receipts ("ADRs"). Additionally,
under normal market conditions, at least 65% of the Fund's assets will be
invested in securities for which the principal trading market is located in at
least three different countries (excluding the United States), although for
temporary defensive purposes the Fund may invest all of its assets in a single
foreign country. The Fund invests most of its assets in securities of companies
located either in developed countries in Western Europe or in Japan, although it
may purchase securities of companies located in developing countries and other
developed countries.
By investing in foreign securities, the Fund attempts to take advantage of
differences between economic trends and the performance of securities markets in
various countries, regions and geographic areas. The return on equity
investments in some countries has at times exceeded the return on similar
investments in the U.S., while at other times the return has been less than that
of similar U.S. securities. The Fund seeks diversification by investing in
securities from various countries and geographic areas that offer different
investment opportunities and are affected by different economic trends. The
multinational character of the Fund's investments should reduce the effect that
events in any one country or geographic area will have on its investments. Of
course, negative movement by one of the Fund's investments in one foreign market
may offset gains from the Fund's investments in another market. See "Additional
Information Regarding The Fund's Investments--Foreign Securities" for a
discussion of the certain risks associated with investment in foreign
securities.
Although the Fund intends to invest primarily in foreign equity securities, a
portion of its assets, normally not to exceed 35% of its total assets, may be
invested in domestic money market securities (including repurchase agreements)
for liquidity purposes. In addition, the Fund may invest in securities
convertible into common stock, attached and unattached warrants, sponsored and
unsponsored ADRs, as well as forward spot currency contracts.
For temporary defensive purposes, when deemed necessary by Key Advisers or the
Sub-Adviser, the Fund may invest up to 100% of its assets in U.S. Government
obligations or "high-quality" debt obligations of companies incorporated and
having principal business activities in the United States. When the Fund's
assets are so invested, they are not invested so as to meet the Fund's
investment objective. "High-quality" short-term obligations are those
obligations which, at the time of purchase, (1) possess a rating in one of the
two highest ratings categories from at least one nationally recognized
statistical ratings organization ("NRSRO") (for example, commercial paper rated
"A-1" or "A-2" by Standard & Poor's Corporation or "P-1" or "P-2" by Moody's
Investors Service, Inc.) or (2) are unrated by an NRSRO but are determined by
Key Advisers or the Sub-Adviser to present minimal credit risks and to be of
comparable quality to rated instruments eligible for purchase by the Fund under
guidelines adopted by the Board of Trustees (the "Trustees"). The applicable
securities ratings are described in the Appendix to the Statement of Additional
Information.
- 6 -
<PAGE>
Additionally, as long the Fund's shares are registered under the securities laws
of the State of Texas and such restrictions are required as a consequence of
such registration, the Fund will invest only in debt securities which are rated
at the time of purchase within the three highest rating groups assigned by an
NRSRO, or if unrated, those securities which Key Advisers or the Sub-Adviser
deems to be of comparable quality.
Changes in the value of portfolio securities will not affect cash income, if
any, derived from these securities but will affect the Fund's net asset value.
Because the Fund invests primarily in equity securities, which fluctuate in
value, the Fund's shares will fluctuate in value.
ADDITIONAL INFORMATION REGARDING THE FUND'S INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which the Fund may invest in accordance with its investment
objective, policies and limitations, including certain transactions it may make
and strategies it may adopt. The following also contains a brief description of
certain risk factors. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in this Prospectus.
O FOREIGN SECURITIES. Investments in securities of foreign companies generally
involve greater risks than are present in U.S. investments. Compared to U.S. and
Canadian companies, there is generally less publicly available information about
foreign companies and there may be less governmental regulation and supervision
of foreign stock exchanges, brokers and listed companies. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. Securities of some foreign companies are less liquid, and
their prices more volatile, than securities of comparable U.S. companies.
Settlement of transactions in some foreign markets may be delayed or may be less
frequent than in the U.S., which could affect the liquidity of the Fund's
investment. In addition, with respect to some foreign countries, there is the
possibility of nationalization, expropriation or confiscatory taxation;
limitations on the removal of securities, property or other assets of the Fund;
political or social instability; increased difficulty in obtaining legal
judgments; or diplomatic developments which could affect U.S. investments in
those countries. Key Advisers or the Sub-Adviser will take such factors into
consideration in managing the Fund's investments.
The Fund may invest up to twenty percent (20%) of its total assets in companies
located in developing countries. In addition to the above-described risks of
investments in the securities of foreign issuers, companies located in
developing countries are subject to some additional risks. Compared to the
United States and other developed countries, developing countries may have
relatively unstable governments, economies based on only a few industries, and
securities markets which trade a small number of securities. Prices on these
exchanges tend to be volatile and, in the past, securities in these countries
have offered greater potential for gain, as well as greater risk of loss, than
securities of companies located in developed countries.
When the Fund invests in foreign securities, such securities will usually be
denominated in foreign currency, and the Fund may temporarily hold funds in
foreign currencies. Thus, the value of the Fund's shares will be affected by
changes in currency exchange rates. The value of the Fund's investments
denominated in foreign currencies and any cash it holds in foreign currencies
will depend on the relative strength of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by exchange control
regulations or changes in the exchange rate between foreign currencies and the
U.S. dollar. The rate of exchange between the U.S. dollar and other currencies
is determined
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by the forces of supply and demand in the foreign exchange market as well as by
political factors. Changes in the foreign currency exchange rates may also
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund. Accordingly, the Fund's ability to
achieve its investment objective will depend, to a great extent, on favorable
exchange rates. O ZERO COUPON BONDS. The Fund is permitted to purchase both zero
coupon U.S. government securities and zero coupon corporate securities ("zero
coupon bonds"). Zero coupon bonds are purchased at a discount from the face
amount because the buyer receives only the right to a fixed payment on a certain
date in the future and does not receive any periodic interest payments. The
effect of owning instruments which do not make current interest payments is that
a fixed yield is earned not only on the original investment but also, in effect,
on accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the zero coupon bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest periodically. The amount of price
fluctuation tends to increase as maturity of the security increases.
O RECEIPTS. In addition to bills, notes and bonds issued by the U.S. Treasury,
the Fund may also purchase separately traded interest and principal component
parts of such obligations that are transferable through the Federal book entry
system, known as Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES"). These instruments
are issued by banks and brokerage firms and are created by depositing Treasury
notes and Treasury bonds into a special account at a custodian bank; the
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-paying U.S.
Treasury obligations. The Fund will limit its investment in such instruments to
20% of its total assets.
O SECURITIES LENDING. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities. The Fund must receive collateral
equal to 100% of the securities' value in the form of cash or U.S. Government
securities, plus any interest due, which collateral must be marked to market
daily by Key Advisers or the Sub-Adviser. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund amounts equal to any dividends or interest paid on such securities plus any
interest negotiated between the parties to the lending agreement. Loans are
subject to termination by the Fund or the borrower at any time. While the Fund
does not have the right to vote securities on loan, the Fund intends to
terminate any loan and regain the right to vote if that is considered important
with respect to the Fund's investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which Key Advisers
or the Sub-Adviser has determined are creditworthy under guidelines established
by the Victory Portfolios' Board of Trustees (the "Trustees"). The Fund will
limit its securities lending to 33 1/3% of total assets.
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<PAGE>
O WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued or
delayed delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. The Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.
O VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase investment grade
variable and floating rate notes. The interest rates on these securities may be
reset daily, weekly, quarterly, or some other reset period, and may be subject
to a floor or ceiling. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. There may
be no active secondary market with respect to a particular variable or floating
rate note. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other illiquid
securities held by the Fund, does not exceed 15% of the Fund's net assets unless
such notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days after demand therefor. These
securities are included among those which are sometimes referred to as
"derivative securities."
O REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, the Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements may be
considered by the staff of the Commission to constitute loans by the Fund.
O REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account assets
having a value equal to the repurchase price (including accrued interest); the
collateral will be marked to market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940, as amended (the "1940 Act").
O INVESTMENT COMPANY SECURITIES. The Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies. Pursuant to
an exemptive order received by the Victory Portfolios from the Commission, the
Fund may invest in the money market funds of the Victory Portfolios. Key
Advisers or the Sub-Adviser will waive its fee attributable to the Fund's assets
invested in a money market fund of the Victory Portfolios, and, to the extent
required by the laws of any state in which shares of the Fund are sold, Key
Advisers or the
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Sub-Adviser will waive its investment advisory fees as to all assets invested in
other investment companies. Because such other investment companies employ an
investment adviser, such investment by the Fund will cause shareholders to bear
duplicative fees, such as management fees, to the extent such fees are not
waived by Key Advisers or the Sub-Adviser.
O PRIVATE PLACEMENT INVESTMENTS. The Fund may invest in high quality commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). Section 4(2)
commercial paper ("commercial paper") is generally sold to institutional
investors, such as the Fund, that agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in commercial
paper, thus providing liquidity. The Fund believes that commercial paper and
possibly certain other restricted securities (as defined in the Statement of
Additional Information) that meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat the restricted
securities that meet the criteria for liquidity established by the Trustees,
including commercial paper, as determined by Key Advisers or the Sub-Adviser, as
liquid and not subject to the investment limitation applicable to illiquid
securities. See "Investment Limitations."
O FUTURES CONTRACTS. The Fund may enter into contracts for the future delivery
of securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Fund may enter into futures contracts in an effort to hedge against market
and currency risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Fund can seek to
offset a decline in the value of its portfolio securities by entering into
futures contract transactions. When interest rates are expected to fall or
market values are expected to rise, the Fund, through the purchase of such
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give the Fund
the right (but not the obligation), for a specified price, to sell or to
purchase the underlying futures contract, upon exercise of the option, at any
time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of a Fund's total assets (other than in
connection with bona fide hedging purposes), and the value of securities that
are the subject of such futures and options (both for receipt and delivery) may
not exceed one-third of the market value of a Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities or foreign
currencies, limiting the Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
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<PAGE>
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
O OPTIONS. The Fund may write call options from time to time. The Fund will
write only covered call options (options on securities owned by the Fund) and
index options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction," i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously wrote on any
particular security. When a portfolio security subject to a call option is sold,
the Fund will effect a closing purchase transaction to close out any existing
call option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Upon
the exercise of an option, the Fund is not entitled to the gains, if any, on
securities underlying the options. The Fund intends to limit its investments in
call and index options to 25% of its total assets.
Certain investment management techniques which the Fund may use, such as the
purchase and sale of futures contracts and options (described above) may expose
the Fund to special risks. These products may be used to adjust the risk and
return characteristics of the Fund's portfolio of investments. These various
products may increase or decrease exposure to fluctuation in security prices,
interest rates, or other factors that affect security values, regardless of the
issuer's credit risk. Regardless of whether the intent was to decrease risk or
increase return, if market conditions do not perform consistently with
expectations, these products may result in a loss. In addition, losses may occur
if counterparties involved in transactions do not perform as promised. These
products may expose the Fund to potentially greater risk of loss than more
traditional equity investments.
The options and futures contracts described in this section are frequently
referred to as derivative securities. In general, derivative securities are
instruments whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates or currency exchange rates), security,
commodity, or other assets.
O PORTFOLIO TRANSACTIONS. The Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short- term
trading is to take advantage of what Key Advisers or the Sub-Adviser believes
are changes in market, industry or individual company conditions or outlook. Any
such trading would increase the Fund's turnover rate and its transaction costs.
High turnover will generally result in higher brokerage costs and possible tax
consequences for the Fund. In the fiscal year ended October 31, 1995, the
portfolio turnover rate was 68.09%, compared to 50.66% in the prior fiscal year.
From time to time, the Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which Key Advisers or the Sub-Adviser or its affiliates have a lending
relationship.
NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Fund and risk factors. The investment
policies and limitations of the Fund may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
policy of the Fund or (2) a policy is expressly deemed to be changeable only by
such majority vote.
INVESTMENT LIMITATIONS
The following summarizes some of the Fund's principal investment limitations.
The Statement of Additional Information contains a complete listing of the
Fund's
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<PAGE>
investment limitations and provides additional information about investment
restrictions designed to reduce the risk of an investment in the Fund.
1. The Fund may not borrow money other than (a) by entering into
commitments to purchase securities in accordance with its investment
program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of such
commitments do not exceed 33% of the Fund's total assets; and (b) for
temporary or emergency purposes in an amount not exceeding 5% of the
value of the Fund's total assets.
2. The Fund will not purchase a security if, as a result, more than 15% of
its net assets would be invested in illiquid securities. Illiquid
securities are investments that cannot be readily sold within seven
days in the usual course of business at approximately the price at
which the Fund has valued them. Under the supervision of the Trustees,
Key Advisers or the Sub-Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell
them promptly at an acceptable price.
3. The Fund is "diversified" within the meaning of the 1940 Act. With
respect to 75% of its total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
4. The Fund's policy regarding concentration of investments provides that
the Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements secured
thereby) if, as a result, more than 25% of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry.
Each of the investment limitations indicated above in this subsection are
fundamental, except for the limitation pertaining to illiquid securities.
Non-fundamental limitations may be changed without shareholder approval.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the investment and any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations, except in the case of borrowing (or other
activities that may be deemed to result in the issuance of a "senior security"
under the 1940 Act). If the value of the Fund's illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due to
subsequent fluctuations in value or other reasons, the Trustees will consider
what actions, if any, are appropriate to maintain adequate liquidity.
HOW TO INVEST, EXCHANGE AND REDEEM
HOW TO INVEST
The Fund offers investors two different classes of shares. The different classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses and will likely have different share prices.
O CLASS A SHARES AND CLASS B SHARES. If Class A shares are purchased, there is
an initial sales charge (on investments up to $1 million). If Class B shares are
purchased, there is no sales charge at the time of purchase, but if the shares
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are redeemed within six years, you will normally pay a contingent deferred sales
charge ("CDSC") that varies depending on how long you own your shares.
O WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser:
1. AMOUNT OF INVESTMENT. If you plan to invest a substantial amount, the
reduced sales charges available for larger purchases of Class A shares
may be more beneficial to you. Any order for $1 million or more will
only be accepted as Class A shares for that reason.
2. INVESTMENT HORIZON. While future financial needs cannot be predicted
with certainty, investors who prefer not to pay an initial sales charge
and who plan to hold their shares for more than six years might
consider Class B shares. Investors who plan to redeem shares within
eight years might prefer Class A shares.
3. DIFFERENCES IN ACCOUNT FEATURES. The dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B
shares are subject, as described below and in the Statement of
Additional Information.
A salesperson, financial planner, investment adviser or trust officer who
provides you with information regarding the investment of your assets (an
"Investment Professional") or other person who is entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one class than for selling another class. Both the CDSC (an asset-based
sales charge) for Class B shares and the front-end sales charge on sales of
Class A shares are used primarily to compensate such person.
O HOW ARE SHARES PURCHASED? Shares may be purchased directly or through an
Investment Professional of a securities broker or other financial institution
that has entered into a selling agreement with the Fund or the Distributor.
Shares are also available to clients of bank trust departments. The minimum
investment is $500 ($250 for Individual Retirement Accounts) for the initial
purchase and $25 thereafter. Accounts set up through a bank trust department or
an Investment Professional may be subject to different minimums. When you buy
shares, be sure to specify Class A or Class B shares. If you do not make a
selection, your investment will be made in Class A shares.
O INVESTING THROUGH YOUR INVESTMENT PROFESSIONAL. Your Investment Professional
will place your order with the Transfer Agent on your behalf (see "Fund
Organization and Fees -- Transfer Agent"). You may be required to establish a
brokerage or agency account. Your Investment Professional will notify you
whether subsequent trades should be directed to the Investment Professional or
directly to the Fund's Transfer Agent. Accounts established with Investment
Professionals may have different features, requirements and fees. In addition,
Investment Professionals may charge for their services. Information regarding
these features, requirements and fees will be provided by the Investment
Professional. If you are purchasing shares of any Fund through a program of
services offered or administered by your Investment Professional, you should
read the program materials in conjunction with this Prospectus. You may initiate
any transaction by telephone through your Investment Professional. See "Special
Investor Services" for more information about telephone transactions.
O INVESTING THROUGH YOUR BANK TRUST DEPARTMENT. Your bank trust department may
require a different minimum investment and may charge additional fees. Fee
schedules for such accounts are available upon request and are detailed in the
agreements by which a client opens the desired account. Your bank trust
department may require a completed and signed application for the Fund in which
an investment is made. Additional documents may be required from corporations,
associations, and certain fiduciaries. Any account information, such as
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balances, should be obtained through your bank trust department. Additional
purchases, exchanges or redemptions should also be coordinated through your bank
trust department. Contact your bank trust department for instructions.
The services rendered by a bank trust department, including Key Trust Company of
Ohio, N.A. and other affiliates of Key Advisers or the Sub-Adviser are not
duplicative of any of the services for which Key Advisers or the Sub-Adviser as
the investment adviser or sub-adviser, respectively, is compensated for advising
the Fund. The charges paid by clients of bank trust departments, or their
affiliates, should also be considered by the investor in addition to the net
yield and return on the investment in the Fund, although such charges do not
affect the Fund's dividends or distributions.
O INVESTING THROUGH THE SYSTEMATIC INVESTMENT PLAN. You can use the Systematic
Investment Plan to purchase shares directly from your bank account. Please refer
to "The Systematic Investment Plan" for more details.
INVESTING DIRECTLY
O BY MAIL:
You may purchase shares by completing and signing an Account
Application (initial purchase only) and mailing it, together with a check (or
other negotiable bank draft or money order) in the amount of at least the
minimum investment requirement to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
O BY WIRE:
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS. Federal Funds
should be wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit to DDA Account # 9905-201-1
For further credit to Account # (insert your account number,
name and control number assigned by the Transfer Agent)
The Fund does not impose a fee for wire transactions, although your bank may
charge you a fee for this service.
o BY ACH:
The purchase amount will be transferred between the bank account
designated and your fund account via Automated Clearing House ("ACH"). Only a
bank account maintained in a domestic financial institution which is an ACH
member may be so designated. The Fund may modify or terminate the telephone
and/or ACH privilege at any time or charge a service fee upon notice to
shareholders. No such fee is currently contemplated. If the designated bank
account does not contain sufficient assets at the time your order is processed,
the order may be cancelled, and you could be liable for resulting fees and/or
losses. NOTE THAT THIS SERVICE REQUIRES APPROXIMATELY 15 DAYS TO ESTABLISH.
THEREFORE, IT MAY NOT BE APPLICABLE TO REQUEST YOUR INITIAL PURCHASE UTILIZING
THIS METHOD.
Class A shares are sold at the public offering price based on the net asset
value that is next determined after the Transfer Agent receives the purchase
order. Class B shares are sold at net asset value per share, but may be subject
to a CDSC (see "Class B Shares"). In most cases, to receive that day's price,
the Transfer Agent must receive your order as of the close of regular trading of
the New York Stock Exchange ("NYSE") which is normally 4:00 p.m. Eastern time
(the "Valuation Time") on each Business Day (as defined in "Shareholder Account
Rules and Policies -- Share Price"). If you buy shares through an Investment
Professional, the Investment Professional must receive your order in a timely
fashion on a regular Business Day . It is the responsibility of your Investment
Professional to transmit your order to purchase shares to the Transfer Agent in
a timely fashion in order for you to receive that day's share price. The
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<PAGE>
Transfer Agent may reject any purchase order for the Fund's shares, in its sole
discretion.
INVESTMENT REQUIREMENTS
All purchases made by check must be in U.S. dollars and made payable to the
Victory Funds, or in the case of a retirement account, the custodian or trustee.
Third party checks will not be accepted. Checks must be draw on U.S. banks. No
cash will be accepted. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. The Fund or the Transfer Agent reserves the right to limit the
number of checks processed at one time. If your check does not clear, your
purchase will be canceled and you could be liable for any losses or fees
incurred. Payment for the purchase is expected at the time of the order. If
payment is not received within three business days of the date of the order, the
order may be canceled, and you could be held liable for resulting fees and/or
losses.
CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. When you invest, the Fund receives the net
asset value for your account. The sales charge varies depending on the amount of
your purchase and a portion may be retained by the Distributor and allocated to
your Investment Professional. The Victory Portfolios has a reinstatement policy
which allows an investor who redeems shares originally purchased with a sales
charge to reinvest within 90 days without incurring an additional sales charge.
The current sales charge rates and commissions paid to Investment Professionals
are as follows:
CLASS A SALES CHARGE DEALER
-------------------- REALLOWANCE
AS A % OF AS A % OF AS A %
OFFERING NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------ ----- -------- -----
Less than $49,999............ 4.75% 4.99% 4.00%
$50,000 to $99,999........... 4.50% 4.71% 4.00%
$100,000 to $249,999......... 3.50% 3.63% 3.00%
$250,000 to $499,999......... 2.25% 2.30% 2.00%
$500,000 to $999,999......... 1.75% 1.78% 1.50%
$1,000,000 and above......... 0.00% 0.00% ^(1)
(1) There is no initial sales charge on purchases of $1 million or more.
Investment Professionals will be compensated at the rate of up to 0.25% on
such purchases.
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
The Distributor may pay all or a portion of any applicable sales charges and
service fees to Investment Professionals who sell shares of the Fund and provide
ongoing sales support services or shareholder support services. For the
three-year period commencing April 30, 1994, for activities in maintaining and
servicing accounts of customers invested in the Fund, First Albany Corporation
("First Albany") and PFIC Securities Corporation ("PFIC") may receive payments
from the Distributor equal to two-thirds of the Dealer Retention (as defined
below) on any shares of the Fund (and other funds of the Victory Portfolios)
sold by First Albany or PFIC and their broker-dealer affiliates. "Dealer
Retention"
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<PAGE>
is an amount equal to the difference between the applicable sales charge and
such part of the sales charge which is reallowed to broker-dealers.
REDUCED SALES CHARGES FOR CLASS A SHARES. You may be eligible to buy Class A
shares at reduced sales charge rates in one or more of the following ways:
O LETTER OF INTENT FOR CLASS A SHARES. An investor may obtain a reduced sales
charge by means of a written Letter of Intent which expresses the investor's
intention to invest a specified amount within a 13-month period, which if made
at one time, would qualify for a reduced sales charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of the total amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such escrowed
shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends (if any) on escrowed shares, whether paid in cash or
reinvested in additional shares, are not subject to escrow. The escrowed shares
will not be available for redemption, exchange or other disposal by the investor
until all purchases pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. A Letter of Intent may include purchases
of shares made not more than 90 days prior to the date the investor signs a
Letter of Intent; however, the 13-month period during which the Letter of Intent
is in effect will begin on the date of the earliest purchase to be included. An
investor may combine purchases that are made in an individual capacity with (1)
purchases that are made by members of the investor's immediate family and (2)
purchases made by businesses that the investor owns as sole proprietorships, for
purposes of obtaining reduced sales charges by means of a written Letter of
Intent. In order to accomplish this, however, investors must designate on the
Account Application the accounts that are to be combined for this purpose.
Investors can only designate accounts that are open at the time the Letter of
Intent is executed.
If an investor qualifies for a further reduced sales charge because the investor
has either purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional shares of the Fund on behalf of the
investor; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For further information about Letters of Intent, interested investors should
contact the Transfer Agent at 800-539-3863. This program, however, may be
modified or eliminated at any time without notice.
O RIGHT OF ACCUMULATION AND CONCURRENT PURCHASES. A shareholder may qualify for
a reduced sales charge on purchases of Class A Shares of the Fund, and other
Class A shares of funds of the Victory Portfolios, by combining a current
purchase with purchases of another fund(s), or with certain prior purchases of
shares of the Victory Portfolios. The applicable sales charge is based on the
sum of (1) the purchaser's current purchase plus (2) the current public offering
price of the purchaser's previous purchases of (a) all shares held by the
purchaser in the Fund and (b) all shares held by the purchaser in any Class A
shares of other fund of the Victory Portfolios (except money market funds).
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must provide the Transfer Agent with sufficient
information at the time of purchase to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor. See "Combined Purchases" and "Rights of Accumulation" in the
Statement of Additional Information.
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<PAGE>
O WAIVERS OF CLASS A SALES CHARGES. No sales charge is imposed on sales of Class
A shares to the following categories of persons (which categories may be changed
or eliminated at any time):
(1) Current or retired Trustees of the Victory Portfolios; employees,
directors, trustees, and their family members of KeyCorp or an
"Affiliated Provider" ("Affiliated Providers" refer to affiliates and
subsidiaries of KeyCorp and service providers to the Victory Portfolios
and the Victory Shares (collectively, the "Victory Group")), dealers
having an agreement with the Distributor and any trade organization to
which Key Advisers, the Sub-Adviser or the Administrator belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with KeyCorp or any of its
affiliates;
(3) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust
or custody account that was either (a) maintained by KeyCorp or an
Affiliated Provider, or (b) invested in a fund of the Victory Group;
(4) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon
redemption of shares;
(5) Shareholders of the former Investors Preference Fund For Income, Inc.
and the Investors Preference New York Tax-Free Fund, Inc. who have
continuously maintained accounts with a fund or funds of the Victory
Group with a balance of $250,000 or more (investors with less than
$250,000 will pay any applicable sales charges);
(6) Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of
such investment advisers or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment adviser or financial planner on the books and records
of the broker or agent. Such accounts include retirement and deferred
compensation plan and trusts used to fund those plan, including, but
not limited to, those defined in section 401(a), 403(b), or 457 of the
Internal Revenue Code and "rabbi trusts."
CLASS B SHARES. Class B shares are sold at net asset value per share without an
initial sales charge. However, if Class B shares are redeemed within six years
of their purchase, a CDSC will be deducted from the redemption proceeds. That
sales charge will not apply to shares purchased by the reinvestment of dividends
or capital gain distribution. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the original purchase
price. The CDSC is not imposed on the amount of the redeemed shares represented
by the increase in net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains distributions).
The Class B CDSC is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the CDSC applies to a redemption, the Victory Portfolios
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for over six years,
and (3) shares held the longest during the 6-year period. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
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<PAGE>
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASE ON REDEMPTIONS IN THAT YEAR
PAYMENT WAS MADE (AS % OF AMOUNT SUBJECT TO CHARGE)
---------------- ----------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. Purchases will age based on trade
date of purchase. For example, a purchase made on January 1 will be one year old
on January 1 of the following year.
O WAIVERS OF CLASS B CDSC. The Class B CDSC will be waived if the shareholder
requests it for any of the following redemptions: (1) distributions to
participants or beneficiaries from Retirement Plans, if the distributions are
made (a) under an Automatic Withdrawal Plan after the participant reaches age 59
1/2, as long as the payments are no more than 12% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue Code) of
the participant or the beneficial owner; (2) redemptions from accounts other
than Retirement Plans following the death or disability of the shareholder (as
evidenced by a determination of disability by the Social Security
Administration); (3) returns of excess contributions to Retirement Plans; and
(4) distributions of not more than 12% of the account value annually under an
automatic withdrawal plan.
The CDSC is also waived on Class B shares in the following cases: (1) shares
sold to Key Advisers, the Sub-Adviser or their affiliates; (2) shares issued in
plans of reorganization to which the Victory Portfolios is a party; and (3)
shares redeemed in involuntary redemptions as described above.
O AUTOMATIC CONVERSION OF CLASS B SHARES. Eight years after Class B shares are
purchased, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution Plan, described
below. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements--Class B Conversion Feature"
in the Statement of Additional Information.
O DISTRIBUTION PLAN FOR CLASS B SHARES. The Victory Portfolios has adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act for Class B
shares to compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Victory Portfolios
pays the Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares. This fee is computed on the average daily net assets of Class B
shares and paid monthly. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares. The asset-based sales charge
increases Class B expenses by up to 0.75% of average net assets per year.
The Distributor pays sales commissions of 4.00% of the purchase price to dealers
from its own resources at the time of sale. For maintaining and servicing
accounts of customers invested in the Fund, First Albany and PFIC Securities
Corporation may receive payments from the Distributor equal to two-thirds of the
excess of the scheduled CDSC over any commission payment to the selling broker.
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<PAGE>
The Distributor retains the asset-based sales charge to recoup the sales
commissions it pays and its financing costs. If the Plan is terminated by the
Victory Portfolios, it provides that the Trustees may elect to continue payments
for certain expenses already incurred. The payments under the Plan increase the
annual expenses of Class B shares. For more details, please refer to "Advisory
and Other Contracts--Class B Shares Distribution Plan" in the Statement of
Additional Information.
SPECIAL INVESTOR SERVICES
O THE SYSTEMATIC INVESTMENT PLAN. You can make regular investments in the Fund
with the Systematic Investment Plan by completing the appropriate section of the
Account Application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is jointly
owned, be sure that all owners sign. You must first meet the Fund's initial
investment requirement of $500, then investments may be made monthly, quarterly,
semi-annually or annually by automatically deducting $25 or more from your bank
account. For officers, trustees, directors and employees, including retired
directors and employees, of the Victory Group, KeyCorp and its affiliates, and
the Administrator and its affiliates (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required. You may change the amount of your purchase
at any time. Your bank checking account will be debited on the date indicated on
your Account Application. Shares will be purchased at the offering price next
determined following receipt of the order by the Transfer Agent. You may cancel
the Systematic Investment Plan at any time without payment of a cancellation
fee. Your monthly account statement will reflect systematic investment
transactions, and a debit entry will appear on your bank statement.
O THE SYSTEMATIC WITHDRAWAL PLAN. You can make regular withdrawals from your
account with the Systematic Withdrawal Plan by completing the appropriate
section of the Account Application. If you own shares in a fund worth $5,000 or
more, you can have monthly, quarterly, semi-annual or annual payments sent from
your account directly to you, to a person named by you, or to your bank checking
account. The minimum withdrawal is $25. If you are having funds sent to your
bank checking account, attach a voided personal check with your bank's magnetic
ink coding number across the front. The proceeds will be transferred between
your fund account and the bank account via ACH. If your account is jointly
owned, be sure that all owners sign. You may obtain information about the
Systematic Withdrawal Plan by contacting the Transfer Agent. Your Systematic
Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends and capital gain dividend
distributions earned on your Fund shares, your account eventually may be
exhausted. If any applicable sales charges are applied to new purchases of
shares of the Fund, it is to your disadvantage to buy shares of the Fund while
also making systematic redemptions. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan.
Your account will be debited on the date you indicate on your Account
Application. Shares will be redeemed at the NAV as determined on the debit date
indicated on your Account Application. You may cancel the Systematic Withdrawal
Plan at any time without payment of a cancellation fee. Each Systematic
Withdrawal Plan transaction will appear as a debit entry on your monthly account
statement.
O TELEPHONE TRANSACTIONS. You can initiate most transactions by telephone. You
may call the Transfer Agent toll-free at 800-539-3863 or call your Investment
Professional or bank trust department. Telephone transaction privileges for
purchases, redemptions or exchanges may be modified, suspended or terminated by
the Fund at any time. If an account has more than one owner, the Fund and the
Transfer Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer representative of
record for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
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<PAGE>
Generally, neither the Fund, the bank trust department nor the Transfer Agent
will be responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. The Transfer Agent and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The identification procedures may include, but are not limited to,
the following: account number, registration and address, personalized security
codes, taxpayer identification number and other information particular to the
account. Your Investment Professional, bank trust department or the Transfer
Agent may also record calls, and you should verify the accuracy of your
confirmation statements immediately after you receive them.
O RETIREMENT PLANS. Retirement plans can be among the best tax-planning vehicles
available to individuals. Call your Investment Professional for more information
on the plans and their benefits, provisions and fees. Your Investment
Professional can set up your new account in the Fund under one of several
tax-sheltered plans. These plans let you invest for retirement and shelter your
investment income from current taxes. Plans include Individual Retirement
Accounts (IRAs) , Rollover IRAs and other retirement plans such as Simplified
Employee Pension Plans (SEP/IRA), Salary Reduction SEP (SAR-SEP/IRA), 401(k)
Plans and 403(b) Plans. Other fees may be charged by the IRA custodian or
trustee. Other fees may be charged by the IRA custodian or trustee.
HOW TO EXCHANGE
Shares of the Fund may be exchanged for shares of certain funds of the Victory
Group at net asset value per share at the time of exchange, without a sales
charge. To exchange shares, you must meet several conditions:
(1) Shares of the fund selected for exchange must be available for sale in
your state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you
purchase by exchange.
(5) The registration and tax identification numbers of the two accounts
must be identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH
TO PURCHASE BY EXCHANGE.
SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE SAME CLASS
IN THE OTHER FUNDS OF THE VICTORY GROUP. For example, you can exchange Class A
shares of this Fund only for Class A shares of another fund. At present, not all
of the funds offer the same two classes of shares. If a fund has only one class
of shares that does not have a class designation, they are "Class A" shares for
exchange purposes. In some cases, sales charges may be imposed on exchange
transactions. Certain funds offer Class A or Class B shares and a list can be
obtained by calling the Transfer Agent at 800-539-3863. Please refer to the
Statement of Additional Information for more details about this policy.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to the Valuation Time
on any Business Day (see "Shareholder Account Rules and Policies -- Share
Price").
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<PAGE>
You can obtain a list of eligible funds of the Victory Group by calling the
Transfer Agent at 800-539-3863. Key Mutual Funds, which is managed by Key
Advisers and Spears, Benzak, Salomon & Farrell, Inc., both affiliates of
KeyCorp, is a part of the Victory Group. BISYS Fund Services is the
Administrator and Distributor for Key Mutual Funds. Exchange privileges
applicable to the Victory Group will also apply to Key Mutual Funds. Exchanges
of shares involve a redemption of the shares of the Fund and a purchase of
shares of the other fund of the Victory Group.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern time)
that is in proper form, but either fund may delay the issuance of shares of the
fund into which you are exchanging if it determines it would be disadvantaged by
a same-day transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy might
create excessive turnover in the Fund's portfolio and associated expenses
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm shareholders, the
Victory Portfolios reserves the right to refuse any exchange request that will
impede the Fund's ability to invest effectively or otherwise have the potential
to disadvantage the Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Victory Portfolios may amend, suspend or terminate the exchange privilege
at any time upon 60 days' written notice to shareholders.
o If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible for exchange will be
exchanged.
o Each exchange may produce a gain or loss for tax purposes.
Shareholders of the former Investors Preference Fund for Income, Inc. and
Investors Preference New York Tax-Free Fund, Inc. will not be subject to any
additional sales charge upon an exchange of shares attributable to an Investors
Preference Funds account for shares of other funds of the Victory Portfolios.
HOW TO REDEEM
You may redeem all or a portion of your shares on any day that the Fund is open
for business (see the definition of "Business Day" under "Shareholder Account
Rules and Policies--Share Price" ). Shares will be redeemed at the NAV next
calculated after the Transfer Agent has received the redemption request.
You may redeem shares in several ways:
O BY MAIL. Send a written request to: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
Write a "letter of instruction" with your name, the Fund's name, your Fund
account number, the dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular account. You will need the
letter of instruction signed by all persons required to sign for transactions,
exactly as their names appear on the Account Application. A signature guarantee
is required if: you wish to redeem more than $10,000 worth of shares; your Fund
account registration has changed within the last 60 days; the check is not being
mailed to the address on your account; the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
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<PAGE>
Victory Group account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public. A signature guarantee is designed to
protect you, the Fund and its agents from fraud. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
O BY WIRE. You may make redemptions by wire provided you have established a Fund
account to accommodate wire transactions. If telephone instructions are received
before Valuation Time (generally 4:00 p.m. Eastern time), proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. You may change the bank account
designated to receive an amount redeemed at any time by sending a letter of
instruction with a signature guarantee to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527.
O BY TELEPHONE. To redeem by telephone, you may call the Transfer Agent toll
free at 800-539-3863 or call your Investment Professional or bank trust
department. See "Special Investor Services" for more information about telephone
transactions.
O ADDITIONAL REDEMPTION REQUIREMENTS. When purchases are made by check or
periodic account investment, payments or redemptions may be delayed until the
investment being redeemed has been in the account for 15 calendar days. Also,
when the New York Stock Exchange ("NYSE") is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances as determined by the Commission to merit
such action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed 7 days. In addition, the Fund
reserves the right to advance the time on that day by which purchase and
redemption orders must be received. To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, the Fund's NAV may be
affected on days when investors do not have access to the Fund to purchase or
redeem shares.
If you are unable to reach the Transfer Agent by telephone (for example, during
times of unusual market activity), consider placing your order by mail directly
to the Transfer Agent. In case of suspension of the right of redemption, you may
either withdraw your request for redemption or receive payment based on the NAV
next determined after the termination of the suspension. If your balance in the
Fund falls below $500, you may be given 60 days' notice to reestablish the
minimum balance (except with respect to officers, trustees, directors and
employees, including retired directors and employees, of the Victory Portfolios,
KeyCorp and its affiliates, and the Administrator and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). If you do not increase
your balance, your account may be closed and the proceeds mailed to you at the
address on record. Shares will be redeemed at the last calculated NAV on the day
the account is closed.
SHAREHOLDER ACCOUNT RULES AND POLICIES
O SHARE PRICE. The term "net asset value per share," or "NAV", means the value
of one share. The NAV of each class of shares is calculated by adding the value
of all the Fund's investments, plus cash and other assets, deducting liabilities
of the Fund and of the class, and then dividing the result by the number of
shares of the class outstanding. The NAV of the Fund is determined and its
shares are priced as of the close of regular trading of the NYSE which is
normally 4:00 p.m. Eastern time (the "Valuation Time") on each Business Day of
the Fund. A "Business Day" is a day on which the NYSE is open for trading and
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<PAGE>
any other day (other than a day on which no shares of the Fund are tendered for
redemption and no order to purchase any shares is received) during which there
is sufficient trading in its portfolio instruments that the Fund's net asset
value per share might be materially affected. The NYSE will not be open in
observance of the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund's securities are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method that the Trustees believe
accurately reflects fair value. Fair value of these portfolio securities is
determined by an independent pricing service based primarily upon information
concerning market transactions and dealers quotations for comparable securities.
o The offering of shares may be suspended during any period in which the
determination of NAV is suspended, and the offering may be suspended by the
Trustees at any time the Trustees believe it is in the Fund's best interest to
do so.
o If your account is established with an Investment Professional or a bank, you
may or may not be able to purchase, exchange or sell shares on other holidays
when the Federal Reserve Bank of Cleveland is closed, including Martin Luther
King, Jr. Day, Columbus Day and Veterans Day.
o Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the Transfer
Agent in its discretion may waive certain of the requirements for redemptions
stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Victory Portfolios if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the value of
the securities in the Fund fluctuates, and the value of your shares may be more
or less than their original cost.
o Payment for redeemed shares is ordinarily made in cash and forwarded by check
within three business days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances determined by
the Securities and Exchange Commission delaying or suspending such payments. The
Transfer Agent may delay forwarding a check for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as 15
days from the date the shares were purchased. That delay may be avoided if you
arrange with your bank to provide telephone or written assurance to the Transfer
Agent that your purchase payment has cleared.
o If your account value has fallen below $500, you may be given 60 days' notice
to reestablish the minimum balance. If you do not increase your minimum balance,
your account may be closed and the proceeds mailed to you at the record address.
In some cases involuntary redemptions may be made to repay the Distributor for
losses from the cancellation of share purchase orders. Under certain
circumstances, shares of the Fund may be redeemed "in kind," which means that
the redemption proceeds will be paid with securities from the Fund. Please refer
to the Statement of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of 31%
from dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Victory Portfolios with a certified Social Security or
taxpayer identification number when you sign your Account Application, or if you
violate Internal Revenue Service regulations on tax reporting of dividends.
o The Victory Portfolios does not charge a redemption fee, but if an Investment
Professional handles your redemption, the Investment Professional may charge a
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<PAGE>
separate service fee. Under the circumstances described in "How to Invest," you
may be subject to a CDSC when redeeming Class B shares.
o The Distributor, at its expense, may also provide additional cash compensation
to dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 4.00% of the offering price. In
addition, the Distributor will, from time to time and at its own expense,
provide compensation, including financial assistance, to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more Victory Portfolios
and/or other dealer-sponsored special events including payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will include the following types of non-cash compensation offered
through sales contests: (1) vacation trips including the provision of travel
arrangements and lodging; (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Fund's shares to
qualify for this compensation if prohibited by the laws of any state or any
self-regulatory organization, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by the Fund or
its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund may make
distributions at least annually out of any realized capital gains, and the Fund
may make supplemental distributions of dividends and capital gains following the
end of its fiscal year.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividend distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your income and capital gain dividends, if any,
will be automatically reinvested in additional shares of the Fund.
Income and capital gain dividends will be reinvested at the net asset
value of your class of shares of the Fund as of the day after the
record date. If you do not indicate a choice on your Account
Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each income or capital gain
dividend, if any. Distribution checks will be mailed no later than 7
days after the dividend payment date which may be more than 7 days
after the dividend record date.
3. INCOME EARNED OPTION. You will have your capital gain dividend
distributions, if any, reinvested automatically in the Fund at the NAV
of your class of shares of the Fund as of the day after the record date
and have your income dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have income and capital gain
dividends, or only capital gain dividends, automatically reinvested in
shares of another fund of the Victory Group. Shares will be purchased
at the NAV as of the day after the record date. If you are reinvesting
dividends of a fund sold without a sales charge in shares of a fund
sold with a sales charge, the shares will be purchased at the public
offering price. If you are reinvesting dividends of a fund sold with a
sales charge in shares of a fund sold with or without a sales charge,
the shares will be purchased at the net asset value of the fund.
Dividend
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distributions can be directed only to an existing account with a
registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your income and capital
gain dividends, or only your income dividends, automatically
transferred to your bank checking or savings account. The amount will
be determined on the dividend record date and will normally be
transferred to your account within 7 days of the dividend record date.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please
call or write the Transfer Agent to learn more about this dividend
distribution option.
Any election or revocation of any of the above dividend distribution options may
be made in writing to the Fund and sent to The Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863, and
will become effective with respect to dividends having record dates after
receipt of the Account Application or request by the Transfer Agent.
Reinvested dividend distributions receive the same tax treatment as dividend
distributions paid in cash.
O STATEMENTS AND REPORTS. You will receive a monthly statement reflecting all
transactions that affect the share balance or the registration of your Fund
account. You will receive a confirmation after every transaction that affected
the share balance of your Fund account, except for dividend reinvestment,
systematic investment and systematic withdrawal transactions. These transactions
will be detailed in your Fund account statement. Transactions that affect the
share balance of your Fund investment in an account established with an
Investment Professional or financial institution will be detailed in regular
statements or through confirmation procedures of the financial institution.
Certificates representing shares of the Fund will not be issued. An Internal
Revenue Service ("IRS") Form 1099-DIV with federal tax information will be
mailed to you by January 31 of each tax year and also will be filed with the
IRS. At least twice a year, you will receive the Fund's financial reports.
O REDEMPTIONS OR EXCHANGES. Investors may realize a gain or loss when redeeming
(selling) or exchanging shares. For most types of accounts, the Fund reports the
proceeds to the IRS annually. Because the shareholders' tax treatment also
depends on their purchase price and personal tax positions, shareholders should
keep their regular account statements to use in determining their tax. See
"Buying a Dividend."
O COMPLETE REDEMPTIONS. If you request a complete redemption of all your Fund
shares, any dividend accrued to your account will be included in the redemption
check.
O BUYING A DIVIDEND. On the record date for a distribution of ordinary income or
capital gains dividend, the net asset value of the Fund is reduced by the amount
of the distribution. An investor who buys shares just before the record date
("buying a dividend") will pay the full price for the shares and then receive a
portion of the purchase price back as a taxable distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "IRS Code"). The Fund contemplates the distribution of all of its net
investment income and capital gains, if any, in accordance with the timing
requirements imposed by the IRS Code, so that it will not be subject to federal
income taxes or the 4% excise tax on undistributed income.
Distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but only a portion thereof may
qualify
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for the 70% dividends-received deduction for corporate shareholders (which
portion may not exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund and must be designated by the Fund as
so qualifying). Distributions by the Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are designated as
capital gain dividends and are taxable to shareholders as long-term capital
gain, regardless of the length of time shareholders have held their shares. Such
distributions are not eligible for the dividends-received deduction. If a
shareholder disposes of shares in the Fund at a loss before holding such shares
for more than six months, the loss will be treated as a long-term capital loss
to the extent that the shareholder has received a capital gain dividend on those
shares.
Under certain circumstances, the Fund may be in a position to (in which case it
would) elect to "pass-through" to its shareholders the right to a credit or
deduction for income or other creditable taxes paid by the Fund to foreign
governments.
Distributions to shareholders of the Fund will be treated in the same manner for
federal income tax purposes whether received in cash or in additional shares and
may also be subject to state and local taxes. Distributions received by
shareholders of the Fund in January of a given year will be treated as received
on December 31 of the preceding year provided that such dividends were declared
to shareholders of record on a date in October, November or December of such
preceding year. The Fund sends tax statements to its shareholders (with copies
to the IRS) by January 31 showing the amounts and tax status of distributions
made (or deemed made) during the preceding calendar year, including the amount
of any foreign taxes "passed-through."
O OTHER TAX INFORMATION. The information above is only a summary of some of the
federal income tax consequences generally affecting the Fund and its U.S.
shareholders, and no attempt has been made to discuss individual tax
consequences. A prospective investor should also review the more detailed
discussion of federal income tax considerations in the Statement of Additional
Information. In addition to the federal income tax, a shareholder may be subject
to state or local taxes on his or her investment in the Fund, depending on the
laws of the shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN
THE FUND SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS
SUITABLE TO THEIR PARTICULAR TAX SITUATION.
When investors sign their Account Application, they are asked to provide their
correct social security or taxpayer identification number and other required
certifications. If investors do not comply with IRS regulations, the IRS
requires the Fund to withhold 31% of amounts distributed to them by the Fund as
dividends or in redemption of their shares.
PERFORMANCE
From time to time, performance information for each class of shares of the Fund
showing total return of each class of shares may be presented in advertisements,
sales literature and in reports to shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated over a stated period
of more than one year. Average annual total return is measured by comparing the
value of an investment in a class at the beginning of the relevant period (as
adjusted for sales charges, if any) to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions) and annualizing that figure. Cumulative total
return is calculated similarly to average annual total return, except that the
resulting difference is not annualized.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent thirty-day period by the Fund's maximum offering price
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last day of the period and annualizing the result.
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Investors may also judge, and the Victory Portfolios may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and data reported are not necessarily representative
of future results. Any fees charged by service providers with respect to
customer accounts for investing in shares of the Fund will not be reflected in
performance calculations.
Additional information regarding the performance of each fund of the Victory
Portfolios is included in the Victory Portfolios' annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
FUND ORGANIZATION AND FEES
The Victory Portfolios is an open-end management investment company, commonly
known as a mutual fund, and currently consisting of twenty-four series
portfolios. On February 29, 1996, the Victory Portfolios converted to a Delaware
business trust from a Massachusetts business trust. The Victory Portfolios has
been operating continuously since 1986, when it was created under Massachusetts
law as a Massachusetts business trust although certain of its funds have a prior
operating history from their predecessor funds. The Victory Portfolios' offices
are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Overall responsibility for management of the Victory Portfolios rests with its
Board of Trustees, who are elected by the shareholders of the Victory
Portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the Fund. Key
Advisers directs the investment of the Fund's assets, subject at all times to
the supervision of the Victory Portfolios' Board of Trustees. Key Advisers
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of the Fund's investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is an indirect wholly-owned subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers
manage approximately $48 billion for numerous clients including large corporate
and public retirement plans, Taft-Hartley plans, foundations and endowments,
high net worth individuals and mutual funds.
For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Victory Portfolios respecting the Fund, Key
Advisers is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of one and ten one-hundredths of one percent (1.10%) of the average
daily net assets of the Fund. The investment advisory fee paid by the Fund is
higher than the advisory fees paid by most mutual funds, although the Victory
Portfolios' Board of Trustees believes such fees to be comparable to advisory
fees paid by many international funds having similar objectives and policies.
The advisory fees for the Fund have been determined to be fair and reasonable in
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<PAGE>
light of the services provided to the Fund. Key Advisers may periodically waive
all or a portion of its advisory fee with respect to the Fund. Prior to January
1, 1996, Society Asset Management, Inc. served as investment adviser to the
Fund. Clay Finlay Inc. served as sub-adviser to the Fund from November 1, 1994
until June 5, 1995. During the Fund's fiscal year ended October 31, 1995,
Society Asset Management, Inc. earned investment advisory fees aggregating .54%
of the Fund's average daily net assets, and Clay Finlay Inc. earned investment
sub-advisory fees aggregating .43% of the Fund's average daily net assets of the
Class A shares of the Fund.
Under the investment advisory agreement between the Victory Portfolios, on
behalf of the Fund, and Key Advisers (the "Investment Advisory Agreement"), the
Adviser may delegate a portion of its responsibilities to a sub-adviser. Key
Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc., a registered investment adviser, on
behalf of the Fund (the "Sub-advisory Agreement). The Sub-Adviser is a
wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. The
Investment Advisory Agreement and the Sub-advisory Agreement, respectively,
provide that Key Advisers and the Sub-Adviser, respectively, may render services
through their own employees or the employees of one or more affiliated companies
that are qualified to act as an investment adviser of the Fund and are under the
common control of KeyCorp as long as all such persons are functioning as part of
an organized group of persons, managed by authorized officers of Key Advisers
and the Sub-Adviser, respectively, Key Advisers and the Sub-Adviser,
respectively, will be as fully responsible to the Fund for the acts and
omissions of such persons as they are for their own acts and omissions.
For its services under the investment sub-advisory agreement, Key Advisers pays
the Sub-Adviser fees as a percentage of average daily net assets as follows:
.90% of the first $10 million of average daily net assets; .70% of the next $15
million of average daily net assets; .55% of the next $25 million of average
daily net assets; and .45% of average daily net assets in excess of $50 million.
The person primarily responsible for the investment management of the Fund as
well as his previous experience is as follows:
PORTFOLIO MANAGING
MANAGER FUND SINCE PREVIOUS EXPERIENCE
------- ---------- -------------------
Conrad R. Metz October, 1995 Vice President and Portfolio Manager
with Society Asset Management, Inc.
since 1995; Senior Vice President,
International Equities, with Bailard
Biehl & Kaiser from 1993-1995;
Principal, International Portfolio
Manager, Vice President and Analyst
with Harris Investment Management
from 1983-1993; Assistant Vice
President and Investment Officer,
Equity Research with National Bank of
Detroit from 1978-1983.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, custodian or shareholder
servicing agent to such an investment company or from purchasing shares of such
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<PAGE>
a company as agent for and upon the order of their customers, nor should they
prevent Key Advisers, the Sub-Adviser or the Fund from compensating third
parties for performing such functions. Key Advisers, the Sub-Adviser and their
affiliates are subject to such banking laws and regulations.
Key Advisers and the Sub-Adviser believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory Agreement
without violating the Glass-Steagall Act or other applicable banking laws or
regulations and that they or their affiliates can perform the other services
indicated above. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations could prevent the
Key Advisers, the Sub-Adviser and their affiliates from continuing to perform
all or a part of the above services for their customers and/or the Fund. In such
event, changes in the operation of the Fund may occur, including the possible
alteration or termination of any service then being provided by Key Advisers,
the Sub-Adviser and their affiliates, and the Trustees would consider alternate
investment advisers and other means of continuing available services. It is not
expected that the Fund's shareholders would suffer any adverse financial
consequences (if other service providers are retained) as a result of any of
these occurrences.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the Administrator, principal underwriter and Distributor
for the Fund.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses incurred and services provided as Administrator
pursuant to its management and administration agreement with the Victory
Portfolios, the Administrator receives a fee from the Fund, computed daily and
paid monthly, at an annual rate of fifteen one-hundredths of one percent (.15%)
of the Fund's average daily net assets. The Administrator may periodically waive
all or a portion of its administrative fee with respect to the Fund.
BISYS Fund Services sells shares of the Fund as agent on behalf of the Victory
Portfolios at no cost to the Fund. Key Advisers and the Sub-Adviser neither
participate in nor are responsible for the underwriting of Fund shares.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110-3875
("State Street" or the "Transfer Agent") serves as the Transfer Agent for the
Funds, and receives a fee for such services based on various criteria, including
assets, transactions and number of accounts. Boston Financial Data Services,
Inc., Two Heritage Drive, Quincy, MA 02171 ("BFDS") is the dividend disbursing
agent and provides certain shareholder services to the Fund.
SHAREHOLDER SERVICING PLAN
The Victory Portfolios has adopted a Shareholder Servicing Plan for each class
of shares of the Fund. In accordance with the Shareholder Servicing Plan, the
Fund may enter into Shareholder Service Agreements under which the Fund pays
fees of up to .25% of the average daily net assets of each class for fees
incurred in connection with the personal service and maintenance of accounts
holding the shares of such class. Such agreements are entered into between the
Victory Portfolios and various shareholder servicing agents, including the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each, a "Shareholder Servicing
Agent"). Each Shareholder Servicing Agent generally will provide support
services to shareholders by establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
arranging for
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<PAGE>
bank wires, responding to routine inquires, forwarding shareholder
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting shareholders in changing dividend options, account
designations and addresses. Shareholder Servicing Agents may periodically waive
all or a portion of their respective shareholder servicing fees with respect to
the Fund.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219, provides
certain accounting services for the Fund pursuant to a Fund Accounting Agreement
and receives a fee for such services.
CUSTODIAN
Key Trust Company of Ohio, N.A., an affiliate of the Adviser and Sub-Adviser,
serves as custodian for the Fund and receives fees for the services it performs
as custodian. Morgan Stanley Trust Company serves as sub-custodian for the Fund
and receives fees for the services it performs as sub-custodian.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
BUSINESS MANAGEMENT AGREEMENT
In connection with its obligations under the investment sub-advisory agreement,
the Sub-Adviser has entered into a Business Management Agreement with Key
Advisers pursuant to which Key Advisers provides certain administrative and
support services to the Sub-Adviser. Such services include preparing reports to
the Victory Portfolios' Board of Trustees, recordkeeping services, services
rendered in connection with the preparation of regulatory filings and other
reports, and regulatory, compliance and other administrative and support
services.
For such services, the Sub-Adviser pays fees to Key Advisers as follows: .55% on
the first $10 million of average daily net assets; .35% of the next $15 million
of average daily net assets; .20% of the next $25 million of average daily net
assets; and .10% of average daily net assets in excess of $50 million.
EXPENSES
For the fiscal year ended October 31, 1995, total operating expenses for Class A
shares were 1.65% of average net assets, excluding certain voluntary fee
reductions or reimbursements. For the fiscal period ended April 30, 1996, total
operating expenses for Class B shares were 3.02% of average net assets,
excluding certain voluntary fee reductions or reimbursements.
ADDITIONAL INFORMATION
The Victory Portfolios may issue an unlimited number of shares and classes of
the Fund. Shares of each class of the Fund participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
and paid for, shares will be fully paid and nonassessable by the Victory
Portfolios and will have no preference, conversion, exchange or preemptive
rights. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. For those investors with qualified
trust accounts, the trustee will vote the shares at meetings of the Fund's
shareholders in accordance with the shareholder's instructions or will vote in
the same percentage as shares that are not so held in trust. The trustee will
forward to these shareholders all communications received by the trustee,
including proxy statements and financial reports. The Victory Portfolios and the
Fund are not required to hold annual meetings of shareholders and in ordinary
circumstances do not intend to hold such meetings. The Trustees may call special
meetings of shareholders for action by shareholder vote as may be required by
the
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<PAGE>
1940 Act or the Trust Instrument. Under certain circumstances, the Trustees may
be removed by action of the Trustees or by the shareholders. Shareholders
holding 10% or more of the Victory Portfolios' outstanding shares may call a
special meeting of shareholders for the purpose of voting upon the question of
removal of Trustees.
The Victory Portfolio's Board of Trustees may authorize the Victory Portfolios
to offer other funds which may differ in the types of securities in which their
assets may be invested.
Key Advisers, the Sub-Adviser and the Victory Portfolios have each adopted a
Code of Ethics ( the "Codes") which require investment personnel (a) to
pre-clear all personal securities transactions, (b) to file reports regarding
such transactions, and (c) to refrain from personally engaging in (i) short-term
trading of a security, (ii) transactions involving a security within seven days
of a Fund transaction involving the same security, and (iii) transactions
involving securities being considered for investment by a Victory fund. The
Codes also prohibit investment personnel from purchasing securities in an
initial public offering. Personal trading reports are reviewed periodically by
Key Advisers and the Sub-Adviser, and the Trustees review their Codes and any
substantial violations of the Codes). Violations of the Code may result in
censure, monetary penalties, suspension or termination of employment.
DELAWARE LAW
On February 29, 1996, the Victory Portfolios converted to a Delaware business
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to stockholders of Delaware corporations and the Trust Instrument
provides that shareholders will not be personally liable for liabilities of the
Victory Portfolios. In light of Delaware law, the nature of the Victory
Portfolios' business, and the nature of its assets, management of Victory
Portfolios believes that the risk of personal liability to a Fund shareholder
would be extremely remote.
In the unlikely event a shareholder is held personally liable for the Victory
Portfolios' obligations, the Delaware successor to the Victory Portfolios will
be required to use its property to protect or compensate the shareholder. On
request, the Delaware successor to the Victory Portfolios will defend any claim
made and pay any judgment against a shareholder for any act or obligation of the
Victory Portfolios. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Delaware successor to the Victory Portfolios
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
Delaware law authorizes electronic or telephone communications between
shareholders and the Victory Portfolios. Under Delaware law, the Delaware
successor to the Victory Portfolios will have the flexibility to respond to
future business contingencies. For example, the Trustees will have the power to
incorporate the Victory Portfolios, to merge or consolidate it with another
entity, to cause each fund to become a separate trust, and to change the Victory
Portfolio's domicile without a shareholder vote. This flexibility could help
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
MISCELLANEOUS
As of the date of this Prospectus, the Fund offers only the classes of shares
that are offered by this Prospectus. Subsequent to the date of this Prospectus,
the Fund may offer additional classes of shares through a separate prospectus.
Any such additional classes may have different charges and other expenses, which
would affect investment performance. To obtain a free prospectus of another
class of shares or to obtain additional information, call your Investment
Professional , call (800) 539-3863 or write to the address listed on the cover
of this Prospectus.
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<PAGE>
Shareholders will receive Semi-Annual Reports, which are unaudited, and Annual
Reports, which are audited by independent accountants ("Reports"), describing
the investment operations of the Fund. Each of these Reports, when available for
a particular fiscal year end or the end of a semi-annual period, is incorporated
herein by reference. The Victory Portfolios may include information in their
Reports to shareholders that (a) describes general economic trends, (b)
describes general trends within the financial services industry or the mutual
fund industry, (c) describes past or anticipated portfolio holdings for the Fund
or (d) describes investment management strategies for the Victory Portfolios.
Such information is provided to inform shareholders of the activities of the
Victory Portfolios for the most recent fiscal year or semi-annual period and to
provide the views of Key Advisers, the Sub-Adviser and/or the Victory
Portfolios' officers regarding expected trends and strategies.
The Fund intends to eliminate duplicate mailing of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Reports at no cost by writing to the Fund at the address listed below.
Inquiries regarding the Victory Portfolios or the Fund may be directed in
writing to the Victory Funds at P.O. Box 8527, Boston, MA 02266-8527, or by
telephone, toll-free, at 800-539-3863.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY
PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE VICTORY PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE>
MANAGED BY KEYCORP
THE VICTORY OHIO REGIONAL STOCK FUND
JULY 30, 1996
<PAGE>
The
VICTORY
Portfolios
OHIO REGIONAL STOCK FUND
PROSPECTUS For current yield, purchase and redemption information,
July 30, 1996 call 800-539-FUND or 800-539-3863
THE VICTORY PORTFOLIOS (the "Victory Portfolios") is a registered open-end
management investment company that offers investors a selection of money market,
fixed-income, municipal bond, domestic and international equity portfolios. This
Prospectus relates to the OHIO REGIONAL STOCK FUND (the "Fund"), a diversified
portfolio. KeyCorp Mutual Fund Advisers, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment adviser to the Fund ("Key Advisers" or
the "Adviser"). Society Asset Management, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment sub-adviser to the Fund (the
"Sub-Adviser" or "Society"). BISYS Fund Services ("BISYS") is the Fund's
administrator (the "Administrator") and distributor (the "Distributor").
The Fund seeks to provide capital appreciation. The Fund pursues this objective
by investing primarily in common stocks and securities convertible into common
stocks issued by companies whose headquarters are located in the State of Ohio.
The Fund offers two classes of shares: (1) Class A shares, which are offered at
net asset value plus the applicable sales charge (maximum of 4.75% of public
offering price) and (2) Class B shares, which are offered at net asset value
with a maximum contingent deferred sales charge ("CDSC") of 5.0% imposed on
certain redemptions. At the end of the sixth year after purchase, the CDSC will
no longer apply to redemptions. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert to Class A shares eight years after
purchase.
Please read this Prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
July 30, 1996) for the Fund , an audited annual report for the Fund's fiscal
year ended October 31, 1995 and an unaudited semi-annual report for the six
months ended April 30, 1996 have been filed with the Securities and Exchange
Commission (the "Commission") and are incorporated herein by reference. The
Statement of Additional Information is available without charge upon request by
writing to The Victory Funds, P.O. Box 8725, Boston, MA 02266-8725, or by
calling 800-539-3863.
SHARES OF THE FUND ARE:
O NOT INSURED BY THE FDIC;
O NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP
BANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
O SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- 2 -
<PAGE>
TABLE OF CONTENTS PAGE
- ----------------- ----
Fund Expenses................................................................2
Financial Highlights.........................................................3
Investment Objective.........................................................4
Investment Policies and Risk Factors.........................................4
How to Invest, Exchange and Redeem...........................................8
Dividends, Distributions and Taxes..........................................18
Performance.................................................................20
Fund Organization and Fees..................................................20
Additional Information......................................................23
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<PAGE>
FUND EXPENSES
The table below summarizes the expenses associated with the Fund. This standard
format was developed for use by all mutual funds to help an investor make
investment decisions. You should consider this expense information along with
other important information in this Prospectus, including the Fund's investment
objective, policies and risk factors.
SHAREHOLDER TRANSACTION EXPENSE(1)
CLASS A CLASS B
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 4.75% none
Maximum Sales Charge Imposed on Reinvested
Dividends none none
Deferred Sales Charge none 5% in the
first year,
declining
to 1% in
the sixth
year and
eliminated
thereafter
Redemption Fees none none
Exchange Fee none none
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
CLASS A CLASS B
Management Fees .75% .75%
Administration Fees .15% .15%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(2) .55% .85%
---- ----
Total Fund Operating Expenses(2) 1.45% 2.50%
==== ====
(1) Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent, including affiliated banks and
non-bank affiliates of Key Advisers and KeyCorp. (See "How to Invest,
Exchange and Redeem.")
(2) These amounts include an estimate of the shareholder servicing fees the
Fund expects to pay (see "Fund Organization and Fees - Shareholder
Servicing Plan").
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) full redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Ohio Regional Stock Fund -- Class A
Shares $62 $ 91 $123 $213
Ohio Regional Stock Fund -- Class B
Shares $75 $108 $153 $258
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Fund Organization and Fees" for a more complete discussion of
annual operating expenses of the Fund. The foregoing example is based upon
expenses for the fiscal year ended October 31, 1995 for Class A shares, the
period ended April 30, 1996 for Class B Shares and expenses that the Fund is
expected to incur during the current fiscal year. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- 4 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
financial highlights for the Fund for the periods indicated. For Class A shares,
the information below for the fiscal year ended October 31, 1995 has been
derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for the Victory Portfolios, whose report thereon,
together with the financial statements of the Fund, is incorporated by reference
into the Statement of Additional Information. For Class B shares, the
information below for the fiscal period ended April 30, 1996, has not been
audited. The information set forth below is for a Class A share and a Class B
share outstanding for each period indicated.
<TABLE>
<CAPTION>
THE VICTORY OHIO REGIONAL STOCK FUND
Class B Shares Class A Shares
-------------- ------------------------------------------------------------------------
March 1, October 20
1996 1989 to,
through October 31
April 30, Year Ended October 31, 1989(a)(c)
1996(a)(e) ------------------------------------------------------------- ----------
-----------
(unaudited) 1995 1994 1993 1992 1991 1990(a)(c)
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.43 $ 14.56 $ 14.69 $ 12.12 $ 11.15 $ 6.75 $ 9.72 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income -- 0.17 0.18 0.16 0.20 0.21 0.24
Net realized and unrealized gains
(losses) on investments and
foreign currencies 1.13 2.13 0.39 2.63 1.07 4.39 (2.98) (0.28)
---- ------- ------- ------- ------- ------- -------- --------
Total from Investment Activities 1.13 2.30 0.57 2.79 1.27 4.60 (2.74) (0.28)
==== ======= ======= ======= ======= ======= ======== ========
Distributions
Net investment income (0.03) (0.18) (0.17) (0.18) (0.21) (0.20) (0.23)
Net realized gains -- (0.74) (0.53) (0.04) (0.09)
-------- -------- -------- -------- --------
Total Distributions (0.03) (0.92) (0.70) (0.22) (0.30) (0.20) (0.23)
--------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 17.53 $ 15.94 $ 14.56 $ 14.69 $ 12.12 $ 11.15 $ 6.75 $ 9.72
======== ======= ======= ======= ======= ======= ======= =======
Total Return (Excludes Sales Charge) 6.80%(b) 16.93% 3.96% 23.16% 11.50% 68.68% (28.63%) (2.80%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 169 $39,048 $33,965 $34,926 $36,115 $27,092 $13,039 $20,277
Ratio of expenses to average net assets 2.12%(c) 1.20% 1.04% 1.04% 1.04% 1.08% 1.11% 0.88%(b)
Ratio of net investment income to
average net assets (1.11)%(c) 1.13% 1.27% 1.17% 1.73% 2.16% 2.66% 0.47%(b)
Ratio of expenses to average net assets(b) (2.13)%(c) 1.24% 1.27% 1.06%
Ratio of net investment income to
average net assets(b) (1.12)%(c) 1.09% 1.04% 1.15%
Portfolio turnover 3.04 11.44% 14.38% 7.25% 7.56% 14.59% 11.17%
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized
(c) Annualized
(d) During the period certain service fees were voluntarily reduced. If
such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(e) Effective March 1, 1996, The fund designated the existing shares as
Class A Shares and commenced offering Class B Shares.
(f) This information is not included in the financial statements audited by
Coopers & Lybrand L.L.P.
- 5 -
<PAGE>
INVESTMENT OBJECTIVE
The Fund seeks to provide capital appreciation. The investment objective of the
Fund is fundamental and may not be changed without a vote of the holders of a
majority of its outstanding voting securities (as defined in the Statement of
Additional Information). There can be no assurance that the Fund will achieve
its investment objective.
INVESTMENT POLICIES AND RISK FACTORS
SUMMARY OF PRINCIPAL INVESTMENT POLICIES
The Fund pursues its objective by investing primarily in common stocks and
securities convertible into common stocks issued by companies whose headquarters
are located in the State of Ohio.
Under normal conditions, the Fund will invest at least 80% of the value of its
total assets in common stocks and securities convertible into common stocks
issued by companies whose headquarters are located in the State of Ohio.
Investments are based on analysis by Key Advisers or the Sub-Adviser of cash
flow, book value, dividend growth potential, quality of management, adequacy of
revenues, earnings and capitalization, and future relative earnings growth.
Along with investments in nationally recognized companies, the Fund will seek to
invest in companies which are relatively unknown because they are new or have a
small capitalization, but which offer the potential for capital appreciation.
The stock prices of such lesser-known companies are generally more volatile than
stock prices of mature companies.
Changes in the value of portfolio securities will not affect cash income, if
any, derived from these securities but will affect the Fund's net asset value.
Because the Fund invests primarily in equity securities, which fluctuate in
value, the Fund's shares will fluctuate in value. The Fund's policy of
concentrating its investments in the State of Ohio means that its assets may be
subject to greater risk from economic, political, or other developments having
an unfavorable impact upon the State of Ohio. Moreover, because of the
geographic limitation, the Fund may be less varied (by industry and by issuer)
than other funds with a similar investment objective and no such geographic
limitation.
ADDITIONAL INFORMATION REGARDING THE FUND'S INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which the Fund may invest in accordance with its investment
objective, policies and limitations, including certain transactions it may make
and strategies it may adopt. The following also contains a brief description of
certain risk factors. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in this Prospectus.
O SHORT-TERM OBLIGATIONS. While the Fund will normally be predominantly invested
in equity securities, there may be times when, in Key Advisers' or the
Sub-Adviser's opinion, market conditions warrant that, for temporary defensive
purposes, the Fund may hold more than 20% of its total assets in short-term
obligations. To the extent that the Fund's assets are so invested, they will not
be invested so as to meet its investment objective. The instruments may include
"high-quality" liquid debt securities such as commercial paper, certificates of
deposit, bankers' acceptances, repurchase agreements which mature in less than
- 6 -
<PAGE>
seven days and United States Treasury Bills. Bankers' acceptances are
instruments of United States banks which are drafts or bills of exchange
"accepted" by a bank or trust company as an obligation to pay on maturity. See
the discussion on repurchase agreements.
O INVESTMENT GRADE SECURITIES. The Fund may invest in "investment grade"
obligations -- those rated at the time of purchase within the four highest
rating categories assigned by a nationally recognized statistical ratings
organization ("NRSRO") or, if unrated, are obligations that Key Advisers or the
Sub-Adviser determine to be of comparable quality. The applicable securities
ratings are described in the Appendix to the Statement of Additional
Information. "Highquality" short-term obligations are those obligations which,
at the time of purchase, (1) possess a rating in one of the two highest ratings
categories from at least one NRSRO (for example, commercial paper rated "A-1" or
"A-2" by Standard & Poor's Corporation or "P-1" or "P-2" by Moody's Investors
Service, Inc.) or (2) are unrated by an NRSRO but are determined by Key Advisers
or the Sub-Adviser to present minimal credit risks and to be of comparable
quality to rated instruments eligible for purchase by the Fund under guidelines
adopted by the Board of Trustees (the "Trustees").
O FOREIGN SECURITIES. The Fund may invest in equity securities of foreign
issuers, including securities traded in the form of American Depository
Receipts. The Fund will limit its investments in such securities to 20% of its
total assets. The Fund will not hold foreign currency as a result of investment
in foreign securities.
Investments in securities of foreign companies generally involve greater risks
than are present in U.S. investments. Compared to U.S. and Canadian companies,
there is generally less publicly available information about foreign companies
and there may be less governmental regulation and supervision of foreign stock
exchanges, brokers and listed companies. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid, and their prices more
volatile, than securities of comparable U.S. companies. Settlement of
transactions in some foreign markets may be delayed or may be less frequent than
in the U.S., which could affect the liquidity of the Fund's investment. In
addition, with respect to some foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation; limitations on the
removal of securities, property or other assets of the Fund; political or social
instability; increased difficulty in obtaining legal judgments; or diplomatic
developments which could affect U.S. investments in those countries. Key
Advisers or the Sub-Adviser will take such factors into consideration in
managing the Fund's investments.
O ZERO COUPON BONDS. The Fund is permitted to purchase both zero coupon U.S.
government securities and zero coupon corporate securities ("zero coupon
bonds"). Zero coupon bonds are purchased at a discount from the face amount
because the buyer receives only the right to receive a fixed payment on a
certain date in the future and does not receive any periodic interest payments.
The effect of owning instruments which do not make current interest payments is
that a fixed yield is earned not only on the original investment but also, in
effect, on accretion during the life of the obligations. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest distributions at a rate as high as the implicit yields on the zero
coupon bond, but at the same time eliminates the holder's ability to reinvest at
higher rates. For this reason, zero coupon bonds are subject to substantially
greater price fluctuations during periods of changing market interest rates than
are comparable securities which pay interest periodically. The amount of price
fluctuation tends to increase as maturity of the security increases.
- 7 -
<PAGE>
O RECEIPTS. In addition to bills, notes and bonds issued by the U.S. Treasury,
the Fund may also purchase separately traded interest and principal component
parts of such obligations that are transferable through the Federal book entry
system, known as Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES"). These instruments
are issued by banks and brokerage firms and are created by depositing Treasury
notes and Treasury bonds into a special account at a custodian bank; the
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-paying U.S.
Treasury obligations. The Fund will limit its investment in such instruments to
20% of its total assets.
O SECURITIES LENDING. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities. The Fund must receive collateral
equal to 100% of the securities' value in the form of cash or U.S. Government
securities, plus any interest due, which collateral must be marked to market
daily by Key Advisers or the Sub-Adviser. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund amounts equal to any dividends or interest paid on such securities plus any
interest negotiated between the parties to the lending agreement. Loans are
subject to termination by the Fund or the borrower at any time. While the Fund
does not have the right to vote securities on loan, the Fund intends to
terminate any loan and regain the right to vote if that is considered important
with respect to the Fund's investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which Key Advisers
or the Sub-Adviser has determined are creditworthy under guidelines established
by the Victory Portfolios' Trustees. The Fund will limit its securities lending
to 33 1/3% of total assets.
O WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued or
delayed-delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. The Fund
engages in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.
O VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase investment grade
variable and floating rate notes. The interest rates on these securities may be
reset daily, weekly, quarterly, or some other reset period, and may be subject
to a floor or ceiling. There is a risk that the current interest rate on
- 8 -
<PAGE>
such obligations may not accurately reflect existing market interest rates.
There may be no active secondary market with respect to a particular variable or
floating rate note. Variable and floating rate notes for which no readily
available market exists will be purchased in an amount which, together with
other illiquid securities held by the Fund, does not exceed 15% of the Fund's
net assets unless such notes are subject to a demand feature that will permit
the Fund to receive payment of the principal within seven days after demand
therefor. These securities are included among those which are sometimes referred
to as "derivative securities."
O REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, the Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements may be
considered by the staff of the Commission to constitute loans by the Fund.
O REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account assets
having a value equal to the repurchase price (including accrued interest); the
collateral will be marked to market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940, as amended (the "1940 Act").
O INVESTMENT COMPANY SECURITIES. The Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies. Pursuant to
an exemptive order received by the Victory Portfolios from the Commission, the
Fund may invest in the money market funds of the Victory Portfolios. Key
Advisers or the Sub-Adviser will waive its fee attributable to the Fund's assets
invested in a money market fund of the Victory Portfolios, and, to the extent
required by the laws of any state in which shares of the Fund are sold, Key
Advisers or the Sub-Adviser will waive its investment advisory fees as to all
assets invested in other investment companies. Because such other investment
companies employ an investment adviser, such investment by the Fund will cause
shareholders to bear duplicative fees, such as management fees, to the extent
such fees are not waived by Key Advisers or the Sub-Adviser.
O PRIVATE PLACEMENT INVESTMENTS. The Fund may invest in high quality commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). Section 4(2)
commercial paper ("commercial paper") is generally sold to institutional
investors, such as the Fund, that agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in commercial
paper, thus providing liquidity. The Fund believes that commercial paper and
possibly certain other restricted securities (as defined in the
- 9 -
<PAGE>
Statement of Additional Information) that meet the criteria for liquidity
established by the Trustees are quite liquid. The Fund intends, therefore, to
treat the restricted securities that meet the criteria for liquidity established
by the Trustees, including commercial paper, as determined by Key Advisers or
the Sub-Adviser, as liquid and not subject to the investment limitation
applicable to illiquid securities. See "Investment Limitations."
O OPTIONS. The Fund may write call options from time to time. The Fund will
write only "covered" call options (options on securities owned by the Fund) and
index options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction," i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously wrote on any
particular security. When a portfolio security subject to a call option is sold,
the Fund will effect a closing purchase transaction to close out any existing
call option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Upon
the exercise of an option, the Fund is not entitled to the gains, if any, on
securities underlying the options. The Fund intends to limit its investments in
call and index options to 25% of its total assets.
Certain investment management techniques which the Fund may use, such as the
purchase and sale of options (described above), may expose the Fund to special
risks. These products may be used to adjust the risk and return characteristics
of the Fund's portfolio of investments. These various products may increase or
decrease exposure to security prices, interest rates, or other factors that
affect security values, regardless of the issuer's credit risk. Regardless of
whether the intent was to decrease risk or increase return, if market conditions
do not perform consistently with expectations, these products may result in a
loss. In addition, losses may occur if counterparties involved in transactions
do not perform as promised. These products may expose the Fund to potentially
greater risk of loss than more traditional equity investments.
The options described in this section are frequently referred to as derivative
securities. In general, derivative securities are instruments whose value is
based upon, or derived from, some underlying index, reference rate (e.g.,
interest rates or currency exchange rates), security, commodity, or other
assets.
O PORTFOLIO TRANSACTIONS. The Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to take advantage of what Key Advisers or the Sub-Adviser believes
are changes in market, industry or individual company conditions or outlook. Any
such trading would increase the Fund's turnover rate and its transaction costs.
High turnover will generally result in higher brokerage costs and possible tax
consequences for the Fund. In the fiscal year ended October 31, 1995, the
portfolio turnover rate was 11.44% compared to 14.38% in the prior fiscal year.
From time to time, the Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which Key Advisers or the Sub-Adviser or its affiliates have a lending
relationship.
NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Fund and risk factors. The investment
policies and limitations of the Fund may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
- 10 -
<PAGE>
policy of the Fund or (2) a policy is expressly deemed to be changeable only by
such majority vote.
INVESTMENT LIMITATIONS
The following summarizes some of the Fund's principal investment limitations.
The Statement of Additional Information contains a complete listing of the
Fund's investment limitations and provides additional information about
investment restrictions designed to reduce the risk of an investment in the
Fund.
1. The Fund may not borrow money other than (a) by entering into
commitments to purchase securities in accordance with its investment
program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of such
commitments do not exceed 331/3% of the Fund's total assets; and (b)
for temporary or emergency purposes in an amount not exceeding 5% of
the value of the Fund's total assets.
2. The Fund will not purchase a security if, as a result, more than 15% of
its net assets would be invested in illiquid securities. Illiquid
securities are investments that cannot be readily sold within seven
days in the usual course of business at approximately the price at
which the Fund has valued them. Under the supervision of the Trustees,
Key Advisers or the Sub-Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell
them promptly at an acceptable price.
3. The Fund is "diversified" within the meaning of the 1940 Act. With
respect to 75% of its total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
4. The Fund's policy regarding concentration of investments provides that
the Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements secured
thereby) if, as a result, more than 25% of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry.
Each of the investment limitations indicated above in this subsection are
fundamental, except for the limitation pertaining to illiquid securities.
Non-fundamental limitations may be changed without shareholder approval.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the investment and any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations, except in the case of borrowing (or other
activities that may be deemed to result in the issuance of a "senior security"
under the 1940 Act). If the value of the Fund's illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due to
subsequent fluctuations in value or for other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.
- 11 -
<PAGE>
HOW TO INVEST, EXCHANGE AND REDEEM
HOW TO INVEST
The Fund offers investors two different classes of shares. The different classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses and will likely have different share prices.
O CLASS A SHARES AND CLASS B SHARES. If Class A shares are purchased, there is
an initial sales charge (on investments up to $1 million). If Class B shares are
purchased, there is no sales charge at the time of purchase, but if the shares
are redeemed within six years, you will normally pay a contingent deferred sales
charge ("CDSC") that varies depending on how long you own your shares.
O WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser:
1. AMOUNT OF INVESTMENT. If you plan to invest a substantial amount, the
reduced sales charges available for larger purchases of Class A shares
may be more beneficial to you. Any order for $1 million or more will
only be accepted as Class A shares for that reason.
2. INVESTMENT HORIZON. While future financial needs cannot be predicted
with certainty, investors who prefer not to pay an initial sales charge
and who plan to hold their shares for more than six years might
consider Class B shares. Investors who plan to redeem shares within
eight years might prefer Class A shares.
3. DIFFERENCES IN ACCOUNT FEATURES. The dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B
shares are subject, as described below and in the Statement of
Additional Information.
A salesperson, financial planner, investment adviser or trust officer who
provides you with information regarding the investment of your assets (an
"Investment Professional") or other person who is entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one class than for selling another class. Both the CDSC (an asset-based
sales charge) for Class B shares and the front-end sales charge on sales of
Class A shares are used primarily to compensate such persons.
O HOW ARE SHARES PURCHASED? Shares may be purchased directly or through an
Investment Professional of a securities broker or other financial institution
that has entered into a selling agreement with the Fund or the Distributor.
Shares are also available to clients of bank trust departments. The minimum
investment is $500 ($250 for Individual Retirement Accounts) for the initial
purchase and $25 thereafter. Accounts set up through a bank trust department or
an Investment Professional may be subject to different minimums. When you buy
shares, be sure to specify Class A or Class B shares. If you do not make a
selection, your investment will be made in Class A shares.
O INVESTING THROUGH YOUR INVESTMENT PROFESSIONAL. Your Investment Professional
will place your order with the Transfer Agent on your behalf (see "Fund
Organization and Fees -- Transfer Agent"). You may be required to establish a
brokerage or agency account. Your Investment Professional will inform you if
subsequent trades should be directed to the Investment Professional or directly
to the Fund's Transfer Agent. Accounts established with Investment Professionals
may have different features, requirements and fees. In addition, Investment
- 12 -
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Professionals may charge for their services. Information regarding these
features, requirements and fees will be provided by the Investment Professional.
If you are purchasing shares of any Fund through a program of services offered
or administered by your Investment Professional, you should read the program
materials in conjunction with this Prospectus. You may initiate any transaction
by telephone either through your bank trust department or through your
Investment Professional. See "Special Investor Services" for more information
about telephone transactions.
O INVESTING THROUGH YOUR BANK TRUST DEPARTMENT. Your bank trust department may
require a different minimum investment and may charge additional fees. Fee
schedules for such accounts are available upon request and are detailed in the
agreements by which a client opens the desired account. Your bank trust
department may require a completed and signed application for the Fund in which
an investment is made. Additional documents may be required from corporations,
associations, and certain fiduciaries. Any account information, such as
balances, should be obtained through your bank trust department. Additional
purchases, exchanges or redemptions should also be coordinated through your bank
trust department. Contact your bank trust department for instructions.
The services rendered by a bank trust department, including Key Trust Company of
Ohio, N.A. and other affiliates of Key Advisers or the Sub-Adviser are not
duplicative of any of the services for which Key Advisers or the Sub-Adviser as
the investment adviser or sub-adviser, respectively, is compensated for advising
the Fund. The charges paid by clients of bank trust departments, or their
affiliates, should also be considered by the investor in addition to the net
yield and return on the investment in the Fund, although such charges do not
affect the Fund's dividends or distributions.
O INVESTING THROUGH THE SYSTEMATIC INVESTMENT PLAN. You can use the Systematic
Investment Plan to purchase shares directly from your bank account. Please refer
to "The Systematic Investment Plan" below for more details.
INVESTING DIRECTLY
O BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in the amount of at least the minimum
investment requirement to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
Subsequent purchases may be made in the same manner.
O BY WIRE:
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS. Federal Funds should be
wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit to DDA Account # 9905-201-1
For further credit to Account # (insert your account
number, name and control number assigned by the
Transfer Agent)
The Fund does not impose a fee for wire transactions, although your bank may
charge you a fee for this service.
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<PAGE>
o BY ACH:
The purchase amount will be transferred between the bank account designated and
your fund account via automated clearing house ("ACH"). Only a bank account
maintained in a domestic financial institution which is an ach member may be so
designated. The fund may modify or terminate the telephone and/or ach privilege
at any time or charge a service fee upon notice to shareholders. No such fee is
currently contemplated. If the designated bank account does not contain
sufficient assets at the time your order is processed, the order may be
cancelled, and you could be liable for resulting fees and/or losses. Note that
this service requires approximately 15 days to establish. Therefore, it may not
be applicable to request your initial purchase utilizing this method.
Class A shares are sold at the public offering price based on the net asset
value that is next determined after the Transfer Agent receives the purchase
order. Class B Shares are sold at net asset value per share, but may be subject
to a CDSC (see "Class B Shares"). In most cases, to receive that day's offering
price, the Transfer Agent must receive your order as of the close of regular
trading of the New York Stock Exchange ("NYSE") (normally 4:00 p.m. Eastern
time) (the "Valuation Time") on each Business Day (as defined in "Shareholder
Account Rules and Policies -- Share Price" below). If you buy shares through an
Investment Professional, the Investment Professional must receive your order in
a timely fashion on a regular Business Day. It is the responsibility of your
Investment Professional to transmit your order to purchase shares to the
Transfer Agent in a timely fashion in order for you to receive that day's share
price. The Transfer Agent may reject any purchase order for the Fund's shares,
in its sole discretion.
INVESTMENT REQUIREMENTS
All purchases made by check must be in U.S. dollars and made payable to the
Victory Funds, or in the case of a retirement account, the custodian or trustee.
Third party checks will not be accepted. Checks must be drawn on U.S. banks. No
cash will be accepted. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. The Fund or the Transfer Agent reserves the right to limit the
number of checks processed at one time. If your check does not clear, your
purchase will be canceled and you could be liable for any losses or fees
incurred. Payment for the purchase is expected at the time of the order. If
payment is not received within three business days of the date of the order, the
order may be canceled, and you could be held liable for resulting fees and/or
losses.
CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. When you invest, the Fund receives the net
asset value for your account. The sales charge varies depending on the amount of
your purchase and a portion may be retained by the Distributor and allocated to
your Investment Professional. The Victory Portfolios has a reinstatement policy
which allows an investor who redeems shares originally purchased with a sales
charge to reinvest within 90 days without incurring an additional sales charge.
The current sales charge rates and commissions paid to Investment Professionals
are as follows:
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<PAGE>
DEALER
CLASS A SALES CHARGE REALLOWANCE
AS A % OF AS A % OF AS A % OF
OFFERING NET AMOUNT OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
------------------ ----- -------- -----
Less than $49,999...........................4.75% 4.99% 4.00%
$50,000 to $99,999..........................4.50% 4.71% 4.00%
$100,000 to $249,999........................3.50% 3.63% 3.00%
$250,000 to $499,999........................2.25% 2.30% 2.00%
$500,000 to $999,999........................1.75% 1.78% 1.50%
$1,000,000 and above........................0.00% 0.00% (1)
(1) There is no initial sales charge on purchases of $1 million or more.
Investment Professionals will be compensated at the rate of up to 0.25%
on such purchases.
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
The Distributor may pay all or a portion of any applicable sales charges and
service fees to Investment Professionals who sell shares of the Fund and provide
ongoing sales support services or shareholder support services. For the
three-year period commencing April 30, 1994, for activities in maintaining and
servicing accounts of customers invested in the Fund, First Albany Corporation
("First Albany") and PFIC Securities Corporation ("PFIC") may receive payments
from the Distributor equal to two-thirds of the Dealer Retention (as defined
below) on any shares of the Fund (and other funds of the Victory Portfolios)
sold by First Albany or PFIC and their broker-dealer affiliates. "Dealer
Retention" is an amount equal to the difference between the applicable sales
charge and such part of the sales charge which is reallowed to broker-dealers.
REDUCED SALES CHARGES FOR CLASS A SHARES. You may be eligible to buy Class A
shares at reduced sales charge rates in one or more of the following ways:
O LETTER OF INTENT FOR CLASS A SHARES. An investor may obtain a reduced sales
charge by means of a written Letter of Intent which expresses the investor's
intention to invest a specified amount within a 13-month period, which if made
at one time, would qualify for a reduced sales charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of the total amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such escrowed
shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends (if any) on escrowed shares, whether paid in cash or
reinvested in additional shares, are not subject to escrow. The escrowed shares
will not be available for redemption, exchange or other disposal by the investor
until all purchases pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. A Letter of Intent may include purchases
of shares made not more than 90 days prior to the date the investor signs a
Letter of Intent; however, the 13-month period during which the Letter of Intent
is in effect will begin on the date of the earliest purchase to be included. An
investor may combine purchases that are made in an individual capacity with (1)
purchases that are made by members of the investor's immediate family and (2)
purchases made by businesses that the investor owns as sole proprietorships, for
purposes of obtaining reduced sales charges by means of a written Letter of
Intent. In order
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<PAGE>
to accomplish this, however, investors must designate on the Account Application
the accounts that are to be combined for this purpose. Investors can only
designate accounts that are open at the time the Letter of Intent is executed.
If an investor qualifies for a further reduced sales charge because the investor
has either purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional shares of the Fund on behalf of the
investor; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For further information about Letters of Intent, interested investors should
contact the Transfer Agent at 800-539-3863. This program, however, may be
modified or eliminated at any time without notice.
O RIGHT OF ACCUMULATION AND CONCURRENT PURCHASES. A shareholder may qualify for
a reduced sales charge on purchases of Class A Shares of the Fund and Class A
shares of other funds of the Victory Portfolios by combining a current purchase
with purchases of another fund(s) or with certain prior purchases of shares of
the Victory Portfolios. The applicable sales charge is based on the sum of (1)
the purchaser's current purchase plus (2) the current public offering price of
the purchaser's previous purchases of (a) all shares held by the purchaser in
the Fund and (b) all shares held by the purchaser in any Class A shares of other
funds of the Victory Portfolios (except money market funds).
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must provide the Transfer Agent with sufficient
information at the time of purchase to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor. See "Combined Purchases" and "Rights of Accumulation" in the
Statement of Additional Information.
O WAIVERS OF CLASS A SALES CHARGES. No sales charge is imposed on sales of Class
A shares to the following categories of persons (which categories may be changed
or eliminated at any time):
(1) Current or retired Trustees of the Victory Portfolios; employees,
directors, trustees, and their family members of KeyCorp or an
"Affiliated Provider" ("Affiliated Providers" refer to affiliates and
subsidiaries of KeyCorp and service providers to the Victory Portfolios
and the Victory Shares (collectively, the "Victory Group")), dealers
having an agreement with the Distributor and any trade organization to
which Key Advisers, the Sub-Adviser or the Administrator belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with KeyCorp or any of its
affiliates;
(3) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust
or custody account that was either (a) maintained by KeyCorp or an
Affiliated Provider, or (b) invested in a fund of the Victory Group;
(4) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon
redemption of shares;
(5) Shareholders of the former Investors Preference Fund For Income, Inc.
and the Investors Preference New York Tax-Free Fund, Inc. who have
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<PAGE>
continuously maintained accounts with a fund or funds of the Victory
Group with a balance of $250,000 or more (investors with less than
$250,000 will pay any applicable sales charges);
(6) Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of
such investment advisers or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment adviser or financial planner on the books and records
of the broker or agent. Such accounts include retirement and deferred
compensation plans and trusts used to fund those plans, including, but
not limited to, those defined in section 401(a), 403(b), or 457 of the
Internal Revenue Code and "rabbi trusts."
CLASS B SHARES. Class B shares are sold at net asset value per share without an
initial sales charge. However, if Class B shares are redeemed within six years
of their purchase, a CDSC will be deducted from the redemption proceeds. That
sales charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the original purchase
price. The CDSC is not imposed on the amount of the redeemed shares represented
by the increase in net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains distributions).
The Class B CDSC is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the CDSC applies to a redemption, the Victory Portfolios
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for over six years,
and (3) shares held the longest during the 6-year period. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASE ON REDEMPTIONS IN THAT YEAR
PAYMENT WAS MADE (AS % OF AMOUNT SUBJECT TO CHARGE)
---------------- ----------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. Purchases will age based on trade
date of purchase. For example, a purchase made on January 1 will be one year old
on January 1 of the following year.
O WAIVERS OF CLASS B CDSC. The Class B CDSC will be waived if the shareholder
requests it for any of the following redemptions: (1) distributions to
participants or beneficiaries from Retirement Plans, if the distributions are
made (a) under an Automatic Withdrawal Plan after the participant reaches age 59
1/2 , as long as the payments are no more than 12% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue Code) of
the participant or the beneficial owner; (2) redemptions from accounts other
than Retirement Plans following the death or disability of the shareholder (as
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<PAGE>
evidenced by a determination of disability by the Social Security
Administration), (3) returns of excess contributions to Retirement Plans; and
(4) distributions of not more than 12% of the account value annually under an
automatic withdrawal plan.
The CDSC is also waived on Class B shares in the following cases: (1) shares
sold to Key Advisers, the Sub-Adviser or their affiliates; (2) shares issued in
plans of reorganization to which the Victory Portfolios is a party; and (3)
shares redeemed in involuntary redemptions as described above.
O AUTOMATIC CONVERSION OF CLASS B SHARES. Eight years after Class B shares are
purchased, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution Plan, described
below. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements-Class B Conversion Feature"
in the Statement of Additional Information.
O DISTRIBUTION PLAN FOR CLASS B SHARES. The Victory Portfolios has adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act for Class B
shares to compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Victory Portfolios
pays the Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares. This fee is computed on the average daily net assets of Class B
shares and paid monthly. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares. The asset-based sales charge
increases Class B expenses by up to 0.75% of average net assets per year.
The Distributor pays sales commissions of 4.00% of the purchase price to dealers
from its own resources at the time of sale. For maintaining and servicing
accounts of customers invested in the Fund, First Albany and PFIC Securities
Corporation may receive payments from the Distributor equal to two-thirds of the
excess of the scheduled CDSC over any commission payment to the selling broker.
The Distributor retains the asset-based sales charge to recoup the sales
commissions it pays and its financing costs. If the Plan is terminated by the
Victory Portfolios, it provides that the Trustees may elect to continue payments
for certain expenses already incurred. The payments under the Plan increase the
annual expenses of Class B shares. For more details, please refer to "Advisory
and Other Contracts - Class B Shares Distribution Plan" in the Statement of
Additional Information.
SPECIAL INVESTOR SERVICES
O THE SYSTEMATIC INVESTMENT PLAN. You can make regular investments in the Fund
with the Systematic Investment Plan by completing the appropriate section of the
Account Application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is jointly
owned, be sure that all owners sign. You must first meet the Fund's initial
investment requirement of $500, then investments may be made monthly, quarterly,
semi-annually or annually by automatically deducting $25 or more from your bank
account. For officers, trustees, directors and employees, including retired
directors and employees, of the Victory Group, KeyCorp and its affiliates, and
the Administrator and its affiliates (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required. You may change the amount of your purchase
at any time. Your bank checking account will be debited on the date indicated on
your
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<PAGE>
Account Application. Shares will be purchased at the offering price next
determined following receipt of the order by the Transfer Agent. You may cancel
the Systematic Investment Plan at any time without payment of a cancellation
fee. Your monthly account statement will reflect systematic investment
transactions, and a debit entry will appear on your bank statement.
O THE SYSTEMATIC WITHDRAWAL PLAN. You can make regular withdrawals from your
account with the Systematic Withdrawal Plan by completing the appropriate
section of the Account Application. If you own shares in a fund worth $5,000 or
more, you can have monthly, quarterly, semi-annual or annual funds sent from
your account directly to you, to a person named by you, or to your bank checking
account. The minimum withdrawal is $25. If you are having funds sent to your
bank checking account, attach a voided personal check with your bank's magnetic
ink coding number across the front. The proceeds will be transferred between
your fund account and the bank account via ACH. If your account is jointly
owned, be sure that all owners sign. You may obtain information about the
Systematic Withdrawal Plan by contacting the Transfer Agent. Your Systematic
Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends and capital gain dividend
distributions earned on your Fund shares, your account eventually may be
exhausted. If any applicable sales charges are applied to new purchases of
shares of the Fund, it is to your disadvantage to buy shares of the Fund while
also making systematic redemptions. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan.
Your account will be debited on the date you indicate on your Account
Application. Shares will be redeemed at the net asset value per share (the
"NAV") as determined on the debit date indicated on your Account Application.
You may cancel the Systematic Withdrawal Plan at any time without payment of a
cancellation fee. Each Systematic Withdrawal Plan transaction will appear as a
debit entry on your monthly account statement.
O TELEPHONE TRANSACTIONS. You can initiate most transactions by telephone. You
may call the Transfer Agent toll-free at 800-539-3863 or call your Investment
Professional or bank trust department. Telephone transaction privileges for
purchases, redemptions or exchanges may be modified, suspended or terminated by
the Fund at any time. If an account has more than one owner, the Fund and the
Transfer Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer representative of
record for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
Generally, neither the Fund, the bank trust department nor the Transfer Agent
will be responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. The Transfer Agent and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The identification procedures may include, but are not limited to,
the following: account number, registration and address, personalized security
codes, taxpayer identification number and other information particular to the
account. Your Investment Professional, bank trust department or the Transfer
Agent may also record calls, and you should verify the accuracy of your
confirmation statements immediately after you receive them.
O RETIREMENT PLANS. Retirement plans can be among the best tax-planning
vehicles available to individuals. Call your Investment Professional for more
information on the plans and their benefits, provisions and fees. Your
Investment Professional can set up your new account in the Fund under one of
several tax-sheltered plans. These plans let you invest for retirement and
shelter your investment income from current taxes. Plans include Individual
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<PAGE>
Retirement Accounts (IRAs) , Rollover IRAs and other retirement plans such as
Simplified Employee Pension Plans (SEP/IRA), Salary Reduction SEP (SAR-SEP/IRA),
401(k) Plans and 403(b) Plans. Other fees may be charged by the IRA custodian or
trustee. Other fees may be charged by the IRA custodian or trustee.
HOW TO EXCHANGE
Shares of the Fund may be exchanged for shares of certain funds of the Victory
Group at net asset value per share at the time of exchange, without a sales
charge. To exchange shares, you must meet several conditions:
(1) Shares of the fund selected for exchange must be available for sale in
your state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you
purchase by exchange.
(5) The registration and tax identification numbers of the two accounts
must be identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH
TO PURCHASE BY EXCHANGE.
SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE SAME CLASS
IN THE OTHER FUNDS OF THE VICTORY GROUP. For example, you can exchange Class A
shares of this Fund only for Class A shares of another fund. At present, not all
of the funds offer the same two classes of shares. If a fund has only one class
of shares that does not have a class designation, they are "Class A" shares for
exchange purposes. In some cases, sales charges may be imposed on exchange
transactions. Certain funds offer Class A or Class B shares and a list can be
obtained by calling the Transfer Agent at 800-539-3863. Please refer to the
Statement of Additional Information for more details about this policy.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to the Valuation Time
on any Business Day (See "Shareholder Account Rules and Policies -- Share
Price").
You can obtain a list of eligible funds of the Victory Group by calling the
Transfer Agent at 800-539-3863. Key Mutual Funds, which is managed by Key
Advisers and Spears, Benzak, Salomon & Farrell, Inc., both affiliates of
KeyCorp, is a part of the Victory Group. BISYS Fund Services is the
Administrator and Distributor for Key Mutual Funds. Exchange privileges
applicable to the Victory Group will also apply to Key Mutual Funds. Exchanges
of shares involve a redemption of the shares of the Fund and a purchase of
shares of the other fund of the Victory Group.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern time)
that is in proper form, but either fund may delay the issuance of shares of the
fund into which you are exchanging if it determines it would be disadvantaged by
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<PAGE>
a same-day transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy might
create excessive turnover in the Fund's portfolio and associated expenses
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm shareholders, the
Victory Portfolios reserves the right to refuse any exchange request that will
impede the Fund's ability to invest effectively or otherwise have the potential
to disadvantage the Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Victory Portfolios may amend, suspend or terminate the exchange privilege
at any time upon 60 days' written notice to shareholders.
o If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible for exchange will be
exchanged.
o Each exchange may produce a gain or loss for tax purposes.
Shareholders of the former Investors Preference Fund for Income, Inc. and
Investors Preference New York Tax-Free Fund, Inc. will not be subject to any
additional sales charge upon an exchange of shares attributable to an Investors
Preference Funds account for shares of other funds of the Victory Portfolios.
HOW TO REDEEM
You may redeem all or a portion of your shares on any day that the Fund is open
for business (see the definition of "Business Day" under "Shareholder Account
Rules and Policies--Share Price"). Shares will be redeemed at the NAV next
calculated after the Transfer Agent has received the redemption request.
You may redeem shares in several ways:
O BY MAIL. Send a written request to: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
Write a "letter of instruction" with your name, the Fund's name, your Fund
account number, the dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular account. You will need the
letter of instruction signed by all persons required to sign for transactions,
exactly as their names appear on the Account Application. A signature guarantee
is required if: you wish to redeem more than $10,000 worth of shares; your Fund
account registration has changed within the last 60 days; the check is not being
mailed to the address on your account; the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
Victory Group account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public. A signature guarantee is designed to
protect you, the Fund and its agents from fraud. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
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<PAGE>
O BY WIRE. You may make redemptions by wire provided you have established a Fund
account to accommodate wire transactions. If telephone instructions are received
before Valuation Time (normally 4:00 p.m. Eastern time), proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. You may change the bank account
designated to receive an amount redeemed at any time by sending a letter of
instruction with a signature guarantee to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527.
O BY TELEPHONE. To redeem by telephone, you may call the Transfer Agent toll
free at 800-539-3863 or call your Investment Professional or bank trust
department. See "Special Investor Services" for more information about telephone
transactions.
O ADDITIONAL REDEMPTION REQUIREMENTS. When purchases are made by check or
periodic account investment, payments on redemptions may be delayed until the
investment being redeemed has been in the account for 15 calendar days. Also,
when the New York Stock Exchange ("NYSE") is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances as determined by the Commission to merit
such action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed 7 days. In addition, the Fund
reserves the right to advance the time on that day by which purchase and
redemption orders must be received. To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, the Fund's NAV may be
affected on days when investors do not have access to the Fund to purchase or
redeem shares.
If you are unable to reach the Transfer Agent by telephone (for example, during
times of unusual market activity), consider placing your order by mail directly
to the Transfer Agent. In case of suspension of the right of redemption, you may
either withdraw your request for redemption or receive payment based on the NAV
next determined after the termination of the suspension. If your balance in the
Fund falls below $500, you may be given 60 days' notice to reestablish the
minimum balance (except with respect to officers, trustees, directors and
employees, including retired directors and employees, of the Victory Portfolios,
KeyCorp and its affiliates, and the Administrator and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). If you do not increase
your balance, your account may be closed and the proceeds mailed to you at the
address on record. Shares will be redeemed at the last calculated NAV on the day
the account is closed.
SHAREHOLDER ACCOUNT RULES AND POLICIES
O SHARE PRICE. The term "net asset value per share," or "NAV", means the value
of one share. The NAV of each class of shares is calculated by adding the value
of all the Fund's investments, plus cash and other assets, deducting liabilities
of the Fund and of the class, and then dividing the result by the number of
shares of the class outstanding. The NAV of the Fund is determined and its
shares are priced as of the close of regular trading of the NYSE (normally 4:00
p.m. Eastern time) (the "Valuation Time") on each Business Day of the Fund. A
"Business Day" is a day on which the NYSE is open for trading, the Federal
Reserve Bank of Cleveland is open, and any other day (other than a day on which
no shares of the Fund are tendered for redemption and no order to purchase any
shares is received) during which there is sufficient trading in its portfolio
instruments that the Fund's net asset value per share might be materially
affected. The NYSE will not be open in observance of the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
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The Fund's securities are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method that the Board of Trustees
believes accurately reflects fair value. Fair value of these portfolio
securities is determined by an independent pricing service approved by the
Trustees based primarily upon information concerning market transactions and
dealers quotations for similar securities.
o The offering of shares may be suspended during any period in which the
determination of NAV is suspended, and the offering may be suspended by the
Trustees at any time the Trustees believe it is in the Fund's best interest to
do so.
o If your account is established with an Investment Professional or a bank, you
may or may not be able to purchase, exchange or sell shares on other holidays
when the Federal Reserve Bank of Cleveland is closed, including Martin Luther
King, Jr. Day, Columbus Day and Veterans Day.
o Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the Transfer
Agent in its discretion may waive certain of the requirements for redemptions
stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Victory Portfolios if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the value of
the securities in the Fund fluctuates, and the value of your shares may be more
or less than their original cost.
o Payment for redeemed shares is ordinarily made in cash and forwarded by check
within three business days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances determined by
the Securities and Exchange Commission delaying or suspending such payments. The
Transfer Agent may delay forwarding a check for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as 15
days from the date the shares were purchased. That delay may be avoided if you
arrange with your bank to provide telephone or written assurance to the Transfer
Agent that your purchase payment has cleared.
o If your account value has fallen below $500, you may be given 60 days' notice
to reestablish the minimum balance. If you do not increase your minimum balance,
your account may be closed and the proceeds mailed to you at the record address.
In some cases involuntary redemptions may be made to repay the Distributor for
losses from the cancellation of share purchase orders. Under certain
circumstances, shares of the Fund may be redeemed "in kind," which means that
the redemption proceeds will be paid with securities from the Fund. Please refer
to the Statement of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of 31%
from dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Victory Portfolios with a certified Social Security or
taxpayer identification number when you sign your Account Application, or if you
violate Internal Revenue Service regulations on tax reporting of dividends.
o The Victory Portfolios does not charge a redemption fee, but if an Investment
Professional handles your redemption, the Investment Professional may charge a
separate service fee. Under the circumstances described in "How to Invest," you
may be subject to a CDSC when redeeming Class B shares.
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<PAGE>
o The Distributor, at its expense, may also provide additional cash compensation
to dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 4.00% of the offering price. In
addition, the Distributor will, from time to time and at its own expense,
provide compensation, including financial assistance, to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more Victory Portfolios
and/or other dealer-sponsored special events including payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will include the following types of non-cash compensation offered
through sales contests: (1) vacation trips including the provision of travel
arrangements and lodging; (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Fund's shares to
qualify for this compensation if prohibited by the laws of any state or any
self-regulatory organization, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by the Fund or
its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund may make
distributions at least annually out of any realized capital gains, and the Fund
may make supplemental distributions of dividends and capital gains following the
end of its fiscal year.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividend distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your income and capital gain dividends, if any,
will be automatically reinvested in additional shares of the Fund.
Income and capital gain dividends will be reinvested at the net asset
value of your class of shares of the Fund as of the day after the
record date. If you do not indicate a choice on your Account
Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each income or capital gain
dividend, if any. Distribution checks will be mailed no later than 7
days after the dividend payment date which may be more than 7 days
after the dividend record date.
3. INCOME EARNED OPTION. You will have your capital gain dividend
distributions, if any, reinvested automatically in the Fund and have
your income dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have income and capital gain
dividends, or only capital gain dividends, automatically reinvested in
shares of another fund of the Victory Group. Shares will be purchased
at the NAV as of the day after the record date. If you are reinvesting
dividends of a fund sold without a sales charge in shares of a fund
sold with a sales charge, the shares will be purchased at the public
offering price. If you are reinvesting dividends of a fund sold with a
sales charge in shares of a fund sold with or without a sales charge,
the shares
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will be purchased at the net asset value of the fund. Dividend
distributions can be directed only to an existing account with a
registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your income and capital
gain dividends, or only your income dividends, automatically
transferred to your bank checking or savings account. The amount will
be determined on the dividend record date and will normally be
transferred to your account within 7 days of the dividend record date.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please
call or write the Transfer Agent to learn more about this dividend
distribution option.
Any election or revocation of any of the above dividend distribution options may
be made in writing to the Fund and sent to The Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863, and
will become effective with respect to dividends having record dates after
receipt of the Account Application or request by the Transfer Agent.
Reinvested dividend distributions receive the same tax treatment as dividend
distributions paid in cash.
O STATEMENTS AND REPORTS. You will receive a monthly statement reflecting all
transactions that affect the share balance or the registration of your Fund
account. You will receive a confirmation after every transaction that affected
the share balance of your Fund account, except for dividend reinvestment,
systematic investment and systematic withdrawal transactions. These transactions
will be detailed in your Fund account statement. Transactions that affect the
share balance of your Fund investment in an account established with an
Investment Professional or financial institution will be detailed in regular
statements or through confirmation procedures of the financial institution.
Certificates representing shares of the Fund will not be issued. An IRS Form
1099-DIV with federal tax information will be mailed to you by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
will receive the Fund's financial reports.
O REDEMPTIONS OR EXCHANGES. Investors may realize a gain or loss when redeeming
(selling) or exchanging shares. For most types of accounts, the Fund reports the
proceeds to the IRS annually. Because the shareholders' tax treatment also
depends on their purchase price and personal tax positions, shareholders should
keep their regular account statements to use in determining their tax. See
"Buying a Dividend."
O COMPLETE REDEMPTIONS. If you request a complete redemption of all your Fund
shares, any dividend accrued to your account will be included in the redemption
check.
O BUYING A DIVIDEND. On the record date for a distribution of ordinary income or
capital gains dividend, the net asset value of the Fund is reduced by the amount
of the distribution. An investor who buys shares just before the record date
("buying a dividend") will pay the full price for the shares and then receive a
portion of the purchase price back as a taxable distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "IRS Code"). The Fund contemplates the distribution of all of its net
investment income and capital gains, if any, in accordance with the timing
requirements imposed by the IRS Code, so that it will not be subject to federal
income taxes or the 4% excise tax on undistributed income.
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<PAGE>
Distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but only a portion thereof may
qualify for the 70% dividends received deduction for corporate shareholders
(which portion may not exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund and must be designated by the Fund as
so qualifying). Distributions by the Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are designated as
capital gain dividends and are taxable to shareholders as long-term capital gain
regardless of the length of time shareholders have held their shares. Such
distributions are not eligible for the dividends-received deduction. If a
shareholder disposes of shares in the Fund at a loss before holding such shares
for more than six months, the loss will be treated as a long-term capital loss
to the extent that the shareholder has received a capital gain dividend on those
shares.
Distributions to shareholders of the Fund will be treated in the same manner for
federal income tax purposes whether received in cash or in additional shares and
may also be subject to state and local taxes. Distributions received by
shareholders of the Fund in January of a given year will be treated as received
on December 31 of the preceding year provided that they were declared to
shareholders of record on a date in October, November or December of such
preceding year. The Fund sends tax statements to its shareholders (with copies
to the Internal Revenue Service (the "IRS")) by January 31 showing the amounts
and tax status of distributions made (or deemed made) during the preceding
calendar year.
Income from securities of foreign issuers may be subject to foreign withholding
taxes. Credit for such foreign taxes, if any, will not pass through to the
shareholders.
O OTHER TAX INFORMATION. The information above is only a summary of some of the
federal income tax consequences generally affecting the Fund and its U.S.
shareholders, and no attempt has been made to discuss individual tax
consequences. A prospective investor should also review the more detailed
discussion of federal income tax considerations in the Statement of Additional
Information. In addition to the federal income tax, a shareholder may be subject
to state or local taxes on his or her investment in the Fund, depending on the
laws of the shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN
THE FUND SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS
SUITABLE TO THEIR PARTICULAR TAX SITUATION.
When investors sign their Account Application, they are asked to provide their
correct social security or taxpayer identification number and other required
certifications. If investors do not comply with IRS regulations, the IRS
requires the Fund to withhold 31% of amounts distributed to them by the Fund as
dividends or in redemption of their shares.
PERFORMANCE
From time to time, performance information for each class of shares of the Fund
showing total return of each class of shares may be presented in advertisements,
sales literature and in reports to shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated over a stated period
of more than one year. Average annual total return is measured by comparing the
value of an investment in a class at the beginning of the relevant period (as
adjusted for sales charges, if any) to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains
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<PAGE>
distributions) and annualizing that figure. Aggregate total return is calculated
similarly to average annual total return, except that the resulting difference
is not annualized.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent thirty-day period by the Fund's maximum offering price
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last day of the period and annualizing the result.
Investors may also judge, and the Victory Portfolios may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
current performance will fluctuate and is not necessarily representative of
future results. Any fees charged by service providers with respect to customer
accounts for investing in shares of the Fund will not be reflected in
performance calculations.
Additional information regarding the performance of each fund of the Victory
Portfolios is included in the Victory Portfolios' annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
FUND ORGANIZATION AND FEES
The Victory Portfolios is an open-end management investment company, commonly
known as a mutual fund, and currently consisting of twenty-four series
portfolios. The Victory Portfolios has been operating continuously since 1986,
when it was created under Massachusetts law as a Massachusetts business trust
although certain of its funds have a prior operating history from their
predecessor funds. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware business trust. The Victory
Portfolios' offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Overall responsibility for management of the Victory Portfolios rests with its
Board of Trustees, who are elected by the shareholders of the Victory
Portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the Fund. Key
Advisers directs the investment of the Fund's assets, subject at all times to
the supervision of the Victory Portfolios' Board of Trustees. Key Advisers
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of the Fund's investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is an indirect wholly-owned subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers
manage
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approximately $48 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Victory Portfolios respecting the Fund, Key
Advisers is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of seventy-five one-hundredths of one percent (.75%) of the average
daily net assets of the Fund. The investment advisory fee paid by the Fund is
higher than the advisory fees paid by most mutual funds, although the Victory
Portfolios' Board of Trustees believes such fees to be comparable to advisory
fees paid by many funds having similar objectives and policies. The advisory
fees for the Fund have been determined to be fair and reasonable in light of the
services provided to the Fund. Key Advisers may periodically waive all or a
portion of its advisory fee with respect to the Fund. Prior to January 1, 1996,
Society Asset Management, Inc. served as investment adviser to the Fund. During
the Fund's fiscal period ended October 31, 1995, Society Asset Management, Inc.
earned investment advisory fees aggregating .71% of average daily net assets of
Class A shares of the Fund.
Under the investment advisory agreement between the Victory Portfolios, on
behalf of the Fund and Key Advisers (the "Investment Advisory Agreement"), the
Adviser may delegate a portion of its responsibilities to a sub-adviser. Key
Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. (the "Sub-advisory Agreement"), a
registered investment adviser, on behalf of the Fund. The Sub-Adviser is a
wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. The
Investment Advisory Agreement and the Sub-advisory Agreement, respectively,
provide that Key Advisers and the Sub-Adviser, respectively, may render services
through their own employees or the employees of one or more affiliated companies
that are qualified to act as an investment adviser of the Fund and are under the
common control of KeyCorp as long as all such persons are functioning as part of
an organized group of persons, managed by authorized officers of Key Advisers
and the Sub-Adviser, respectively. Key Advisers and the Sub-Adviser,
respectively, will be as fully responsible to the Fund for the acts and
omissions of such persons as they are for their own acts and omissions.
For its services under the investment sub-advisory agreement, Key Advisers pays
the Sub-Adviser fees as a percentage of average daily net assets as follows:
.90% of the first $10 million of average daily net assets; .70% of the next $15
million of average daily net assets; .55% of the next $25 million of average
daily net assets; and .45% of average daily net assets in excess of $50 million.
The person primarily responsible for the investment management of the Fund as
well as his previous experience is as follows:
PORTFOLIO MANAGING PREVIOUS
MANAGER FUND SINCE EXPERIENCE
------- ---------- ----------
Lynn S. Hamilton October 1991 Portfolio Manager with Society
Asset Management since 1993;
Portfolio Manager with Society
National Bank since 1982.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
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<PAGE>
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, custodian or shareholder
servicing agent to such an investment company or from purchasing shares of such
a company as agent for and upon the order of their customers, nor should they
prevent Key Advisers, the Sub-Adviser or the Fund from compensating third
parties for performing such functions. Key Advisers, the Sub-Adviser and their
affiliates are subject to such banking laws and regulations.
Key Advisers and the Sub-Adviser believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory Agreement
without violating the Glass-Steagall Act or other applicable banking laws or
regulations and that they or their affiliates can perform the other services
indicated above. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations could prevent Key
Advisers, the Sub-Adviser and their affiliates from continuing to perform all or
a part of the above services for their customers and/or the Fund. In such event,
changes in the operation of the Fund may occur, including the possible
alteration or termination of any service then being provided by Key Advisers,
the Sub-Adviser and their affiliates, and the Trustees would consider alternate
investment advisers and other means of continuing available services. It is not
expected that the Fund's shareholders would suffer any adverse financial
consequences (if other service providers are retained) as a result of any of
these occurrences.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the Administrator, principal underwriter and Distributor
for the Fund.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses incurred and services provided as Administrator
pursuant to its management and administration agreement with the Victory
Portfolios, the Administrator receives a fee from the Fund, computed daily and
paid monthly, at an annual rate of fifteen one-hundredths of one percent (.15%)
of the Fund's average daily net assets. The Administrator may periodically waive
all or a portion of its administrative fee with respect to the Fund.
BISYS Fund Services, Inc. sells shares of the Fund as agent on behalf of the
Victory Portfolios at no cost to the Fund. Key Advisers and the Sub-Adviser
neither participate in nor are responsible for the underwriting of Fund shares.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110-3875
("State Street" or the "Transfer Agent") serves as the Transfer Agent for the
Fund, and receives a fee for such services based on various criteria, including
assets, transactions and number of accounts. Boston Financial Data Services,
Inc., Two Heritage Drive, Quincy, MA 02171 ("BFDS") is the dividend disbursing
agent and provides certain shareholder services to the Fund.
SHAREHOLDER SERVICING PLAN
The Victory Portfolios has adopted a Shareholder Servicing Plan for each class
of shares of the Fund. In accordance with the Shareholder Servicing Plan, the
Fund may enter into Shareholder Service Agreements under which the Fund pays
fees
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<PAGE>
of up to .25% of the average daily net assets of each class for fees incurred in
connection with the personal service and maintenance of accounts holding the
shares of such class. Such agreements are entered into between the Victory
Portfolios and various shareholder servicing agents, including the Distributor,
Key Trust Company of Ohio, N.A. and its affiliates, and other financial
institutions and securities brokers (each, a "Shareholder Servicing Agent").
Each Shareholder Servicing Agent generally will provide support services to
shareholders by establishing and maintaining accounts and records, processing
dividend and distribution payments, providing account information, arranging for
bank wires, responding to routine inquires, forwarding shareholder
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting shareholders in changing dividend options, account
designations and addresses. Shareholder Servicing Agents may periodically waive
all or a portion of their respective shareholder servicing fees with respect to
the Fund.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219, provides
certain accounting services for the Fund pursuant to a Fund Accounting Agreement
and receives a fee for such services.
CUSTODIAN
Key Trust Company of Ohio, N.A., an affiliate of the Adviser and Sub-Adviser,
serves as custodian for the Fund and receives fees for the services it performs
as custodian.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
BUSINESS MANAGEMENT AGREEMENT
In connection with its obligations under the investment sub-advisory agreement,
the Sub-Adviser has entered into a Business Management Agreement with Key
Advisers pursuant to which Key Advisers provides certain administrative and
support services to the Sub-Adviser. Such services include preparing reports to
the Victory Portfolios' Board of Trustees, recordkeeping services, and services
rendered in connection with the preparation of regulatory filings and other
reports, and regulatory and compliance systems and other administrative and
support services.
For such services, the Sub-Adviser pays fees to Key Advisers as follows: .55% on
the first $10 million of average daily net assets; .35% of the next $15 million
of average daily net assets ; .20% of the next $25 million of average daily net
assets; and .10% of average daily net assets in excess of $50 million.
EXPENSES
For the fiscal year ended October 31, 1995, total operating expenses for Class A
shares were 1.24% of average net assets, excluding certain voluntary fee
reductions or reimbursements. For the fiscal period ended April 30, 1996, total
operating expenses for Class B shares were 2.13% of average net assets,
excluding certain voluntary fee reductions or reimbursements.
ADDITIONAL INFORMATION
The Victory Portfolios may issue an unlimited number of shares and classes of
the Fund. Shares of each class of the Fund participate equally in dividends and
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<PAGE>
distributions and have equal voting, liquidation and other rights. When issued
and paid for, shares will be fully paid and nonassessable by the Victory
Portfolios and will have no preference, conversion, exchange or preemptive
rights. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. For those investors with qualified
trust accounts, the trustee will vote the shares at meetings of the Fund's
shareholders in accordance with the shareholder's instructions or will vote in
the same percentage as shares that are not so held in trust. The trustee will
forward to these shareholders all communications received by the trustee,
including proxy statements and financial reports. The Victory Portfolios and the
Fund are not required to hold annual meetings of shareholders and in ordinary
circumstances do not intend to hold such meetings. The Trustees may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Trust Instrument. Under certain circumstances, the Trustees
may be removed by action of the Trustees or by the shareholders. Shareholders
holding 10% or more of the Victory Portfolios' outstanding shares may call a
special meeting of shareholders for the purpose of voting upon the question of
removal of Trustees.
The Victory Portfolio's Board of Trustees may authorize the Victory Portfolios
to offer other funds which may differ in the types of securities in which their
assets may be invested.
Key Advisers, the Sub-Adviser and the Victory Portfolios have each adopted a
Code of Ethics ( the "Codes") which require investment personnel (a) to
pre-clear all personal securities transactions, (b) to file reports regarding
such transactions, and (c) to refrain from personally engaging in (i) short-term
trading of a security, (ii) transactions involving a security within seven days
of a Fund transaction involving the same security, and (iii) transactions
involving securities being considered for investment by a Victory fund. The
Codes also prohibit investment personnel from purchasing securities in an
initial public offering. Personal trading reports are reviewed periodically by
Key Advisers and the Sub-Adviser, and the Trustees review their Codes and any
substantial violations of the Codes). Violations of the Codes may result in
censure, monetary penalties, suspension or termination of employment.
DELAWARE LAW
On February 29, 1996, the Victory Portfolios converted to a Delaware business
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to stockholders of Delaware corporations and the Trust Instrument
provides that shareholders will not be personally liable for liabilities of the
Victory Portfolios. In light of Delaware law, the nature of the Victory
Portfolios' business, and the nature of its assets, management of the Victory
Portfolios believes that the risk of personal liability to a Fund shareholder
would be extremely remote.
In the unlikely event a shareholder is held personally liable for the Victory
Portfolios' obligations, the Delaware successor to the Victory Portfolios will
be required to use its property to protect or compensate the shareholder. On
request, the Delaware successor to the Victory Portfolios will defend any claim
made and pay any judgment against a shareholder for any act or obligation of the
Victory Portfolios. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Delaware successor to the Victory Portfolios
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
Delaware law authorizes electronic or telephone communications between
shareholders and the Victory Portfolios. Under Delaware law, the Delaware
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<PAGE>
successor to the Victory Portfolios will have the flexibility to respond to
future business contingencies. For example, the Trustees will have the power to
incorporate the Victory Portfolios, to merge or consolidate it with another
entity, to cause each fund to become a separate trust, and to change the Victory
Portfolio's domicile without a shareholder vote. This flexibility could help
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
MISCELLANEOUS
As of the date of this Prospectus, the Fund offers only the classes of shares
that are offered by this Prospectus. Subsequent to the date of this Prospectus,
the Fund may offer additional classes of shares through a separate prospectus.
Any such additional classes may have different charges and other expenses, which
would affect investment performance. To obtain a free prospectus of another
class of shares or to obtain additional information, call your Investment
Professional , call (800) 539-3863 or write to the address listed below.
Shareholders will receive Semi-Annual Reports, which are unaudited, and Annual
Reports, which are audited by independent accountants ("Reports"), describing
the investment operations of the Fund. Each of these Reports, when available for
a particular fiscal year end or the end of a semi-annual period, is incorporated
herein by reference. The Victory Portfolios may include information in their
Reports to shareholders that (a) describes general economic trends, (b)
describes general trends within the financial services industry or the mutual
fund industry, (c) describes past or anticipated portfolio holdings for the Fund
or (d) describes investment management strategies for the Victory Portfolios.
Such information is provided to inform shareholders of the activities of the
Victory Portfolios for the most recent fiscal year or semi-annual period and to
provide the views of Key Advisers, the Sub-Adviser and/or the Victory
Portfolios' officers regarding expected trends and strategies.
The Fund intends to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Reports at no cost by writing to the Fund at the address listed below.
Inquiries regarding the Victory Portfolios or the Fund may be directed in
writing to the Victory Portfolios at The Victory Funds at P.O. Box 8527, Boston,
MA 02266-8527, or by telephone, toll-free, at 800-539-3863.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY
PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE VICTORY PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- 32 -
<PAGE>
MANAGED BY KEYCORP
THE VICTORY SPECIAL VALUE FUND
July 30, 1996
<PAGE>
THE
VICTORY
PORTFOLIOS
SPECIAL VALUE FUND
PROSPECTUS For current yield, purchase and redemption information,
July 30, 1996 call 800-539-FUND or 800-539-3863
THE VICTORY PORTFOLIOS (the "Victory Portfolios") is a registered open-end
management investment company that offers investors a selection of money market,
fixed-income, municipal bond, domestic and international equity portfolios. This
Prospectus relates to the SPECIAL VALUE FUND (the "Fund"), a diversified
portfolio. KeyCorp Mutual Fund Advisers, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment adviser to the Fund ("Key Advisers" or
the "Adviser"). Society Asset Management, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment sub-adviser to the Fund (the
"Sub-Adviser"). BISYS Fund Services ("BISYS") is the Fund's administrator (the
"Administrator") and distributor (the "Distributor").
The Fund seeks to provide long-term growth of capital and dividend income. The
Fund pursues this objective by investing primarily in common stocks of small and
medium-sized companies listed on a nationally recognized exchange with an
emphasis on companies with above average total return potential.
The Fund offers two classes of shares: (1) Class A shares, which are offered at
net asset value plus the applicable sales charge (maximum of 4.75% of public
offering price) and (2) Class B shares, which are offered at net asset value
with a maximum contingent deferred sales charge ("CDSC") of 5.0% imposed on
certain redemptions. At the end of the sixth year after purchase, the CDSC will
no longer apply to redemptions. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert to Class A shares eight years after
purchase.
Please read this Prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
July 30, 1996) for the Fund , an audited annual report for the Fund's fiscal
year ended October 31, 1995 and an unaudited semi-annual report for the six
months ended April 30, 1996 have been filed with the Securities and Exchange
Commission (the "Commission") and are incorporated herein by reference. The
Statement of Additional Information is available without charge upon request by
writing to the Victory Funds at P.O. Box 8527, Boston, MA 02266-8527, or by
calling 800-539-3863.
SHARES OF THE FUND ARE:
O NOT INSURED BY THE FDIC;
O NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP
BANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
O SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
----------------- ----
Fund Expenses............................................................. 3
Financial Highlights...................................................... 4
Investment Objective...................................................... 5
Investment Policies and Risk Factors...................................... 5
How to Invest, Exchange and Redeem........................................ 11
Dividends, Distributions and Taxes........................................ 21
Performance............................................................... 23
Fund Organization and Fees................................................ 24
Additional Information.................................................... 27
- 2 -
<PAGE>
FUND EXPENSES
The table below summarizes the expenses associated with the Fund. This standard
format was developed for use by all mutual funds to help an investor make
investment decisions. You should consider this expense information along with
other important information in this Prospectus, including the Fund's investment
objective, policies and risk factors.
SHAREHOLDER TRANSACTION EXPENSE(1)
CLASS A CLASS B
------- -------
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering
price)........................................4.75% none
Maximum Sales Charge Imposed on Reinvested
Dividends.....................................none none
Deferred Sales Charge...........................none 5% in the
first year,
declining to
1% in the
sixth year
and
eliminated
thereafter
Redemption Fees.................................none none
Exchange Fee....................................none none
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
CLASS A CLASS B
------- -------
Management Fees..................................1.00% 1.00%
Administration Fees.............................. .15% .15%
Rule 12b-1 Distribution Fees..................... .00% .75%
Other Expenses(2)................................ .30% .45%
---- ----
Total Fund Operating Expenses(2).................1.45% 2.35%
==== ====
(1) Investors may be charged a fee if they effect transactions in
Fund shares through a broker or agent, including affiliated
banks and non-bank affiliates of Key Advisors and KeyCorp.
(See "How to Invest, Exchange and Redeem.")
(2) These amounts include an estimate of the shareholder servicing
fees the Fund expects to pay. (See "Fund Organization and
Fees--Shareholder Servicing Plan").
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) full redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Special Value Fund -- Class A Shares $62 $ 91 $123 $213
Special Value Fund -- Class B Shares $74 $103 $146 $245
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Fund Organization and Fees" for a more complete discussion of
annual operating expenses of the Fund. The foregoing example is based upon
expenses for the fiscal year ended October 31, 1995 for Class A shares, the
period ended April 30, 1996 for Class B shares and expenses that the Fund is
expected to incur during the current fiscal year. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- 3 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
financial highlights for the Fund for the periods indicated. The information
below for Class A shares for the fiscal year ended October 31, 1995 has been
derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for the Victory Portfolios, whose report thereon,
together with the financial statements of the Fund, is incorporated by reference
into the Statement of Additional Information. The information below for Class B
shares for the fiscal period ended April 30, 1996 has not been audited. The
information set forth below is for a Class A share and a Class B share
outstanding for each period indicated.
<TABLE>
<CAPTION>
o THE VICTORY SPECIAL VALUE FUND
CLASS B SHARES CLASS A SHARES
-------------- -------------------------------------
MARCH 1, 1996 TO YEAR ENDED DECEMBER 3, 1993
APRIL 30, 1996(A)(G) OCTOBER 31, TO OCTOBER 31,
(UNAUDITED) 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 12.89 $ 10.49 $ 10.00
--------- -------- --------
Investment Activities
Net investment income................ 0.01 0.15 0.11
Net realized and unrealized gains (losses)
on investments and foreign currencies.. 0.51 1.71 0.48
--------- -------- --------
Total from Investment Activities....... 0.52 1.86 0.59
--------- -------- --------
Distributions
Net investment income.................. (0.03) (0.15) (0.10)
Net realized gains..................... -- (0.05) --
-------- -------- --------
Total Distributions.................... (0.03) (0.20) (0.10)
------ -------- --------
NET ASSET VALUE, END OF PERIOD.................. $ 13.38 $ 12.15 $ 10.49
======== ======== ========
Total Return (Excludes Sales Charge)............ 3.76%(b) 18.01% 5.92%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000)................. $ 87 $194,700 $118,600
Ratio of expenses to average net assets......... 2.05%(c) 1.04% 1.00%(b)
Ratio of net investment income to average net assets (0.14)% 1.35% 1.23 %(b)
Ratio of expenses to average net assets(b).... 2.07%(c) 1.30% 1.49%(b)
Ratio of net investment income to average net
assets(b) (0.16)%(c) 1.09% 0.74%(b)
Portfolio turnover.............................. 29.45% 38.57% 17.90%
</TABLE>
(a) Period from commencement of operations.
(b) Annualized.
(c) Not Annualized.
(d) During the period certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(e) Effective March 1, 1996, the Fund designated the existing shares of
Class A shares and commenced offering Class B shares.
- 4 -
<PAGE>
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital and dividend income. The
investment objective of the Fund is fundamental and may not be changed without a
vote of the holders of a majority of its outstanding voting securities (as
defined in the Statement of Additional Information). There can be no assurance
that the Fund will achieve its investment objective.
INVESTMENT POLICIES AND RISK FACTORS
SUMMARY OF PRINCIPAL INVESTMENT POLICIES
The Fund pursues its objective by investing primarily in common stocks of small
and medium-size companies listed on a nationally recognized exchange with an
emphasis on companies with above average total return potential.
Under normal market conditions, the Fund will invest in a diversified portfolio
of common stocks, and will invest at least 65% of its total assets in common and
preferred stocks, debt securities, and securities convertible into common stock
of small and medium-sized companies. For purposes of the foregoing sentence,
small-sized companies are considered to be those with a market capitalization of
less than $1 billion and medium-sized companies are considered to be those with
a market capitalization of $1 billion or more but less than $5 billion. In
selecting such investments, the Fund will seek to emphasize the common stocks of
under-valued companies which possess above-average yields, below-average
price/earnings, price/book value and price/cash flow ratios, and which are
therefore considered to be statistically cheap.
Changes in the value of portfolio securities will not affect cash income, if
any, derived from these securities but will affect the Fund's net asset value.
Because the Fund invests primarily in equity securities, which fluctuate in
value, the Fund's shares will fluctuate in value. In addition, smaller, less
seasoned companies may be subject to greater business risks than larger,
established companies. They may be more vulnerable to changes in economic
conditions, specific industry conditions, market fluctuations and other factors
affecting the profitability of companies. Therefore, the stock price of smaller
capitalization companies may be subject to greater price fluctuations than that
of larger, established companies. Due to these and other risk factors, the net
asset value of shares of the Fund will fluctuate.
ADDITIONAL INFORMATION REGARDING THE FUND'S INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which the Fund may invest in accordance with its investment
objective, policies and limitations, including certain transactions it may make
and strategies it may adopt. The following also contains a brief description of
certain risk factors. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in this Prospectus.
O SHORT-TERM OBLIGATIONS. While the Fund will normally be predominantly invested
in equity securities, there may be times when, in Key Advisers' or the
Sub-Adviser's opinion, market conditions warrant that, for temporary defensive
purposes, the Fund may hold more than 20% of its total assets in short-term
obligations. To the extent that the Fund's assets are so invested, they will not
be invested so as to meet its investment objective. The instruments may include
"high-quality" liquid debt securities such as commercial paper, certificates of
deposit, bankers' acceptances, repurchase agreements which mature in less than
seven days, and United States Treasury Bills. Bankers' acceptances are
instruments of United States banks which are drafts or bills of exchange
"accepted" by a bank or trust company as an obligation to pay on maturity. (See
Repurchase Agreements).
- 5 -
<PAGE>
O INVESTMENT GRADE SECURITIES. The Fund may invest in "investment grade"
obligations, which are those rated at the time of purchase within the four
highest rating categories assigned by a nationally recognized statistical
ratings organization ("NRSRO") or, if unrated, are obligations that Key Advisers
or the Sub-Adviser determine to be of comparable quality. The applicable
securities ratings are described in the Appendix to the Statement of Additional
Information.
O FOREIGN SECURITIES. The Fund may invest in equity securities of foreign
issuers, including securities traded in the form of American Depository
Receipts. The Fund will limit its investments in such securities to 20% of its
total assets. The Fund will not hold foreign currency as a result of investment
in foreign securities.
Investments in securities of foreign companies generally involve greater risks
than are present in U.S. investments. Compared to U.S. and Canadian companies,
there is generally less publicly available information about foreign companies
and there may be less governmental regulation and supervision of foreign stock
exchanges, brokers and listed companies. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid, and their prices more
volatile, than securities of comparable U.S. companies. Settlement of
transactions in some foreign markets may be delayed or may be less frequent than
in the U.S., which could affect the liquidity of the Fund's investment. In
addition, with respect to some foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation; limitations on the
removal of securities, property or other assets of the Fund; political or social
instability; increased difficulty in obtaining legal judgments; or diplomatic
developments which could affect U.S. investments in those countries. Key
Advisers or the Sub-Adviser will take such factors into consideration in
managing the Fund's investments.
O ZERO COUPON BONDS. The Fund is permitted to purchase both zero coupon U.S.
government securities and zero coupon corporate securities ("zero coupon
bonds"). Zero coupon bonds are purchased at a discount from the face amount
because the buyer receives only the right to a fixed payment on a certain date
in the future and does not receive any periodic interest payments. The effect of
owning instruments which do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on
accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the zero coupon bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest periodically. The amount of price
fluctuation tends to increase as maturity of the security increases.
O RECEIPTS. In addition to bills, notes and bonds issued by the U.S. Treasury,
the Fund may also purchase separately traded interest and principal component
parts of such obligations that are transferable through the Federal book entry
system, known as Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES"). These instruments
are issued by banks and brokerage firms and are created by depositing Treasury
notes and Treasury bonds into a special account at a custodian bank; the
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
- 6 -
<PAGE>
purposes. Because of these features, these securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-paying U.S.
Treasury obligations. The Fund will limit its investment in such instruments to
20% of its total assets.
O SECURITIES LENDING. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities. The Fund must receive collateral
equal to 100% of the securities' value in the form of cash or U.S. Government
securities, plus any interest due, which collateral must be marked to market
daily by Key Advisers or the Sub-Adviser. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund amounts equal to any dividends or interest paid on such securities plus any
interest negotiated between the parties to the lending agreement. Loans are
subject to termination by the Fund or the borrower at any time. While the Fund
does not have the right to vote securities on loan, the Fund intends to
terminate any loan and regain the right to vote if that is considered important
with respect to the Fund's investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which Key Advisers
or the Sub-Adviser has determined are creditworthy under guidelines established
by the Victory Portfolios' Board of Trustees (the "Trustees"). The Fund will
limit its securities lending to 33 1/3% of total assets.
O WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued or
delayed-delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. The Fund
engages in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.
O VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase investment grade
variable and floating rate notes. The interest rates on these securities may be
reset daily, weekly, quarterly, or some other reset period, and may be subject
to a floor or ceiling. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. There may
be no active secondary market with respect to a particular variable or floating
rate note. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other illiquid
securities held by the Fund, does not exceed 15% of the Fund's net assets unless
such notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days after demand therefor. These
securities are included among those which are sometimes referred to as
"derivative securities."
O REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, the Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements may be
considered by the staff of the Commission to constitute loans by the Fund.
O REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers, and agrees to repurchase them at a mutually
- 7 -
<PAGE>
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account assets
having a value equal to the repurchase price (including accrued interest); the
collateral will be marked to market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940, as amended (the "1940 Act").
O INVESTMENT COMPANY SECURITIES. The Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies. Pursuant to
an exemptive order received by the Victory Portfolios from the Commission, the
Fund may invest in the money market funds of the Victory Portfolios. Key
Advisers or the Sub-Adviser will waive its fee attributable to the Fund's assets
invested in a money market fund of the Victory Portfolios, and, to the extent
required by the laws of any state in which shares of the Fund are sold, Key
Advisers or the Sub-Adviser will waive its investment advisory fees as to all
assets invested in other investment companies. Because such other investment
companies employ an investment adviser, such investment by the Fund will cause
shareholders to bear duplicative fees, such as management fees, to the extent
such fees are not waived by Key Advisers or the Sub-Adviser.
O PRIVATE PLACEMENT INVESTMENTS. The Fund may invest in high quality commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). Section 4(2)
commercial paper ("commercial paper") is generally sold to institutional
investors, such as the Fund, that agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in commercial
paper, thus providing liquidity. The Fund believes that commercial paper and
possibly certain other restricted securities (as defined in the Statement of
Additional Information) that meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat the restricted
securities that meet the criteria for liquidity established by the Trustees,
including commercial paper, as determined by Key Advisers or the Sub-Adviser, as
liquid and not subject to the investment limitation applicable to illiquid
securities. See "Investment Limitations."
O FUTURES CONTRACTS. The Fund may enter into contracts for the future delivery
of securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Fund may enter into futures contracts in an effort to hedge against market
risks. For example, when interest rates are expected to rise or market values of
portfolio securities are expected to fall, the Fund can seek to offset a decline
in the value of its portfolio securities by entering into futures contract
transactions. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices than might later be available in the market
when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will give the Fund
the right (but not the obligation), for a specified price, to sell or to
purchase the underlying futures contract, upon exercise of the option, at any
time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed 5% of the Fund's total assets (other than in
connection with bona fide hedging purposes), and the value of securities that
are
- 8 -
<PAGE>
the subject of such futures and options (both for receipt and delivery) may not
exceed one-third of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. The Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall performance
than if the Fund had not entered into any futures transactions. In addition, the
value of the Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities or foreign
currencies, limiting the Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
O OPTIONS. The Fund may write call options from time to time. The Fund will
write only "covered" call options (options on securities owned by the Fund) and
index options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction," i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously wrote on any
particular security. When a portfolio security subject to a call option is sold,
the Fund will effect a closing purchase transaction to close out any existing
call option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Upon
the exercise of an option, the Fund is not entitled to the gains, if any, on
securities underlying the options. The Fund intends to limit its investments in
call and index options to 25% of its total assets.
Certain investment management techniques which the Fund may use, such as the
purchase and sale of futures and options (described above), may expose the Fund
to special risks. These products may be used to adjust the risk and return
characteristics of the Fund's portfolio of investments. These various products
may increase or decrease exposure to fluctuation in security prices, interest
rates, or other factors that affect security values, regardless of the issuer's
credit risk. Regardless of whether the intent was to decrease risk or increase
return, if market conditions do not perform consistently with expectations,
these products may result in a loss. In addition, losses may occur if
counterparties involved in transactions do not perform as promised. These
products may expose the Fund to potentially greater risk of loss than more
traditional equity investments.
The options and futures contracts described in this section are frequently
referred to as derivative securities. In general, derivative securities are
instruments whose value is based upon, or derived from, some underlying index,
reference rate (e.g., interest rates or currency exchange rates), security,
commodity, or other assets.
O PORTFOLIO TRANSACTIONS. The Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to take advantage of what Key Advisers or the Sub-Adviser believes
are changes in market, industry or individual company conditions or outlook. Any
such trading would increase the Fund's turnover rate and its transaction costs.
High turnover will generally result in higher brokerage costs and possible tax
consequences for the Fund. In the fiscal year ended October 31, 1995, the
portfolio turnover rate was 38.57% compared to 17.90% in the fiscal period
December 3, 1993 to October 31, 1994.
From time to time, the Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which Key Advisers or the Sub-Adviser or its affiliates have a lending
relationship.
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NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Fund and risk factors. The investment
policies and limitations of the Fund may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
policy of the Fund or (2) a policy is expressly deemed to be changeable only by
such majority vote.
INVESTMENT LIMITATIONS
The following summarizes some of the Fund's principal investment limitations.
The Statement of Additional Information contains a complete listing of the
Fund's investment limitations and provides additional information about
investment restrictions designed to reduce the risk of an investment in the
Fund.
1. The Fund may not borrow money other than (a) by entering into
commitments to purchase securities in accordance with its investment
program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of such
commitments do not exceed 33 1/3% of the Fund's total assets; and (b)
for temporary or emergency purposes in an amount not exceeding 5% of
the value of the Fund's total assets.
2. The Fund will not purchase a security if, as a result, more than 15% of
its net assets would be invested in illiquid securities. Illiquid
securities are investments that cannot be readily sold within seven
days in the usual course of business at approximately the price at
which the Fund has valued them. Under the supervision of the Trustees,
Key Advisers or the Sub-Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell
them promptly at an acceptable price.
3. The Fund is "diversified" within the meaning of the 1940 Act. With
respect to 75% of its total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
4. The Fund's policy regarding concentration of investments provides that
the Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements secured
thereby) if, as a result, more than 25% of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry.
Each of the investment limitations indicated above in this subsection are
fundamental, except for the limitation pertaining to illiquid securities.
Non-fundamental limitations may be changed without shareholder approval.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the investment and any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations, except in the case of borrowing (or other
activities that may be deemed to result in the issuance of a "senior security"
under the 1940 Act). If the value of the Fund's illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due to
subsequent fluctuations in value or other reasons, the Trustees will consider
what actions, if any, are appropriate to maintain adequate liquidity.
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HOW TO INVEST, EXCHANGE AND REDEEM
HOW TO INVEST
The Fund offers investors two different classes of shares. The different classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses and will likely have different share prices.
O CLASS A SHARES AND CLASS B SHARES. If Class A shares are purchased, there is
an initial sales charge (on investments up to $1 million). If Class B shares are
purchased, there is no sales charge at the time of purchase, but if the shares
are redeemed within six years, you will normally pay a contingent deferred sales
charge ("CDSC") that varies depending on how long you own your shares.
O WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser:
1. AMOUNT OF INVESTMENT. If you plan to invest a substantial amount, the
reduced sales charges available for larger purchases of Class A shares
may be more beneficial to you. Any order for $1 million or more will
only be accepted as Class A shares for that reason.
2. INVESTMENT HORIZON. While future financial needs cannot be predicted
with certainty, investors who prefer not to pay an initial sales charge
and who plan to hold their shares for more than six years might
consider Class B shares. Investors who plan to redeem shares within
eight years might prefer Class A shares.
3. DIFFERENCES IN ACCOUNT FEATURES. The dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B
shares are subject, as described below and in the Statement of
Additional Information.
A salesperson, financial planner, investment adviser or trust officer who
provides you with information regarding the investment of your assets (an
"Investment Professional") or other person who is entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one class than for selling another class. Both the CDSC (an asset-based
sales charge) for Class B shares and the front-end sales charge on sales of
Class A shares are used primarily to compensate such persons.
O HOW ARE SHARES PURCHASED? Shares may be purchased directly or through an
Investment Professional of a securities broker or other financial institution
that has entered into a selling agreement with the Fund or the Distributor.
Shares are also available to clients of bank trust departments. The minimum
investment is $500 ($250 for Individual Retirement Accounts) for the initial
purchase and $25 thereafter. Accounts set up through a bank trust department or
an Investment Professional may be subject to different minimums. When you buy
shares, be sure to specify Class A or Class B shares. If you do not make a
selection, your investment will be made in Class A shares.
O INVESTING THROUGH YOUR INVESTMENT PROFESSIONAL. Your Investment Professional
will place your order with the Transfer Agent (see "Fund Organization and
Fees-Transfer Agent"). You may be required to establish a brokerage or agency
account. Your Investment Professional will notify you whether subsequent trades
should be directed to the Investment Professional or directly to the Fund's
Transfer Agent. Accounts established with Investment Professionals may have
different features, requirements and fees. In addition, Investment Professionals
may charge for their services. Information regarding these features,
requirements and fees will be provided by the Investment Professional. If you
are purchasing shares of any Fund through a program of services offered or
administered by your Investment Professional, you should read the program
materials in conjunction with this Prospectus. You may initiate any transaction
by telephone through your Investment Professional.
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<PAGE>
See "Special Investor Services" for more information about telephone
transactions.
O INVESTING THROUGH YOUR BANK TRUST DEPARTMENT. Your bank trust department may
require a different minimum investment and may charge additional fees. Fee
schedules for such accounts are available upon request and are detailed in the
agreements by which a client opens the desired account. Your bank trust
department may require a completed and signed application for the Fund in which
an investment is made. Additional documents may be required from corporations,
associations, and certain fiduciaries. Any account information, such as
balances, should be obtained through your bank trust department. Additional
purchases, exchanges or redemptions should also be coordinated through your bank
trust department. Contact your bank trust department for instructions.
The services rendered by a bank trust department, including Key Trust Company of
Ohio, N.A. and other affiliates of Key Advisers or the Sub-Adviser are not
duplicative of any of the services for which Key Advisers or the Sub-Adviser as
the investment adviser or sub-adviser, respectively, is compensated for advising
the Fund. The charges paid by clients of bank trust departments, or their
affiliates, should also be considered by the investor in addition to the net
yield and return on the investment in the Fund, although such charges do not
affect the Fund's dividends or distributions.
O INVESTING THROUGH THE SYSTEMATIC INVESTMENT PLAN. You can use the Systematic
Investment Plan to purchase shares directly from your bank account. Please refer
to "The Systematic Investment Plan" for more details.
INVESTING DIRECTLY
O BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in the amount of at least the minimum
investment requirement to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
Subsequent purchases may be made in the same manner.
O BY WIRE:
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS. Federal Funds should be
wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit to DDA Account # 9905-201-1
For further credit to Account # (insert your account
number, name and control number assigned by the
Transfer Agent)
The Fund does not impose a fee for wire transactions, although your bank may
charge you a fee for this service.
o BY ACH:
The purchase amount will be transferred between the bank account designated and
your fund account via Automated Clearing House ("ACH"). Only a bank account
maintained in a domestic financial institution which is an ACH member may be so
designated. The Fund may modify or terminate the telephone and/or ACH privilege
at any time or charge a service fee upon notice to shareholders. No such fee is
currently contemplated. If the designated bank account does not contain
sufficient assets at the time your order is processed, the order may be
cancelled, and you could be liable for resulting fees and/or losses. NOTE THAT
THIS SERVICE REQUIRES APPROXIMATELY 15 DAYS TO ESTABLISH. THEREFORE, IT MAY NOT
BE APPLICABLE TO REQUEST YOUR INITIAL PURCHASE UTILIZING THIS METHOD.
Class A shares are sold at the public offering price based on the net asset
value that is next determined after the Transfer Agent receives the purchase
order. Class B shares are sold at net asset value per share, but may be subject
to CDSC (see "Class B Shares"). In most cases, to receive that day's offering
price, the Transfer Agent must receive your order as of the close of regular
trading of the New York Stock Exchange ("NYSE") which is normally 4:00 p.m.
Eastern time (the "Valuation Time") on each Business Day (as defined in
"Shareholder Account Rules and Policies--Share Price"). If you buy shares
through an Investment Professional, the Investment Professional must receive
your order in a timely fashion on a regular Business Day. It is the
responsibility of your Investment Professional to transmit your order to
purchase shares to the Transfer Agent in a timely fashion in order for you to
receive that day's share price. The Transfer Agent may reject any purchase order
for the Fund's shares, in its sole discretion.
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<PAGE>
INVESTMENT REQUIREMENTS
All purchases made by check must be in U.S. dollars and made payable to the
Victory Funds, or in the case of a retirement account, the custodian or trustee.
Third party checks will not be accepted. Checks must be drawn on U.S. banks. No
cash will be accepted. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. The Fund or the Transfer Agent reserves the right to limit the
number of checks processed at one time. If your check does not clear, your
purchase will be canceled and you could be liable for any losses or fees
incurred. Payment for the purchase is expected at the time of the order. If
payment is not received within three business days of the date of the order, the
order may be canceled, and you could be held liable for resulting fees and/or
losses.
CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. When you invest, the Fund receives the net
asset value for your account. The sales charge varies depending on the amount of
your purchase and a portion may be retained by the Distributor and allocated to
your Investment Professional. The Victory Portfolios has a reinstatement policy
which allows an investor who redeems shares originally purchased with a sales
charge to reinvest within 90 days without incurring an additional sales charge.
The current sales charge rates and commissions paid to Investment Professionals
are as follows:
CLASS A SALES CHARGE DEALER
-------------------- REALLOWANCE
AS A % OF AS A % OF AS A %
OFFERING NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------ ----- -------- -----
Less than $49,999........... 4.75% 4.99% 4.00%
$50,000 to $99,999.......... 4.50% 4.71% 4.00%
$100,000 to $249,999........ 3.50% 3.63% 3.00%
$250,000 to $499,999........ 2.25% 2.30% 2.00%
$500,000 to $999,999........ 1.75% 1.78% 1.50%
$1,000,000 and above........ 0.00% 0.00% (1)
(1) There is no initial sales charge on purchases of $1 million or more.
Investment Professionals will be compensated at the rate of up to 0.25%
on such purchases.
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
The Distributor may pay all or a portion of any applicable sales charges and
service fees to Investment Professionals who sell shares of the Fund and provide
ongoing sales support services or shareholder support services. For the
three-year period commencing April 30, 1994, for activities in maintaining and
servicing accounts of customers invested in the Fund, First Albany Corporation
("First Albany") and PFIC Securities Corporation ("PFIC") may receive payments
from the Distributor equal to two-thirds of the Dealer Retention (as defined
below) on any shares of the Fund (and other funds of the Victory Portfolios)
sold
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<PAGE>
by First Albany or PFIC and their broker-dealer affiliates. "Dealer Retention"
is an amount equal to the difference between the applicable sales charge and
such part of the sales charge which is reallowed to broker-dealers.
REDUCED SALES CHARGES FOR CLASS A SHARES. You may be eligible to buy Class A
shares at reduced sales charge rates in one or more of the following ways:
O LETTER OF INTENT FOR CLASS A SHARES. An investor may obtain a reduced sales
charge by means of a written Letter of Intent which expresses the investor's
intention to invest a specified amount within a 13-month period, which if made
at one time, would qualify for a reduced sales charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of the total amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such escrowed
shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends (if any) on escrowed shares, whether paid in cash or
reinvested in additional shares, are not subject to escrow. The escrowed shares
will not be available for redemption, exchange or other disposal by the investor
until all purchases pursuant to the Letter of Intent have been made or the
higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. A Letter of Intent may include purchases
of shares made not more than 90 days prior to the date the investor signs a
Letter of Intent; however, the 13-month period during which the Letter of Intent
is in effect will begin on the date of the earliest purchase to be included. An
investor may combine purchases that are made in an individual capacity with (1)
purchases that are made by members of the investor's immediate family and (2)
purchases made by businesses that the investor owns as sole proprietorships, for
purposes of obtaining reduced sales charges by means of a written Letter of
Intent. In order to accomplish this, however, investors must designate on the
Account Application the accounts that are to be combined for this purpose.
Investors can only designate accounts that are open at the time the Letter of
Intent is executed.
If an investor qualifies for a further reduced sales charge because the investor
has either purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional shares of the Fund on behalf of the
investor; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For further information about Letters of Intent, interested investors should
contact the Transfer Agent at 800-539-3863. This program, however, may be
modified or eliminated at any time without notice.
O RIGHT OF ACCUMULATION AND CONCURRENT PURCHASES. A shareholder may qualify for
a reduced sales charge on purchases of Class A Shares of the Fund, and Class A
shares of other funds of the Victory Portfolios, by combining a current purchase
with purchases of another fund(s), or with certain prior purchases of shares of
the Victory Portfolios. The applicable sales charge is based on the sum of (1)
the purchaser's current purchase plus (2) the current public offering price of
the purchaser's previous purchases of (a) all shares held by the purchaser in
the Fund and (b) all shares held by the purchaser in any Class A shares of other
funds of the Victory Portfolios (except money market funds).
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must provide the Transfer Agent with sufficient
information at the time of purchase to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor. See "Combined Purchases" and "Rights of Accumulation" in the
Statement of Additional Information.
O WAIVERS OF CLASS A SALES CHARGES. No sales charge is imposed on sales of Class
A shares to the following categories of persons (which categories may be changed
or eliminated at any time):
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<PAGE>
(1) Current or retired Trustees of the Victory Portfolios; employees,
directors, trustees, and their family members of KeyCorp or an
"Affiliated Provider" ("Affiliated Providers" refer to affiliates and
subsidiaries of KeyCorp and service providers to the Victory Portfolios
and the Victory Shares (collectively, the "Victory Group")), dealers
having an agreement with the Distributor and any trade organization to
which Key Advisers, the Sub-Adviser or the Administrator belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with KeyCorp or any of its
affiliates;
(3) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust
or custody account that was either (a) maintained by KeyCorp or an
Affiliated Provider, or (b) invested in a fund of the Victory Group;
(4) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon
redemption of shares;
(5) Shareholders of the former Investors Preference Fund For Income, Inc.
and the Investors Preference New York Tax-Free Fund, Inc. who have
continuously maintained accounts with a fund or funds of the Victory
Group with a balance of $250,000 or more (investors with less than
$250,000 will pay any applicable sales charges);
(6) Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of
such investment advisers or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment adviser or financial planner on the books and records
of the broker or agent. Such accounts include retirement and deferred
compensation plans and trusts used to fund those plans, including, but
not limited to, those defined in section 401(a), 403(b), or 457 of the
Internal Revenue Code and "rabbi trusts."
CLASS B SHARES. Class B shares are sold at net asset value per share without an
initial sales charge. However, if Class B shares are redeemed within six years
of their purchase, a CDSC will be deducted from the redemption proceeds. That
sales charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the original purchase
price. The CDSC is not imposed on the amount of the redeemed shares represented
by the increase in net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains distributions).
The Class B CDSC is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the CDSC applies to a redemption, the Victory Portfolios
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for over six years,
and (3) shares held the longest during the 6-year period. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASED ON REDEMPTIONS IN THAT YEAR
PAYMENT WAS MADE AS % OF AMOUNT SUBJECT TO CHARGE)
---------------- ---------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
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<PAGE>
In the table, a "year" is a 12-month period. Purchases will age based on trade
date of purchase. For example, a purchase made on January 1 will be one year old
on January 1 of the following year.
O WAIVERS OF CLASS B CDSC. The Class B CDSC will be waived if the shareholder
requests it for any of the following redemptions: (1) distributions to
participants or beneficiaries from Retirement Plans, if the distributions are
made (a) under an Automatic Withdrawal Plan after the participant reaches age 59
1/2 , as long as the payments are no more than 12% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue Code) of
the participant or the beneficial owner; (2) redemptions from accounts other
than Retirement Plans following the death or disability of the shareholder (as
evidenced by a determination of disability by the Social Security
Administration), (3) returns of excess contributions to Retirement Plans; and
(4) distributions of not more than 12% of the account value annually under an
automatic withdrawal plan.
The CDSC is also waived on Class B shares in the following cases: (1) shares
sold to Key Advisers, the Sub-Adviser or their affiliates; (2) shares issued in
plans of reorganization to which the Victory Portfolios is a party; and (3)
shares redeemed in involuntary redemptions as described above.
O AUTOMATIC CONVERSION OF CLASS B SHARES. Eight years after Class B shares are
purchased, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution Plan, described
below. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements-Class B Conversion Feature"
in the Statement of Additional Information.
O DISTRIBUTION PLAN FOR CLASS B SHARES. The Victory Portfolios has adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act for Class B
shares to compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Victory Portfolios
pays the Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares. This fee is computed on the average daily net assets of Class B
shares and paid monthly. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares. The asset-based sales charge
increases Class B expenses by up to 0.75% of average net assets per year.
The Distributor pays sales commissions of 4.00% of the purchase price to dealers
from its own resources at the time of sale. For maintaining and servicing
accounts of customers invested in the Fund, First Albany and PFIC Securities
Corporation may receive payments from the Distributor equal to two-thirds of the
excess of the scheduled CDSC over any commission payment to the selling broker.
The Distributor retains the asset-based sales charge to recoup the sales
commissions it pays and its financing costs. If the Plan is terminated by the
Victory Portfolios, it provides that the Trustees may elect to continue payments
for certain expenses already incurred. The payments under the Plan increase the
annual expenses of Class B shares. For more details, please refer to "Advisory
and Other Contracts - Class B Shares Distribution Plan" in the Statement of
Additional Information.
SPECIAL INVESTOR SERVICES
O THE SYSTEMATIC INVESTMENT PLAN. You can make regular investments in the Fund
with the Systematic Investment Plan by completing the appropriate section of the
Account Application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is jointly
owned, be sure that all owners sign. You must first meet the Fund's initial
investment requirement of $500, then investments may be made monthly, quarterly,
semi-annually or annually by automatically deducting $25 or more from your bank
account. For officers, trustees, directors and employees, including retired
directors and employees, of the Victory Group, KeyCorp and its affiliates, and
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<PAGE>
the Administrator and its affiliates (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required. You may change the amount of your purchase
at any time. Your bank account will be debited on the date indicated on your
Account Application. Shares will be purchased at the offering price next
determined following receipt of the order by the Transfer Agent. You may cancel
the Systematic Investment Plan at any time without payment of a cancellation
fee. Your monthly account statement will reflect systematic investment
transactions, and a debit entry will appear on your bank statement.
O THE SYSTEMATIC WITHDRAWAL PLAN. You can make regular withdrawals from your
account with the Systematic Withdrawal Plan by completing the appropriate
section of the Account Application. If you own shares in a fund worth $5,000 or
more, you can have monthly, quarterly, semi-annual or annual payment sent from
your account directly to you, to a person named by you, or to your bank checking
account. The minimum withdrawal is $25. If you are having funds sent to your
bank checking account, attach a voided personal check with your bank's magnetic
ink coding number across the front. The proceeds will be transferred between
your fund account and the bank account via ACH. If your account is jointly
owned, be sure that all owners sign. You may obtain information about the
Systematic Withdrawal Plan by contacting the Transfer Agent. Your Systematic
Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends and capital gain dividend
distributions earned on your Fund shares, your account eventually may be
exhausted. If any applicable sales charges are applied to new purchases of
shares of the Fund, it is to your disadvantage to buy shares of the Fund while
also making systematic redemptions. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan.
Your account will be debited on the date you indicate on your Account
Application. Shares will be redeemed at the net asset value per share ("NAV") as
determined on the debit date indicated on your Account Application. You may
cancel the Systematic Withdrawal Plan at any time without payment of a
cancellation fee. Each Systematic Withdrawal Plan transaction will appear as a
debit entry on your monthly account statement.
O TELEPHONE TRANSACTIONS. You can initiate most transactions by telephone. You
may call the Transfer Agent toll-free at 800-539-3863 or call your Investment
Professional or bank trust department. Telephone transaction privileges for
purchases, redemptions or exchanges may be modified, suspended or terminated by
the Fund at any time. If an account has more than one owner, the Fund and the
Transfer Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer representative of
record for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
Generally, neither the Fund, the bank trust department nor the Transfer Agent
will be responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. The Transfer Agent and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The identification procedures may include, but are not limited to,
the following: account number, registration and address, personalized security
codes, taxpayer identification number and other information particular to the
account. Your Investment Professional, bank trust department or the Transfer
Agent may also record calls, and you should verify the accuracy of your
confirmation statements immediately after you receive them.
O RETIREMENT PLANS. Retirement plans can be among the best tax-planning vehicles
available to individuals. Call your Investment Professional for more information
on the plans and their benefits, provisions and fees. Your Investment
Professional can set up your new account in the Fund under one of several
tax-sheltered plans. These plans let you invest for retirement and shelter your
investment income from current taxes. Plans include Individual Retirement
Accounts (IRAs) , Rollover IRAs, and other retirement plans such as Simplified
Employee Pension Plans (SEP/IRA), Salary Reduction SEP (SAR-SEP/IRA), 401(k)
Plans and 403(b) Plans. Other fees may be charged by the IRA custodian or
trustee.
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HOW TO EXCHANGE
Shares of the Fund may be exchanged for shares of certain funds of the Victory
Group at net asset value per share at the time of exchange, without a sales
charge. To exchange shares, you must meet several conditions:
(1) Shares of the fund selected for exchange must be available for sale in
your state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you
purchase by exchange.
(5) The registration and tax identification numbers of the two accounts
must be identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH
TO PURCHASE BY EXCHANGE.
SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE SAME CLASS
IN THE OTHER FUNDS OF THE VICTORY GROUP. For example, you can exchange Class A
shares of this Fund only for Class A shares of another fund. At present, not all
of the funds offer the same two classes of shares. If a fund has only one class
of shares that does not have a class designation, they are "Class A" shares for
exchange purposes. In some cases, sales charges may be imposed on exchange
transactions. Certain funds offer Class A or Class B shares and a list can be
obtained by calling the Transfer Agent at 800-539-3863. Please refer to the
Statement of Additional Information for more details about this policy.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to the Valuation Time
on any Business Day (see "Shareholder Account Rules and Policies -- Share
Price").
You can obtain a list of eligible funds of the Victory Group by calling the
Transfer Agent at 800-539-3863. Key Mutual Funds, which is managed by Key
Advisers and Spears, Benzak, Salomon & Farrell, Inc., both affiliates of
KeyCorp, is a part of the Victory Group. BISYS Fund Services is the
Administrator and Distributor for Key Mutual Funds. Exchange privileges
applicable to the Victory Group will also apply to Key Mutual Funds. Exchanges
of shares involve a redemption of the shares of the Fund and a purchase of
shares of the other fund of the Victory Group.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern time)
that is in proper form, but either fund may delay the issuance of shares of the
fund into which you are exchanging if it determines it would be disadvantaged by
a same-day transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy might
create excessive turnover in the Fund's portfolio and associated expenses
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm shareholders, the
Victory Portfolios reserves the right to refuse any exchange request that will
impede the Fund's ability to invest effectively or otherwise have the potential
to disadvantage the Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Victory Portfolios may amend, suspend or terminate the exchange privilege
at any time upon 60 days' written notice to shareholders.
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<PAGE>
o If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible for exchange will be
exchanged.
o Each exchange may produce a gain or loss for tax purposes.
Shareholders of the former Investors Preference Fund for Income, Inc. and
Investors Preference New York Tax-Free Fund, Inc. will not be subject to any
additional sales charge upon an exchange of shares attributable to an Investors
Preference Funds account for shares of other funds of the Victory Portfolios.
HOW TO REDEEM
You may redeem all or a portion of your shares on any day that the Fund is open
for business (see the definition of "Business Day" under "Shareholder Account
Rules and Policies -- Share Price"). Shares will be redeemed at the NAV next
calculated after the Transfer Agent has received the redemption request.
You may redeem shares in several ways:
O BY MAIL. Send a written request to: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
Write a "letter of instruction" with your name, the Fund's name, your Fund
account number, the dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular account. You will need the
letter of instruction signed by all persons required to sign for transactions,
exactly as their names appear on the Account Application. A signature guarantee
is required if: you wish to redeem more than $10,000 worth of shares; your Fund
account registration has changed within the last 60 days; the check is not being
mailed to the address on your account; the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
Victory Group account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public. A signature guarantee is designed to
protect you, the Fund and its agents from fraud. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
O BY WIRE. You may make redemptions by wire provided you have established a Fund
account to accommodate wire transactions. If telephone instructions are received
before Valuation Time (normally 4:00 p.m. Eastern time), proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. You may change the bank account
designated to receive an amount redeemed at any time by sending a letter of
instruction with a signature guarantee to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527.
O BY TELEPHONE. To redeem by telephone, you may call the Transfer Agent toll
free at 800-539-3863 or call your Investment Professional or bank trust
department. See "Special Investor Services" for more information about telephone
transactions.
O ADDITIONAL REDEMPTION REQUIREMENTS. When purchases are made by check or
periodic account investment, payments on redemptions may be delayed until the
investment being redeemed has been in the account for 15 calendar days. Also,
when the New York Stock Exchange ("NYSE") is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances as determined by the Commission to merit
such action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed 7 days. In addition, the Fund
reserves the right to advance the time on that day by which purchase and
redemption orders must be received. To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, the Fund's NAV may be
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affected on days when investors do not have access to the Fund to purchase or
redeem shares.
If you are unable to reach the Transfer Agent by telephone (for example, during
times of unusual market activity), consider placing your order by mail directly
to the Transfer Agent. In case of suspension of the right of redemption, you may
either withdraw your request for redemption or receive payment based on the NAV
next determined after the termination of the suspension. If your balance in the
Fund falls below $500, you may be given 60 days' notice to reestablish the
minimum balance (except with respect to officers, trustees, directors and
employees, including retired directors and employees, of the Victory Portfolios,
KeyCorp and its affiliates, and the Administrator and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). If you do not increase
your balance, your account may be closed and the proceeds mailed to you at the
address on record. Shares will be redeemed at the last calculated NAV on the day
the account is closed.
SHAREHOLDER ACCOUNT RULES AND POLICIES
O SHARE PRICE. The term "net asset value per share," or "NAV", means the value
of one share. The NAV of each class of shares is calculated by adding the value
of all the Fund's investments, plus cash and other assets, deducting liabilities
of the Fund and of the class, and then dividing the result by the number of
shares of the class outstanding. The NAV of the Fund is determined and its
shares are priced as of the close of regular trading of the NYSE which is
normally 4:00 p.m. Eastern time (the "Valuation Time") on each Business Day of
the Fund. A "Business Day" is a day on which the NYSE is open for trading and
any other day (other than a day on which no shares of the Fund are tendered for
redemption and no order to purchase any shares is received) during which there
is sufficient trading in its portfolio instruments that the Fund's net asset
value per share might be materially affected. The NYSE will not be open in
observance of the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund's securities are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method that the Trustees believe
accurately reflects fair value. Fair value of these portfolio securities is
determined by an independent pricing service based primarily upon information
concerning market transactions and dealers quotations for comparable securities.
o The offering of shares may be suspended during any period in which the
determination of NAV is suspended, and the offering may be suspended by the
Trustees at any time the Trustees believe it is in the Fund's best interest to
do so.
o If your account is established with an Investment Professional or a bank, you
may or may not be able to purchase, exchange or sell shares on other holidays
when the Federal Reserve Bank of Cleveland is closed, including Martin Luther
King, Jr. Day, Columbus Day and Veterans Day.
o Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the Transfer
Agent in its discretion may waive certain of the requirements for redemptions
stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Victory Portfolios if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the value of
the securities in the Fund fluctuates, and the value of your shares may be more
or less than their original cost.
o Payment for redeemed shares is ordinarily made in cash and forwarded by check
within three business days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances determined by
the Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 15 days from the date
the
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<PAGE>
shares were purchased. That delay may be avoided if you arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
o If your account value has fallen below $500, you may be given 60 days' notice
to reestablish the minimum balance. If you do not increase your minimum balance,
your account may be closed and the proceeds mailed to you at the record address.
In some cases involuntary redemptions may be made to repay the Distributor for
losses from the cancellation of share purchase orders. Under certain
circumstances, shares of the Fund may be redeemed "in kind," which means that
the redemption proceeds will be paid with securities from the Fund. Please refer
to the Statement of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate of 31%
from dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Victory Portfolios with a certified Social Security or
taxpayer identification number when you sign your Account Application, or if you
violate Internal Revenue Service regulations on tax reporting of dividends.
o The Victory Portfolios does not charge a redemption fee, but if an Investment
Professional handles your redemption, the Investment Professional may charge a
separate service fee. Under the circumstances described in "How to Invest," you
may be subject to a CDSC when redeeming Class B shares.
o The Distributor, at its expense, may also provide additional cash compensation
to dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 4.00% of the offering price. In
addition, the Distributor will, from time to time and at its own expense,
provide compensation, including financial assistance, to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more Victory Portfolios
and/or other dealer-sponsored special events including payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will include the following types of non-cash compensation offered
through sales contests: (1) vacation trips including the provision of travel
arrangements and lodging; (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Fund's shares to
qualify for this compensation if prohibited by the laws of any state or any
self-regulatory organization, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by the Fund or
its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund may make
distributions at least annually out of any realized capital gains, and the Fund
may make supplemental distributions of dividends and capital gains following the
end of its fiscal year.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividend distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your income and capital gain dividends, if any,
will be automatically reinvested in additional shares of the Fund.
Income and capital gain dividends will be reinvested at the net asset
value of your class of shares of the Fund as of the day after the
record date. If you do not indicate a choice on your Account
Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each income or capital gain
dividend, if any. Distribution checks will be mailed no later than 7
days after the dividend payment date which may be more than 7 days
after the dividend record date.
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<PAGE>
3. INCOME EARNED OPTION. You will have your capital gain dividend
distributions, if any, reinvested automatically in the Fund at the NAV
of your class of shares of the Fund as of the day after the record date
and have your income dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have income and capital gain
dividends, or only capital gain dividends, automatically reinvested in
shares of another fund of the Victory Group. Shares will be purchased
at the NAV as of the day after the record date. If you are reinvesting
dividends of a fund sold without a sales charge in shares of a fund
sold with a sales charge, the shares will be purchased at the public
offering price. If you are reinvesting dividends of a fund sold with a
sales charge in shares of a fund sold with or without a sales charge,
the shares will be purchased at the net asset value of the fund.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your income and capital
gain dividends, or only your income dividends, automatically
transferred to your bank checking or savings account. The amount will
be determined on the dividend record date and will normally be
transferred to your account within 7 days of the dividend record date.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please
call or write the Transfer Agent to learn more about this dividend
distribution option.
Any election or revocation of any of the above dividend distribution options may
be made in writing to the Fund and sent to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863, and
will become effective with respect to dividends having record dates after
receipt of the Account Application or request by the Transfer Agent.
Reinvested dividend distributions receive the same tax treatment as dividend
distributions paid in cash.
O STATEMENTS AND REPORTS. You will receive a monthly statement reflecting all
transactions that affect the share balance or the registration of your Fund
account. You will receive a confirmation after every transaction that affected
the share balance of your Fund account, except for dividend reinvestment,
systematic investment and systematic withdrawal transactions. These transactions
will be detailed in your Fund account statement. Transactions that affect the
share balance of your Fund investment in an account established with an
Investment Professional or financial institution will be detailed in regular
statements or through confirmation procedures of the financial institution.
Certificates representing shares of the Fund will not be issued. An IRS Form
1099-DIV with federal tax information will be mailed to you by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
will receive the Fund's financial reports.
O REDEMPTIONS OR EXCHANGES. Investors may realize a gain or loss when redeeming
(selling) or exchanging shares. For most types of accounts, the Fund reports the
proceeds to the IRS annually. Because the shareholders' tax treatment also
depends on their purchase price and personal tax positions, shareholders should
keep their regular account statements to use in determining their tax. See
"Buying a Dividend."
O COMPLETE REDEMPTIONS. If you request a complete redemption of all your Fund
shares, any dividend accrued to your account will be included in the redemption
check.
O BUYING A DIVIDEND. On the record date for a distribution of ordinary income or
capital gains dividend, the net asset value of the Fund is reduced by the amount
of the distribution. An investor who buys shares just before the record date
("buying a dividend") will pay the full price for the shares and then receive a
portion of the purchase price back as a taxable distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "IRS Code"). The Fund contemplates the distribution of all of its net
investment income and capital gains, if any, in accordance with the timing
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<PAGE>
requirements imposed by the IRS Code, so that it will not be subject to federal
income taxes or the 4% excise tax on undistributed income.
Distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but only a portion thereof may
qualify for the 70% dividends received deduction for corporate shareholders
(which portion may not exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund and must be designated by the Fund as
so qualifying). Distributions by the Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are designated as
capital gain dividends and are taxable to shareholders as long-term capital
gain, regardless of the length of time shareholders have held their shares. Such
distributions are not eligible for the dividends-received deduction. If a
shareholder disposes of shares in the Fund at a loss before holding such shares
for more than six months, the loss will be treated as a long-term capital loss
to the extent that the shareholder has received a capital gain dividend on those
shares.
Distributions to shareholders of the Fund will be treated in the same manner for
federal income tax purposes whether received in cash or in additional shares and
may also be subject to state and local taxes. Distributions received by
shareholders of the Fund in January of a given year will be treated as received
on December 31 of the preceding year provided that they were declared to
shareholders of record on a date in October, November or December of such
preceding year. The Fund sends tax statements to its shareholders (with copies
to the Internal Revenue Service (the "IRS")) by January 31 showing the amounts
and tax status of distributions made (or deemed made) during the preceding
calendar year.
Income from securities of foreign issuers may be subject to foreign withholding
taxes. Credit for such foreign taxes, if any, will not pass through to the
shareholders.
O OTHER TAX INFORMATION. The information above is only a summary of some of the
federal income tax consequences generally affecting the Fund and its U.S.
shareholders, and no attempt has been made to discuss individual tax
consequences. A prospective investor should also review the more detailed
discussion of federal income tax considerations in the Statement of Additional
Information. In addition to the federal income tax, a shareholder may be subject
to state or local taxes on his or her investment in the Fund, depending on the
laws of the shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN
THE FUND SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS
SUITABLE TO THEIR PARTICULAR TAX SITUATION.
When investors sign their Account Application, they are asked to provide their
correct social security or taxpayer identification number and other required
certifications. If investors do not comply with IRS regulations, the IRS
requires the Fund to withhold 31% of amounts distributed to them by the Fund as
dividends or in redemption of their shares.
PERFORMANCE
From time to time, performance information for each class of shares of the Fund
showing total return of each class of shares may be presented in advertisements,
sales literature and in reports to shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated over a stated period
of more than one year. Average annual total return is measured by comparing the
value of an investment in a class at the beginning of the relevant period (as
adjusted for sales charges, if any) to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions) and annualizing that figure. Cumulative total
return is calculated similarly to average annual total return, except that the
resulting difference is not annualized.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent thirty-day period by the Fund's maximum offering price
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last day of the period and annualizing the result.
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Investors may also judge, and the Victory Portfolios may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and data reported are not necessarily representative
of future results. Any fees charged by service providers with respect to
customer accounts for investing in shares of the Fund will not be reflected in
performance calculations.
Additional information regarding the performance of each fund of the Victory
Portfolios is included in the Victory Portfolios' annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
FUND ORGANIZATION AND FEES
The Victory Portfolios is an open-end management investment company, commonly
known as a mutual fund, and currently consisting of twenty-four series
portfolios. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware business trust. The Victory
Portfolios has been operating continuously since 1986, when it was created under
Massachusetts law as a Massachusetts business trust although certain of its
funds have a prior operating history from their predecessor funds. The Victory
Portfolios' offices are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Overall responsibility for management of the Victory Portfolios rests with its
Board of Trustees, who are elected by the shareholders of the Victory
Portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the Fund. Key
Advisers directs the investment of the Fund's assets, subject at all times to
the supervision of the Victory Portfolios' Board of Trustees. Key Advisers
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of the Fund's investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is an indirect wholly-owned subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers
manage approximately $48 billion for numerous clients including large corporate
and public retirement plans, Taft Hartley plans, foundations and endowments,
high net worth individuals and mutual funds.
For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Victory Portfolios respecting the Fund, Key
Advisers is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of one percent (1.00%) of the average daily net assets of the Fund.
The investment advisory fee paid by the Fund is higher than the advisory fees
paid by most mutual funds, although the Victory Portfolios' Board of Trustees
believes such fees to be comparable to advisory fees paid by many funds having
similar objectives and policies. The advisory fees for the Fund have been
determined to be fair and reasonable in light of the services provided to the
Fund. Key Advisers may periodically waive all or a portion of its advisory fee
with respect to the Fund. Prior to January 1, 1996, Society Asset Management,
Inc. served as investment adviser to the Fund. During the Fund's fiscal period
ended October 31, 1995 Society Asset Management, Inc. earned investment advisory
fees aggregating .74% of the average daily net assets of Class A shares of the
Fund.
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<PAGE>
Under the investment advisory agreement between the Victory Portfolios, on
behalf of the Fund, and Key Advisers (the "Investment Advisory Agreement"), the
Adviser may delegate a portion of its responsibilities to a sub-adviser. Key
Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc., a registered investment adviser, on
behalf of the Fund (the "Sub-advisory Agreement"). The Sub-Adviser is a
wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. The
Investment Advisory Agreement and the Sub-advisory Agreement, respectively,
provide that Key Advisers and the Sub-Adviser, respectively, may render services
through their own employees or the employees of one or more affiliated companies
that are qualified to act as an investment adviser of the Fund and are under the
common control of KeyCorp as long as all such persons are functioning as part of
an organized group of persons, managed by authorized officers of Key Advisers
and the Sub-Adviser, respectively. Key Advisers and the Sub-Adviser,
respectively, will be as fully responsible to the Fund for the acts and
omissions of such persons as they are for their own acts and omissions.
For its services under the investment sub-advisory agreement, Key Advisers pays
the Sub-Adviser fees as a percentage of average daily net assets as follows:
.90% of the first $10 million of average daily net assets; .70% of the next $15
million of average daily net assets; .55% of the next $25 million of average
daily net assets; and .45% of average daily net assets in excess of $50 million.
The persons primarily responsible for the investment management of the Fund as
well as their previous experience is as follows:
PORTFOLIO MANAGER MANAGING FUND SINCE PREVIOUS EXPERIENCE
Anthony Aveni Commencement of Portfolio Manager with
Operations Society Asset Management,
Inc. since 1993; Portfolio
Manager with Ameritrust
from 1981 to 1992.
Barbara Myers June, 1995 Portfolio Manager with
Society Asset Management,
Inc. since June, 1994;
Portfolio Manager with
Duff & Phelps, Inc. from
1989 to June, 1994.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, custodian or shareholder
servicing agent to such an investment company or from purchasing shares of such
a company as agent for and upon the order of their customers, nor should they
prevent Key Advisers, the Sub-Adviser or the Fund from compensating third
parties for performing such functions. Key Advisers, the Sub-Adviser and their
affiliates are subject to such banking laws and regulations.
Key Advisers and the Sub-Adviser believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory Agreement
without violating the Glass-Steagall Act or other applicable banking laws or
regulations and that they or their affiliates can perform the other services
indicated above. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations could prevent Key
Advisers, the Sub-Adviser and their affiliates from continuing to perform all or
a part of the above services for their customers and/or the Fund. In such event,
changes in the operation of the Fund may occur, including the possible
alteration or termination of any service then being provided by Key Advisers,
the Sub-Adviser and their affiliates, and the Trustees would consider alternate
investment advisers and other means of continuing available services. It is not
expected that the Fund's shareholders would suffer any adverse financial
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<PAGE>
consequences (if other service providers are retained) as a result of any of
these occurrences.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the Administrator, principal underwriter and Distributor
for the Fund.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses incurred and services provided as Administrator
pursuant to its management and administration agreement with the Victory
Portfolios, the Administrator receives a fee from the Fund, computed daily and
paid monthly, at an annual rate of fifteen one-hundredths of one percent (.15%)
of the Fund's average daily net assets. The Administrator may periodically waive
all or a portion of its administrative fee with respect to the Fund.
BISYS Fund Services, Inc. sells shares of the Fund as agent on behalf of the
Victory Portfolios at no cost to the Fund. Key Advisers and the Sub-Adviser
neither participate in nor are responsible for the underwriting of Fund shares.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110-3875
("State Street" or the "Transfer Agent") serves as the Transfer Agent for the
Funds, and receives a fee for such services based on various criteria, including
assets, transactions and number of accounts. Boston Financial Data Services,
Inc., Two Heritage Drive, Quincy, MA 02171 ("BFDS") is the dividend disbursing
agent and provides certain shareholder services to the Fund.
SHAREHOLDER SERVICING PLAN
The Victory Portfolios has adopted a Shareholder Servicing Plan for each class
of shares of the Fund. In accordance with the Shareholder Servicing Plan, the
Fund may enter into Shareholder Service Agreements under which the Fund pays
fees of up to .25% of the average daily net assets of each class for fees
incurred in connection with the personal service and maintenance of accounts
holding the shares of such class. Such agreements are entered into between the
Victory Portfolios and various shareholder servicing agents, including the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each, a "Shareholder Servicing
Agent"). Each Shareholder Servicing Agent generally will provide support
services to shareholders by establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
arranging for bank wires, responding to routine inquires, forwarding shareholder
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting shareholders in changing dividend options, account
designations and addresses. Shareholder Servicing Agents may periodically waive
all or a portion of their respective shareholder servicing fees with respect to
the Fund.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219, provides
certain accounting services for the Fund pursuant to a Fund Accounting Agreement
and receives a fee for such services.
CUSTODIAN
Key Trust Company of Ohio, N.A., an affiliate of the Adviser and Sub-Adviser,
serves as custodian for the Fund and receives fees for the services it performs
as custodian.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
BUSINESS MANAGEMENT AGREEMENT
In connection with its obligations under the investment sub-advisory agreement,
the Sub-Adviser has entered into a Business Management Agreement with Key
Advisers pursuant to which Key Advisers provides certain administrative and
support services to the Sub-Adviser. Such services include preparing reports to
- 26 -
<PAGE>
the Victory Portfolios' Board of Trustees, recordkeeping services, services
rendered in connection with the preparation of regulatory filings and other
reports, and regulatory, compliance and other administrative and support
services.
For such services, the Sub-Adviser pays fees to Key Advisers as follows: .55% on
the first $10 million of average daily net assets; .35% of the next $15 million
of average daily net assets; .20% of the next $25 million of average daily net
assets; and .10% of average daily net assets in excess of $50 million.
EXPENSES
For the fiscal year ended October 31, 1995, total operating expenses for Class A
shares were 1.30% of average net assets, excluding certain voluntary fee
reductions or reimbursements. For the fiscal period ended April 30, 1996, total
operating expenses for Class B shares were 2.07% of average net assets,
excluding certain voluntary fee reductions or reimbursements.
ADDITIONAL INFORMATION
The Victory Portfolios may issue an unlimited number of shares and classes of
the Fund. Shares of each class of the Fund participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
and paid for, shares will be fully paid and nonassessable by the Victory
Portfolios and will have no preference, conversion, exchange or preemptive
rights. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. For those investors with qualified
trust accounts, the trustee will vote the shares at meetings of the Fund's
shareholders in accordance with the shareholder's instructions or will vote in
the same percentage as shares that are not so held in trust. The trustee will
forward to these shareholders all communications received by the trustee,
including proxy statements and financial reports. The Victory Portfolios and the
Fund are not required to hold annual meetings of shareholders and in ordinary
circumstances do not intend to hold such meetings. The Trustees may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Trust Instrument. Under certain circumstances, the Trustees
may be removed by action of the Trustees or by the shareholders. Shareholders
holding 10% or more of the Victory Portfolios' outstanding shares may call a
special meeting of shareholders for the purpose of voting upon the question of
removal of Trustees.
The Victory Portfolio's Board of Trustees may authorize the Victory Portfolios
to offer other funds which may differ in the types of securities in which their
assets may be invested.
Key Advisers, the Sub-Adviser and the Victory Portfolios have each adopted a
Code of Ethics (the "Codes") which require investment personnel (a) to pre-clear
all personal securities transactions, (b) to file reports regarding such
transactions, and (c) to refrain from personally engaging in (i) short-term
trading of a security, (ii) transactions involving a security within seven days
of a Fund transaction involving the same security, and (iii) transactions
involving securities being considered for investment by a Victory fund. The
Codes also prohibit investment personnel from purchasing securities in an
initial public offering. Personal trading reports are reviewed periodically by
Key Advisers and the Sub-Adviser, and the Trustees review their Codes and any
substantial violations of the Codes). Violations of the Codes may result in
censure, monetary penalties, suspension or termination of employment.
DELAWARE LAW
On February 29, 1996, the Victory Portfolios converted to a Delaware business
trust from a Massachusetts business trust. The Delaware Business Trust Act
provides that a shareholder of a Delaware business trust shall be entitled to
the same limitation of personal liability extended to stockholders of Delaware
corporations and the Trust Instrument provides that shareholders will not be
personally liable for liabilities of the Victory Portfolios. In light of
Delaware law, the nature of the Victory Portfolios' business, and the nature of
its assets, management of the Victory Portfolios believes that the risk of
personal liability to a Fund shareholder would be extremely remote.
- 27 -
<PAGE>
In the unlikely event a shareholder is held personally liable for the Victory
Portfolios' obligations, the Delaware successor to the Victory Portfolios will
be required to use its property to protect or compensate the shareholder. On
request, the Delaware successor to the Victory Portfolios will defend any claim
made and pay any judgment against a shareholder for any act or obligation of the
Victory Portfolios. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Delaware successor to the Victory Portfolios
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
Delaware law authorizes electronic or telephone communications between
shareholders and the Victory Portfolios. Under Delaware law, the Delaware
successor to the Victory Portfolios will have the flexibility to respond to
future business contingencies. For example, the Trustees will have the power to
incorporate the Victory Portfolios, to merge or consolidate it with another
entity, to cause each fund to become a separate trust, and to change the Victory
Portfolio's domicile without a shareholder vote. This flexibility could help
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
MISCELLANEOUS
As of the date of this Prospectus, the Fund offers only the classes of shares
that are offered by this Prospectus. Subsequent to the date of this Prospectus,
the Fund may offer additional classes of shares through a separate prospectus.
Any such additional classes may have different charges and other expenses, which
would affect investment performance. To obtain a free prospectus of another
class of shares or to obtain additional information, call your Investment
Professional, call (800) 539-3863 or write to the address listed below.
Shareholders will receive Semi-Annual Reports, which are unaudited, and Annual
Reports, which are audited by independent accountants ("Reports"), describing
the investment operations of the Fund. Each of these Reports, when available for
a particular fiscal year end or the end of a semi-annual period, is incorporated
herein by reference. The Victory Portfolios may include information in their
Reports to shareholders that (a) describes general economic trends, (b)
describes general trends within the financial services industry or the mutual
fund industry, (c) describes past or anticipated portfolio holdings for the Fund
or (d) describes investment management strategies for the Victory Portfolios.
Such information is provided to inform shareholders of the activities of the
Victory Portfolios for the most recent fiscal year or semi-annual period and to
provide the views of Key Advisers, the Sub-Adviser and/or the Victory
Portfolios' officers regarding expected trends and strategies.
The Fund intends to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Reports at no cost by writing to the Fund at the address listed below.
Inquiries regarding the Victory Portfolios or the Fund may be directed in
writing to the Victory Funds at P.O. Box 8527, Boston, MA 02266-8527 or by
telephone, toll-free, at 800-539-3863.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY
PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE VICTORY PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
- 28 -
<PAGE>
MANAGED BY KEYCORP
THE VICTORY DIVERSIFIED STOCK FUND
JULY 30, 1996
<PAGE>
THE
VICTORY
PORTFOLIOS
DIVERSIFIED STOCK FUND
PROSPECTUS FOR CURRENT YIELD, PURCHASE AND REDEMPTION INFORMATION,
JULY 30, 1996 CALL 800-539-FUND OR 800-539-3863
THE VICTORY PORTFOLIOS (the "Victory Portfolios") is a registered open-end
management investment company that offers investors a selection of money market,
fixed-income, municipal bond, domestic and international equity portfolios. This
Prospectus relates to the DIVERSIFIED STOCK FUND (the "Fund"), a diversified
portfolio. KeyCorp Mutual Fund Advisers, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment adviser to the Fund ("Key Advisers" or
the "Adviser"). Society Asset Management, Inc., Cleveland, Ohio, an indirect
subsidiary of KeyCorp, is the investment sub-adviser to the Fund (the
"Sub-Adviser"). BISYS Fund Services ("BISYS") is the Fund's administrator (the
"Administrator") and distributor (the "Distributor").
The Fund seeks to provide long-term growth of capital. The Fund pursues this
investment objective by investing primarily in common stocks and securities
convertible into common stocks issued by established domestic and foreign
companies.
The Fund offers two classes of shares: (1) Class A shares, which are offered at
net asset value plus the applicable sales charge (maximum of 4.75% of public
offering price) and (2) Class B shares, which are offered at net asset value
with a maximum contingent deferred sales charge ("CDSC") of 5.0% imposed on
certain redemptions. At the end of the sixth year after purchase, the CDSC will
no longer apply to redemptions. Class B shares have higher ongoing expenses than
Class A shares, but automatically convert to Class A shares eight years after
purchase.
Please read this Prospectus before investing. It is designed to provide you with
information and to help you decide if the Fund's goals match your own. Retain
this document for future reference. A Statement of Additional Information (dated
July 30, 1996) for the Fund , an audited annual report for the Fund's fiscal
year ended October 31, 1995 and an unaudited semi-annual report for the six
months ended April 30, 1996 have been filed with the Securities and Exchange
Commission (the "Commission") and are incorporated herein by reference. The
Statement of Additional Information is available without charge upon request by
writing to The Victory Funds, P.O. Box 8527, Boston, MA 02266-8527, or by
calling 800-539-3863.
SHARES OF THE FUND ARE:
O NOT INSURED BY THE FDIC;
O NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, ANY KEYCORP
BANK, ANY OF ITS AFFILIATES, OR ANY OTHER BANK;
O SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE, NOR HAS
THE COMMISSION OR ANY SUCH STATE AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS PAGE
- ----------------- ----
Fund Expenses................................................................2
Financial Highlights.........................................................3
Investment Objective.........................................................4
Investment Policies and Risk Factors.........................................4
How to Invest, Exchange and Redeem...........................................8
Dividends, Distributions and Taxes..........................................17
Performance.................................................................19
Fund Organization and Fees..................................................20
Additional Information......................................................23
- 2 -
<PAGE>
FUND EXPENSES
The table below summarizes the expenses associated with the Fund. This standard
format was developed for use by all mutual funds to help an investor make
investment decisions. You should consider this expense information along with
other important information in this Prospectus, including the Fund's investment
objective, policies and risk factors.
SHAREHOLDER TRANSACTION EXPENSE(1)
CLASS A CLASS B
------- -------
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price)....4.75% none
Maximum Sales Charge Imposed on Reinvested
Dividends..................................none none
Deferred Sales Charge..........................none 5% in the first
year, declining
to 1% in the
sixth year and
eliminated
thereafter
Redemption Fees................................none none
Exchange Fee...................................none none
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets)
CLASS A CLASS B
------- -------
Management Fees................................ .65% .65%
Administration Fees............................ .15% .15%
Rule 12b-1 Distribution Fees................... .00% .75%
Other Expenses(2).............................. .25% .40%
----- -----
Total Fund Operating Expenses(2)............... 1.05% 1.95%
==== ====
(1) Investors may be charged a fee if they effect transactions in Fund
shares through a broker or agent, including affiliated banks and
non-bank affiliates of Key Advisors and KeyCorp. (See "How to Invest,
Exchange and Redeem.")
(2) These amounts include an estimate of the shareholder servicing fees the
Fund expects to pay (See "Fund Organization and Fees--Shareholder
Servicing Plan").
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) full redemption at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Diversified Stock Fund --
Class A Shares..............$58 $79 $103 $170
Diversified Stock Fund --
Class B Shares............ $70 $91 $125 $204
- 3 -
<PAGE>
The purpose of the table above is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Fund Organization and Fees" for a more complete discussion of
annual operating expenses of the Fund. The foregoing example is based upon
expenses for the fiscal year ended October 31, 1995 for Class A shares, the
period ended April 30, 1996 for Class B shares and expenses that the Fund is
expected to incur during the current fiscal year. THE FOREGOING EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
- 4 -
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect to the
financial highlights for the Fund for the periods indicated. For Class A shares,
the information below for the fiscal year ended October 31, 1995 has been
derived from financial statements audited by Coopers & Lybrand L.L.P.,
independent accountants for the Victory Portfolios, whose report thereon,
together with the financial statements of the Fund, is incorporated by reference
into the Statement of Additional Information. For Class B shares the information
below the fiscal period ended April 30, 1996 has not been audited. The
information set forth below is for a Class A share and a Class B share
outstanding for each period indicated.
<TABLE>
<CAPTION>
THE VICTORY DIVERSIFIED STOCK FUND
CLASS A SHARES
CLASS B SHARES CLASS A SHARES OCTOBER 20,
MARCH 1, 1996 TO 1989 TO
APRIL 30, 1996(A)(G) YEAR ENDED OCTOBER 31, OCTOBER 31,
--------------------------------------------------------------------------------------
(UNAUDITED) 1995(E) 1994(E) 1993(E) 1992(E) 1991(E) 1990(E)(F) 1989(A)(E)(F)
------- ------- ------- ------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $14.18 $ 12.68 $ 13.39 $ 12.16 $ 11.44 $ 9.25 $ 9.90 $ 10.00
------ ------- -------- -------- -------- -------- -------- -------
Income from Investment Activities
Net investment income................... 0.02 0.27 0.25 0.18 0.19 0.23 0.26
Net realized and unrealized gains (losses)
on investments and foreign currencies. 0.43 2.33 0.64 1.50 1.11 2.20 (0.67) (0.10)
-------- ------- -------- -------- -------- -------- -------- -------
Total from Investment Activities........ 0.45 2.60 0.89 1.68 1.30 2.43 (0.41) (0.10)
-------- ------- -------- -------- -------- -------- -------- -------
Distributions
Net investment income................... (0.04) (0.28) (0.23) (0.21) (0.19) (0.24) (0.24)
Net realized gains...................... -- (1.38) (1.37) (0.24) (0.39)
--------- -------- -------- -------- --------
Total Distributions..................... (0.04) (1.66) (1.60) (0.45) (0.58) (0.24) (0.24)
--------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...............$ 14.59 $ 13.62 $ 12.68 $ 13.39 $ 12.16 $ 11.44 $ 9.25 $ 9.90
========== ======== ======== ======== ======== ======== ======== =======
Total Return (Excludes Sales Charge).........(1.24)%(b) 23.54% 7.39% 14.04% 11.57% 27.50% (4.29%) (1.00%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000).............. $1,021 $409,549 $263,227 $257,405 $227,839 $177,472 $121,754 $80,046
Ratio of expenses to average net assets...... 1.70%(c) 0.92% 0.89% 0.89% 0.91% 0.91% 0.91% 0.75%(d)
Ratio of net investment income to average
net assets ............................... (0.40)%(c) 2.11% 2.06% 1.45% 1.63% 2.06% 2.75% 1.39%(d)
Ratio of expenses to average net assets(d)... 1.72%(c) 0.95% 1.10% 0.90%
Ratio of net investment income to average
net assets(d) ............................. (0.42)%(c) 2.07% 1.86% 1.43%
Portfolio turnover........................... 50.24% 75.05% 103.62% 86.32% 74.83% 50.78% 63.10% 3.00%
</TABLE>
- -------------------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) During the period , certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been as indicated.
(e) Effective June 5, 1995, the Victory Equity Income Portfolio merged into
the Value Fund. Financial highlights for the periods prior to June 5,
1995 represent the Value Fund.
(f) This information is not included in the financial statements audited by
Coopers & Lybrand L.L.P.
(g) Effective March 1, 1996, the Fund designated the existing shares as
Class A Shares and commenced offering Class B Shares.
- 5 -
<PAGE>
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital. The investment objective
of the Fund is fundamental and may not be changed without a vote of the holders
of a majority of its outstanding voting securities (as defined in the Statement
of Additional Information). There can be no assurance that the Fund will achieve
its investment objective.
INVESTMENT POLICIES AND RISK FACTORS
SUMMARY OF PRINCIPAL INVESTMENT POLICIES
The Fund pursues its objective by investing primarily in common stocks and
securities convertible into common stocks (i.e., warrants, convertible preferred
stock, fixed-rate preferred stock, convertible fixed income securities, options,
and rights) issued by established domestic and foreign companies which Key
Advisers or the Sub-Adviser believe represent investment value because their
market prices do not reflect their earnings performance or because Key Advisers
or the Sub-Adviser believe they are selling below historical price relationships
and/or underlying asset values.
Investments are based on analysis by Key Advisers or the Sub-Adviser of cash
flow, book value, dividend yield and growth potential, quality of management,
adequacy of revenues, earnings and capitalization, and future relative earnings
growth. Key Advisers and the Sub-Adviser will attempt to choose investments
which, in the aggregate, provide above average dividend yield and potential for
appreciation.
Under normal market conditions, the Fund will invest at least 80% of the value
of its total assets in common stocks and securities convertible into common
stocks, and no more than 20% of the value of its total assets in preferred
stocks, investment-grade corporate bonds and notes, warrants, and high quality
short-term debt obligations (including variable amount master demand notes),
bankers' acceptances, certificates of deposit, repurchase agreements,
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations.
Changes in the value of portfolio securities will not affect cash income, if
any, derived from these securities but will affect the Fund's net asset value.
Because the Fund invests primarily in equity securities, which fluctuate in
value, the Fund's shares will fluctuate in value.
ADDITIONAL INFORMATION REGARDING THE FUND'S INVESTMENTS
The following paragraphs provide a brief description of some of the types of
securities in which the Fund may invest in accordance with its investment
objective, policies and limitations, including certain transactions it may make
and strategies it may adopt. The following also contains a brief description of
certain risk factors. The Fund may, following notice to its shareholders, take
advantage of other investment practices which are not at present contemplated
for use by the Fund or which currently are not available but which may be
developed, to the extent such investment practices are both consistent with the
Fund's investment objective and are legally permissible for the Fund. Such
investment practices, if they arise, may involve risks which exceed those
involved in the activities described in this Prospectus.
o SHORT-TERM OBLIGATIONS. While the Fund will normally be predominantly invested
in equity securities, there may be times when, in Key Advisers' or the
Sub-Adviser's opinion, market conditions warrant that, for temporary defensive
purposes, the Fund may hold more than 20% of its total assets in short-term
obligations. To the extent that the Fund's assets are so invested, they will not
be invested so as to meet its investment objective. The instruments may include
"high-quality" liquid debt securities such as commercial paper, certificates of
deposit, bankers' acceptances, repurchase agreements which mature in less than
seven days and United States Treasury Bills. Bankers' acceptances are
instruments of United States banks which are drafts or bills of exchange
- 6 -
<PAGE>
"accepted" by a bank or trust company as an obligation to pay on maturity. For
a discussion of repurchase agreements, see below.
o INVESTMENT GRADE AND HIGH QUALITY SECURITIES. The Fund may invest in
"investment grade" obligations, which are those rated at the time of purchase
within the four highest rating categories assigned by a nationally recognized
statistical ratings organization ("NRSRO") or, if unrated, are obligations that
Key Advisers or the Sub-Adviser determine to be of comparable quality. The
applicable securities ratings are described in the Appendix to the Statement of
Additional Information. "High- quality" short-term obligations are those
obligations which, at the time of purchase, (1) possess a rating in one of the
two highest ratings categories from at least one NRSRO (for example, commercial
paper rated "A-1" or "A-2" by Standard & Poor's Corporation or "P-1" or "P-2" by
Moody's Investors Service, Inc.) or (2) are unrated by an NRSRO but are
determined by Key Advisers or the Sub-Adviser to present minimal credit risks
and to be of comparable quality to rated instruments eligible for purchase by
the Fund under guidelines adopted by the Board of Trustees (the "Trustees").
o FOREIGN SECURITIES. The Fund may invest in equity securities of foreign
issuers, including securities traded in the form of American Depository
Receipts. The Fund will limit its investments in such securities to 20% of its
total assets. The Fund will not hold foreign currency as a result of investment
in foreign securities.
Investments in securities of foreign companies generally involve greater risks
than are present in U.S. investments. Compared to U.S. and Canadian companies,
there is generally less publicly available information about foreign companies
and there may be less governmental regulation and supervision of foreign stock
exchanges, brokers and listed companies. Foreign companies generally are not
subject to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid, and their prices more
volatile, than securities of comparable U.S. companies. Settlement of
transactions in some foreign markets may be delayed or may be less frequent than
in the U.S., which could affect the liquidity of the Fund's investment. In
addition, with respect to some foreign countries, there is the possibility of
nationalization, expropriation or confiscatory taxation; limitations on the
removal of securities, property or other assets of the Fund; political or social
instability; increased difficulty in obtaining legal judgments; or diplomatic
developments which could affect U.S. investments in those countries. Key
Advisers or the Sub-Adviser will take such factors into consideration in
managing the Fund's investments.
o ZERO COUPON BONDS.The Fund is permitted to purchase both zero coupon U.S.
government securities and zero coupon corporate securities ("zero coupon
bonds"). Zero coupon bonds are purchased at a discount from the face amount
because the buyer receives only the right to a fixed payment on a certain date
in the future and does not receive any periodic interest payments. The effect of
owning instruments which do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on
accretion during the life of the obligations. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest
distributions at a rate as high as the implicit yields on the zero coupon bond,
but at the same time eliminates the holder's ability to reinvest at higher
rates. For this reason, zero coupon bonds are subject to substantially greater
price fluctuations during periods of changing market interest rates than are
comparable securities which pay interest periodically. The amount of price
fluctuation tends to increase as maturity of the security increases.
o RECEIPTS. In addition to bills, notes and bonds issued by the U.S. Treasury,
the Fund may also purchase separately traded interest and principal component
parts of such obligations that are transferable through the Federal book entry
system, known as Separately Traded Registered Interest and Principal Securities
("STRIPS") and Coupon Under Book Entry Safekeeping ("CUBES"). These instruments
are issued by banks and brokerage firms and are created by depositing Treasury
notes and Treasury bonds into a special account at a custodian bank; the
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
- 7 -
<PAGE>
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include Treasury Receipts ("TRs"), Treasury Investment
Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities
("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which
means that they are sold at a substantial discount and redeemed at face value at
their maturity date without interim cash payments of interest or principal. This
discount is amortized over the life of the security, and such amortization will
constitute the income earned on the security for both accounting and tax
purposes. Because of these features, these securities may be subject to greater
fluctuations in value due to changes in interest rates than interest-paying U.S.
Treasury obligations. The Fund will limit its investment in such instruments to
20% of its total assets.
o SECURITIES LENDING. In order to generate additional income, the Fund may, from
time to time, lend its portfolio securities. The Fund must receive collateral
equal to 100% of the securities' value in the form of cash or U.S. Government
securities, plus any interest due, which collateral must be marked to market
daily by Key Advisers or the Sub-Adviser. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund amounts equal to any dividends or interest paid on such securities plus any
interest negotiated between the parties to the lending agreement. Loans are
subject to termination by the Fund or the borrower at any time. While the Fund
does not have the right to vote securities on loan, the Fund intends to
terminate any loan and regain the right to vote if that is considered important
with respect to the Fund's investment. The Fund will only enter into loan
arrangements with broker-dealers, banks or other institutions which Key Advisers
or the Sub-Adviser has determined are creditworthy under guidelines established
by the Victory Portfolios' Board of Trustees (the "Trustees"). The Fund will
limit its securities lending to 33 1/3% of total assets.
o WHEN-ISSUED SECURITIES. The Fund may purchase securities on a when-issued or
delayed delivery basis. These transactions are arrangements in which the Fund
purchases securities with payment and delivery scheduled for a future time. When
the Fund agrees to purchase securities on a when-issued basis, the Fund's
custodian must set aside cash or liquid portfolio securities equal to the amount
of that commitment in a separate account, and may be required to subsequently
place additional assets in the separate account to reflect any increase in the
Fund's commitment. Prior to delivery of when-issued securities, their value is
subject to fluctuation and no income accrues until their receipt. The Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, and not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction; its
failure to do so may cause the Fund to miss a price or yield considered to be
advantageous.
o VARIABLE AND FLOATING RATE SECURITIES. The Fund may purchase investment grade
variable and floating rate notes. The interest rates on these securities may be
reset daily, weekly, quarterly, or some other reset period, and may be subject
to a floor or ceiling. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. There may
be no active secondary market with respect to a particular variable or floating
rate note. Variable and floating rate notes for which no readily available
market exists will be purchased in an amount which, together with other illiquid
securities held by the Fund, does not exceed 15% of the Fund's net assets unless
such notes are subject to a demand feature that will permit the Fund to receive
payment of the principal within seven days after demand therefor. These
securities are included among those which are sometimes referred to as
"derivative securities."
o REPURCHASE AGREEMENTS. Under the terms of a repurchase agreement, the Fund
acquires securities from financial institutions or registered broker-dealers,
subject to the seller's agreement to repurchase such securities at a mutually
agreed upon date and price. The seller is required to maintain the value of
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collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price, or to the extent that the disposition of such securities
by the Fund was delayed pending court action. Repurchase agreements may be
considered by the staff of the Commission to constitute loans by the Fund.
o REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, the Fund sells portfolio securities to financial institutions such
as banks and broker-dealers, and agrees to repurchase them at a mutually
agreed-upon date and price. At the time the Fund enters into a reverse
repurchase agreement, it must place in a segregated custodial account assets
having a value equal to the repurchase price (including accrued interest); the
collateral will be marked to market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings
under the Investment Company Act of 1940, as amended (the "1940 Act").
o INVESTMENT COMPANY SECURITIES. The Fund may invest up to 5% of its total
assets in the securities of any one investment company, but may not own more
than 3% of the securities of any one investment company or invest more than 10%
of its total assets in the securities of other investment companies. Pursuant to
an exemptive order received by the Victory Portfolios from the Commission, the
Fund may invest in the money market funds of the Victory Portfolios. Key
Advisers or the Sub-Adviser will waive its fee attributable to the Fund's assets
invested in a money market fund of the Victory Portfolios, and, to the extent
required by the laws of any state in which shares of the Fund are sold, Key
Advisers or the Sub-Adviser will waive its investment advisory fees as to all
assets invested in other investment companies. Because such other investment
companies employ an investment adviser, such investment by the Fund will cause
shareholders to bear duplicative fees, such as management fees, to the extent
such fees are not waived by Key Advisers or the Sub-Adviser.
o PRIVATE PLACEMENT INVESTMENTS. The Fund may invest in high quality commercial
paper issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"). Section 4(2)
commercial paper ("commercial paper") is generally sold to institutional
investors, such as the Fund, that agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Commercial paper is normally
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in commercial
paper, thus providing liquidity. The Fund believes that commercial paper and
possibly certain other restricted securities (as defined in the Statement of
Additional Information) that meet the criteria for liquidity established by the
Trustees are quite liquid. The Fund intends, therefore, to treat the restricted
securities that meet the criteria for liquidity established by the Trustees,
including commercial paper, as determined by Key Advisers or the Sub-Adviser, as
liquid and not subject to the investment limitation applicable to illiquid
securities. See "Investment Limitations" below.
o OPTIONS. The Fund may write call options from time to time. The Fund will
write only "covered" call options (options on securities owned by the Fund) and
index options. Such options must be listed on a national securities exchange and
issued by the Options Clearing Corporation. In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction," i.e.,
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously wrote on any
particular security. When a portfolio security subject to a call option is sold,
the Fund will effect a closing purchase transaction to close out any existing
call option on that security. If the Fund is unable to effect a closing purchase
transaction, it will not be able to sell the underlying security until the
option expires or the Fund delivers the underlying security upon exercise. Upon
the exercise of an option, the Fund is not entitled to the gains, if any,
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<PAGE>
on securities underlying the options. The Fund intends to limit its investments
in call and index options to 25% of its total assets.
Certain investment management techniques which the Fund may use, such as the
purchase and sale of options (described above), may expose the Fund to special
risks. These products may be used to adjust the risk and return characteristics
of the Fund's portfolio of investments. These various products may increase or
decrease exposure to fluctuation in security prices, interest rates, or other
factors that affect security values, regardless of the issuer's credit risk.
Regardless of whether the intent was to decrease risk or increase return, if
market conditions do not perform consistently with expectations, these products
may result in a loss. In addition, losses may occur if counterparties involved
in transactions do not perform as promised. These products may expose the Fund
to potentially greater risk of loss than more traditional equity investments.
The options described in this section are frequently referred to as derivative
securities. In general, derivative securities are instruments whose value is
based upon, or derived from, some underlying index, reference rate (e.g.,
interest rates or currency exchange rates), security, commodity, or other
assets.
o PORTFOLIO TRANSACTIONS. The Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short time,
ranging from several months to less than a day. The object of such short-term
trading is to take advantage of what Key Advisers or the Sub-Adviser believes
are changes in market, industry or individual company conditions or outlook. Any
such trading would increase the Fund's turnover rate and its transaction costs.
High turnover will generally result in higher brokerage costs and possible tax
consequences for the Fund. In the fiscal year ended October 31, 1995, the
portfolio turnover rate was 75.05% compared to 103.62% in the prior fiscal year.
From time to time, the Fund, to the extent consistent with its investment
objective, policies and restrictions, may invest in securities of issuers with
which Key Advisers or the Sub-Adviser or its affiliates have a lending
relationship.
NOTE: The Statement of Additional Information contains additional information
about the investment practices of the Fund and risk factors. The investment
policies and limitations of the Fund may be changed by the Trustees without any
vote of shareholders unless (1) a policy is expressly deemed to be a fundamental
policy of the Fund or (2) a policy is expressly deemed to be changeable only by
such majority vote.
INVESTMENT LIMITATIONS
The following summarizes some of the Fund's principal investment limitations.
The Statement of Additional Information contains a complete listing of the
Fund's investment limitations and provides additional information about
investment restrictions designed to reduce the risk of an investment in the
Fund.
1. The Fund may not borrow money other than (a) by entering into
commitments to purchase securities in accordance with its investment
program, including delayed-delivery and when-issued securities and
reverse repurchase agreements, provided that the total amount of such
commitments do not exceed 33=% of the Fund's total assets; and (b) for
temporary or emergency purposes in an amount not exceeding 5% of the
value of the Fund's total assets.
2. The Fund will not purchase a security if, as a result, more than 15% of
its net assets would be invested in illiquid securities. Illiquid
securities are investments that cannot be readily sold within seven
days in the usual course of business at approximately the price at
which the Fund has valued them. Under the supervision of the Trustees,
Key Advisers or the Sub-Adviser determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of
illiquid investments may involve time-consuming negotiation and legal
expenses, and it may be difficult or impossible for the Fund to sell
them promptly at an acceptable price.
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<PAGE>
3. The Fund is "diversified" within the meaning of the 1940 Act. With
respect to 75% of its total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (b) the Fund would hold more than
10% of the outstanding voting securities of that issuer.
4. The Fund's policy regarding concentration of investments provides that
the Fund may not purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or repurchase agreements secured
thereby) if, as a result, more than 25% of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry.
Each of the investment limitations indicated above in this subsection are
fundamental, except for the limitation pertaining to illiquid securities.
Non-fundamental limitations may be changed without shareholder approval.
Whenever an investment policy or limitation states a maximum percentage of the
Fund's assets that may be invested, such percentage limitation will be
determined immediately after and as a result of the investment and any
subsequent change in values, assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations, except in the case of borrowing (or other
activities that may be deemed to result in the issuance of a "senior security"
under the 1940 Act). If the value of the Fund's illiquid securities at any time
exceeds the percentage limitation applicable at the time of acquisition due to
subsequent fluctuations in value or other reasons, the Trustees will consider
what actions, if any, are appropriate to maintain adequate liquidity.
HOW TO INVEST, EXCHANGE AND REDEEM
HOW TO INVEST
The Fund offers investors two different classes of shares. The different classes
of shares represent investments in the same portfolio of securities but are
subject to different expenses and will likely have different share prices.
o CLASS A SHARES AND CLASS B SHARES. If Class A shares are purchased, there is
an initial sales charge (on investments up to $1 million). If Class B shares are
purchased, there is no sales charge at the time of purchase, but if the shares
are redeemed within six years, you will normally pay a contingent deferred sales
charge ("CDSC") that varies depending on how long you own your shares.
o WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
better suited to your needs depends on a number of factors which you should
discuss with your financial adviser:
1. AMOUNT OF INVESTMENT. If you plan to invest a substantial amount, the
reduced sales charges available for larger purchases of Class A shares
may be more beneficial to you. Any order for $1 million or more will
only be accepted as Class A shares for that reason.
2. INVESTMENT HORIZON. While future financial needs cannot be predicted
with certainty, investors who prefer not to pay an initial sales charge
and who plan to hold their shares for more than six years might
consider Class B shares. Investors who plan to redeem shares within
eight years might prefer Class A shares.
3. DIFFERENCES IN ACCOUNT FEATURES. The dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B
shares are subject, as described below and in the Statement of
Additional Information.
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A salesperson, financial planner, investment adviser or trust officer who
provides you with information regarding the investment of your assets (an
"Investment Professional") or other person who is entitled to receive
compensation for selling Fund shares may receive different compensation for
selling one class than for selling another class. Both the CDSC (an asset-based
sales charge) for Class B shares and the front-end sales charge on sales of
Class A shares are used primarily to compensate such persons.
o HOW ARE SHARES PURCHASED? Shares may be purchased directly or through an
Investment Professional of a securities broker or other financial institution
that has entered into a selling agreement with the Fund or the Distributor.
Shares are also available to clients of bank trust departments. The minimum
investment is $500 ($250 for Individual Retirement Accounts) for the initial
purchase and $25 thereafter. Accounts set up through a bank trust department or
an Investment Professional may be subject to different minimums. When you buy
shares, be sure to specify Class A or Class B shares. If you do not make a
selection, your investment will be made in Class A shares.
o INVESTING THROUGH YOUR INVESTMENT PROFESSIONAL. Your Investment Professional
will place your order with the Transfer Agent on your behalf (see "Fund
Organization and Fees -- Transfer Agent"). You may be required to establish a
brokerage or agency account. Your Investment Professional will notify you
whether subsequent trades should be directed to the Investment Professional or
directly to the Fund's Transfer Agent. Accounts established with Investment
Professionals may have different features, requirements and fees. In addition,
Investment Professionals may charge for their services. Information regarding
these features, requirements and fees will be provided by the Investment
Professional. If you are purchasing shares of any Fund through a program of
services offered or administered by your Investment Professional, you should
read the program materials in conjunction with this Prospectus. You may initiate
any transaction by telephone through your Investment Professional. See "Special
Investor Services" for more information about telephone transactions.
o INVESTING THROUGH YOUR BANK TRUST DEPARTMENT. Your bank trust department may
require a different minimum investment and may charge additional fees. Fee
schedules for such accounts are available upon request and are detailed in the
agreements by which a client opens the desired account. Your bank trust
department may require a completed and signed application for the Fund in which
an investment is made. Additional documents may be required from corporations,
associations, and certain fiduciaries. Any account information, such as
balances, should be obtained through your bank trust department. Additional
purchases, exchanges or redemptions should also be coordinated through your bank
trust department. Contact your bank trust department for instructions.
The services rendered by a bank trust department, including Key Trust Company of
Ohio, N.A. and other affiliates of Key Advisers or the Sub-Adviser are not
duplicative of any of the services for which Key Advisers or the Sub-Adviser as
the investment adviser or sub-adviser, respectively, is compensated for advising
the Fund. The charges paid by clients of bank trust departments, or their
affiliates, should also be considered by the investor in addition to the net
yield and return on the investment in the Fund, although such charges do not
affect the Fund's dividends or distributions.
o INVESTING THROUGH THE SYSTEMATIC INVESTMENT PLAN. You can use the Systematic
Investment Plan to purchase shares directly from your bank account. Please refer
to "The Systematic Investment Plan" below for more details.
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<PAGE>
INVESTING DIRECTLY
o BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in the amount of at least the minimum
investment requirement to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
o BY WIRE:
YOU MUST CALL THE TRANSFER AGENT BEFORE WIRING FUNDS. Federal Funds should be
wired to:
State Street Bank and Trust Company
ABA # 011000028
For Credit to DDA Account # 9905-201-1
For further credit to Account # (insert your account
number, name and control number assigned by the
Transfer Agent)
The Fund does not impose a fee for wire transactions, although your bank may
charge you a fee for this service.
o BY ACH:
The purchase amount will be transferred between the bank account designated and
your fund account via automated clearing house ("ACH"). Only a bank account
maintained in a domestic financial institution which is an ach member may be so
designated. The fund may modify or terminate the telephone and/or ach privilege
at any time or charge a service fee upon notice to shareholders. No such fee is
currently contemplated. If the designated bank account does not contain
sufficient assets at the time your order is processed, the order may be
cancelled, and you could be liable for resulting fees and/or losses. Note that
this service requires approximately 15 days to establish. Therefore, it may not
be applicable to request your initial purchase utilizing this method.
Class A shares are sold at the public offering price based on the net asset
value that is next determined after the Transfer Agent receives the purchase
order. Class B Shares are sold at net asset value per share, but may be subject
to a CDSC (see "Class B Shares"). In most cases, to receive that day's offering
price, the Transfer Agent must receive your order as of the close of regular
trading of the New York Stock Exchange ("NYSE") which is normally 4:00 p.m.
Eastern time (the "Valuation Time") on each Business Day (as defined in
"Shareholder Account Rules and Policies--Share Price"). If you buy shares
through an Investment Professional, the Investment Professional must receive
your order in a timely fashion on a regular Business Day. It is the
responsibility of your Investment Professional to transmit your order to
purchase shares to the Transfer Agent in a timely fashion in order for you to
receive that day's share price. The Transfer Agent may reject any purchase order
for the Fund's shares, in its sole discretion.
INVESTMENT REQUIREMENTS
All purchases made by check must be in U.S. dollars and made payable to the
Victory Funds, or in the case of a retirement account, the custodian or trustee.
Third party checks will not be accepted. Checks must be drawn on U.S. banks. No
cash will be accepted. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. The Fund or Transfer Agent reserves the right to limit the number
of checks processed at one time. If your check does not clear, your purchase
will be canceled and you could be liable for any losses or fees incurred.
Payment for the purchase is expected at the time of the order. If payment is not
received within three business days of the date of the order, the order may be
canceled, and you could be held liable for resulting fees and/or losses.
CLASS A SHARES. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, where purchases are not subject to an initial sales charge, the
offering price may be net asset value. In some cases, reduced sales charges may
be available, as described below. When you invest, the Fund receives the net
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<PAGE>
asset value for your account. The sales charge varies depending on the amount of
your purchase and a portion may be retained by the Distributor and allocated to
your Investment Professional. The Victory Portfolios has a reinstatement policy
which allows an investor who redeems shares originally purchased with a sales
charge to reinvest within 90 days without incurring an additional sales charge.
The current sales charge rates and commissions paid to Investment Professionals
are as follows:
CLASS A SALES CHARGE DEALER
-------------------- REALLOWANCE
AS A % OF AS A % OF AS A %
OFFERING NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE PRICE INVESTED PRICE
- ------------------ ----- -------- -----
Less than $49,999............ 4.75% 4.99% 4.00%
$50,000 to $99,999........... 4.50% 4.71% 4.00%
$100,000 to $249,999......... 3.50% 3.63% 3.00%
$250,000 to $499,999......... 2.25% 2.30% 2.00%
$500,000 to $999,999......... 1.75% 1.78% 1.50%
$1,000,000 and above......... 0.00% 0.00% (1)
(1) There is no initial sales charge on purchases of $1 million or more.
Investment Professionals will be compensated at the rate of up to 0.25%
on such purchases.
The Distributor reserves the right to reallow the entire commission to dealers.
If that occurs, the dealer may be considered an "underwriter" under Federal
securities laws.
The Distributor may pay all or a portion of any applicable sales charges and
service fees to Investment Professionals who sell shares of the Fund and provide
ongoing sales support services or shareholder support services. For the
three-year period commencing April 30, 1994, for activities in maintaining and
servicing accounts of customers invested in the Fund, First Albany Corporation
("First Albany") and PFIC Securities Corporation ("PFIC") may receive payments
from the Distributor equal to two-thirds of the Dealer Retention (as defined
below) on any shares of the Fund (and other funds of the Victory Portfolios)
sold by First Albany or PFIC and their broker-dealer affiliates. "Dealer
Retention" is an amount equal to the difference between the applicable sales
charge and such part of the sales charge which is reallowed to broker-dealers.
REDUCED SALES CHARGES FOR CLASS A SHARES. You may be eligible to buy Class A
shares at reduced sales charge rates in one or more of the following ways:
O LETTER OF INTENT FOR CLASS A SHARES. An investor may obtain a reduced sales
charge by means of a written Letter of Intent which expresses the investor's
intention to invest a specified amount within a 13-month period, which if made
at one time, would qualify for a reduced sales charge.
A Letter of Intent is not a binding obligation upon the investor to purchase the
full amount indicated. The minimum initial investment under a Letter of Intent
is 5% of the total amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of the investor)
to secure payment of the higher sales charge applicable to the shares actually
purchased if the full amount indicated is not purchased, and such escrowed
shares will be involuntarily redeemed to pay the additional sales charge, if
necessary.
Dividends (if any) on escrowed shares, whether paid in cash or reinvested in
additional shares, are not subject to escrow. The escrowed shares will not be
available for redemption, exchange or other disposal by the investor until all
purchases pursuant to the Letter of Intent have been made or the higher sales
charge has been paid. When the full amount indicated has been purchased, the
escrow will be released. A Letter of Intent may include purchases of shares made
not more than 90 days prior to the date the investor signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. An investor may
combine purchases that are made in an individual capacity with (1) purchases
that are made by members of the investor's immediate family and (2) purchases
made by businesses that the investor owns as sole proprietorships, for purposes
of
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<PAGE>
obtaining reduced sales charges by means of a written Letter of Intent. In order
to accomplish this, however, investors must designate on the Account Application
the accounts that are to be combined for this purpose. Investors can only
designate accounts that are open at the time the Letter of Intent is executed.
If an investor qualifies for a further reduced sales charge because the investor
has either purchased more than the dollar amount indicated on the Letter of
Intent or has entered into a Letter of Intent which includes shares purchased
prior to the date of the Letter of Intent, the difference in the sales charge
will be used to purchase additional shares of the Fund on behalf of the
investor; thus the total purchases (included in the Letter of Intent) will
reflect the applicable reduced sales charge of the Letter of Intent.
For further information about Letters of Intent, interested investors should
contact the Transfer Agent at 800-539-3863. This program, however, may be
modified or eliminated at any time without notice.
O RIGHT OF ACCUMULATION AND CONCURRENT PURCHASES. A shareholder may qualify for
a reduced sales charge on purchases of Class A Shares of the Fund, and Class A
shares of other funds of the Victory Portfolios, by combining a current purchase
with purchases of another fund(s), or with certain prior purchases of shares of
the Victory Portfolios. The applicable sales charge is based on the sum of (1)
the purchaser's current purchase plus (2) the current public offering price of
the purchaser's previous purchases of (a) all shares held by the purchaser in
the Fund and (b) all shares held by the purchaser in any Class A shares of other
funds of the Victory Portfolios (except money market funds).
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must provide the Transfer Agent with sufficient
information at the time of purchase to permit confirmation of qualification.
Accumulation privileges may be amended or terminated without notice at any time
by the Distributor. See "Combined Purchases" and "Rights of Accumulation" in the
Statement of Additional Information.
O WAIVERS OF CLASS A SALES CHARGES. No sales charge is imposed on sales of Class
A shares to the following categories of persons (which categories may be changed
or eliminated at any time):
(1) Current or retired Trustees of the Victory Portfolios; employees,
directors, trustees, and their family members of KeyCorp or an
"Affiliated Provider" ("Affiliated Providers" refer to affiliates and
subsidiaries of KeyCorp and service providers to the Victory Portfolios
and the Victory Shares (collectively, the "Victory Group")), dealers
having an agreement with the Distributor and any trade organization to
which Key Advisers, the Sub-Adviser or the Administrator belongs;
(2) Investors who purchase shares for trust, investment management or
certain other advisory accounts established with KeyCorp or any of its
affiliates;
(3) Investors who reinvest assets received in a distribution from a
qualified, non-qualified or deferred compensation plan, agency, trust
or custody account that was either (a) maintained by KeyCorp or an
Affiliated Provider, or (b) invested in a fund of the Victory Group;
(4) Investors who, within 90 days of redemption, use the proceeds from the
redemption of shares of another mutual fund complex for which they
previously paid a front end sales charge or sales charge upon
redemption of shares;
(5) Shareholders of the former Investors Preference Fund For Income, Inc.
and the Investors Preference New York Tax-Free Fund, Inc. who have
continuously maintained accounts with a fund or funds of the Victory
Group with a balance of $250,000 or more (investors with less than
$250,000 will pay any applicable sales charges);
(6) Investment advisers or financial planners who place trades for their
own accounts or the accounts of their clients and who charge a
management, consulting or other fee for their services; and clients of
such investment
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<PAGE>
advisers or financial planners who place trades for their own accounts
if the accounts are linked to the master account of such investment
adviser or financial planner on the books and records of the broker or
agent. Such accounts include retirement and deferred compensation plans
and trusts used to fund those plans, including, but not limited to,
those defined in section 401(a), 403(b), or 457 of the Internal Revenue
Code and "rabbi trusts."
CLASS B SHARES. Class B shares are sold at net asset value per share without an
initial sales charge. However, if Class B shares are redeemed within six years
of their purchase, a CDSC will be deducted from the redemption proceeds. That
sales charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser of the
net asset value of the shares at the time of redemption or the original purchase
price. The CDSC is not imposed on the amount of the redeemed shares represented
by the increase in net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains distributions).
The Class B CDSC is paid to the Distributor to reimburse its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class B shares.
To determine whether the CDSC applies to a redemption, the Victory Portfolios
redeems shares in the following order: (1) shares acquired by reinvestment of
dividends and capital gains distributions, (2) shares held for over six years,
and (3) shares held the longest during the 6-year period. The amount of the CDSC
will depend on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
CONTINGENT DEFERRED SALES CHARGE
YEARS SINCE PURCHASE ON REDEMPTIONS IN THAT YEAR
PAYMENT WAS MADE (AS % OF AMOUNT SUBJECT TO CHARGE)
---------------- ----------------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. Purchases will age based on trade
date of purchase. For example, a purchase made on January 1 will be one year old
on January 1 of the following year.
O WAIVERS OF CLASS B CDSC. The Class B CDSC will be waived if the shareholder
requests it for any of the following redemptions: (1) distributions to
participants or beneficiaries from Retirement Plans, if the distributions are
made (a) under an Automatic Withdrawal Plan after the participant reaches age
59- 1/2, as long as the payments are no more than 12% of the account value
annually (measured from the date the Transfer Agent receives the request), or
(b) following the death or disability (as defined in the Internal Revenue Code)
of the participant or the beneficial owner; (2) redemptions from accounts other
than Retirement Plans following the death or disability of the shareholder (as
evidenced by a determination of disability by the Social Security
Administration), (3) returns of excess contributions to Retirement Plans; and
(4) distributions of not more than 12% of the account value annually under an
automatic withdrawal plan.
The CDSC is also waived on Class B shares in the following cases: (1) shares
sold to Key Advisers, the Sub-Adviser or their affiliates; (2) shares issued in
plans of reorganization to which the Victory Portfolios is a party; and (3)
shares redeemed in involuntary redemptions as described above.
O AUTOMATIC CONVERSION OF CLASS B SHARES. Eight years after Class B shares are
purchased, those shares will automatically convert to Class A shares. This
conversion feature relieves Class B shareholders of the asset-based sales charge
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that applies to Class B shares under the Class B Distribution Plan, described
below. The conversion is based on the relative net asset value of the two
classes, and no sales charge or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the reinvestment of
dividends and distributions on the converted shares will also convert to Class A
shares. The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements -- Class B Conversion
Feature" in the Statement of Additional Information.
O DISTRIBUTION PLAN FOR CLASS B SHARES. The Victory Portfolios has adopted a
Distribution Plan (the "Plan") under Rule 12b-1 of the 1940 Act for Class B
shares to compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Victory Portfolios
pays the Distributor an annual "asset-based sales charge" of 0.75% per year on
Class B shares. This fee is computed on the average daily net assets of Class B
shares and paid monthly. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the Distributor
to compensate dealers that sell Class B shares. The asset-based sales charge
increases Class B expenses by up to 0.75% of average net assets per year.
The Distributor pays sales commissions of 4.00% of the purchase price to dealers
from its own resources at the time of sale. For maintaining and servicing
accounts of customers invested in the Fund, First Albany and PFIC Securities
Corporation may receive payments from the Distributor equal to two-thirds of the
excess of the scheduled CDSC over any commission payment to the selling broker.
The Distributor retains the asset-based sales charge to recoup the sales
commissions it pays and its financing costs. If the Plan is terminated by the
Victory Portfolios, it provides that the Trustees may elect to continue payments
for certain expenses already incurred. The payments under the Plan increase the
annual expenses of Class B shares. For more details, please refer to "Advisory
and Other Contracts -- Class B Shares Distribution Plan" in the Statement of
Additional Information.
SPECIAL INVESTOR SERVICES
O THE SYSTEMATIC INVESTMENT PLAN. You can make regular investments in the Fund
with the Systematic Investment Plan by completing the appropriate section of the
Account Application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is jointly
owned, be sure that all owners sign. You must first meet the Fund's initial
investment requirement of $500, then investments may be made monthly, quarterly,
semi-annually or annually by automatically deducting $25 or more from your bank
account. For officers, trustees, directors and employees, including retired
directors and employees, of the Victory Group, KeyCorp and its affiliates, and
the Administrator and its affiliates (and family members of each of the
foregoing) who participate in the Systematic Investment Plan, there is no
minimum initial investment required. You may change the amount of your purchase
at any time. Your bank checking account will be debited on the date indicated on
your Account Application. Shares will be purchased at the offering price next
determined following receipt of the order by the Transfer Agent. You may cancel
the Systematic Investment Plan at any time without payment of a cancellation
fee. Your monthly account statement will reflect systematic investment
transactions, and a debit entry will appear on your bank statement.
O THE SYSTEMATIC WITHDRAWAL PLAN. You can make regular withdrawals from your
account with the Systematic Withdrawal Plan by completing the appropriate
section of the Account Application. If you own shares in a fund worth $5,000 or
more, you can have monthly, quarterly, semi-annual or annual payments sent from
your account directly to you, to a person named by you, or to your bank checking
account. The minimum withdrawal is $25. If you are having funds sent to your
bank checking account, attach a voided personal check with your bank's magnetic
ink coding number across the front. The proceeds will be transferred between
your fund account and the bank account via ACH. If your account is jointly
owned, be sure that all owners sign. You may obtain information about the
Systematic Withdrawal Plan by contacting the Transfer Agent. Your Systematic
Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends and capital gain dividend
distributions earned on your Fund shares, your account eventually may be
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exhausted. If any applicable sales charges are applied to new purchases of
shares of the Fund, it is to your disadvantage to buy shares of the Fund while
also making systematic redemptions. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan.
Your account will be debited on the date you indicate on your Account
Application. Shares will be redeemed at the net asset value per share (the
"NAV") as determined on the debit date indicated on your Account Application.
You may cancel the Systematic Withdrawal Plan at any time without payment of a
cancellation fee. Each Systematic Withdrawal Plan transaction will appear as a
debit entry on your monthly account statement.
O TELEPHONE TRANSACTIONS. You can initiate most transactions by telephone. You
may call the Transfer Agent toll-free at 800-539-3863 or call your Investment
Professional or bank trust department. Telephone transaction privileges for
purchases, redemptions or exchanges may be modified, suspended or terminated by
the Fund at any time. If an account has more than one owner, the Fund and the
Transfer Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer representative of
record for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
Generally, neither the Fund, the bank trust department nor the Transfer Agent
will be responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. The Transfer Agent and
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The identification procedures may include, but are not limited to,
the following: account number, registration and address, personalized security
codes, taxpayer identification number and other information particular to the
account. Your Investment Professional, bank trust department or the Transfer
Agent may also record calls, and you should verify the accuracy of your
confirmation statements immediately after you receive them.
O RETIREMENT PLANS. Retirement plans can be among the best tax-planning vehicles
available to individuals. Call your Investment Professional for more information
on the plans and their benefits, provisions and fees. Your Investment
Professional can set up your new account in the Fund under one of several
tax-sheltered plans. These plans let you invest for retirement and shelter your
investment income from current taxes. Plans include Individual Retirement
Accounts (IRAs) , Rollover IRAs, and other retirement plans such as Simplified
Employee Pension Plans (SEP/IRA), Salary Reduction SEP (SAR-SEP/IRA), 401(k)
Plans and 403(b) Plans. Other fees may be charged by the IRA custodian or
trustee.
HOW TO EXCHANGE
Shares of the Fund may be exchanged for shares of certain funds of the Victory
Group at net asset value per share at the time of exchange, without a sales
charge. To exchange shares, you must meet several conditions:
(1) Shares of the fund selected for exchange must be available for sale in
your state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you
purchase by exchange.
(5) The registration and tax identification numbers of the two accounts
must be identical.
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<PAGE>
(6) Before exchanging, obtain and read the prospectus for the fund you wish
to purchase by exchange.
SHARES OF A PARTICULAR CLASS MAY BE EXCHANGED ONLY FOR SHARES OF THE SAME CLASS
IN THE OTHER FUNDS OF THE VICTORY GROUP. For example, you can exchange Class A
shares of this Fund only for Class A shares of another fund. At present, not all
of the funds offer the same two classes of shares. If a fund has only one class
of shares that does not have a class designation, they are "Class A" shares for
exchange purposes. In some cases, sales charges may be imposed on exchange
transactions. Certain funds offer Class A or Class B shares and a list can be
obtained by calling the Transfer Agent at 800-539-3863. Please refer to the
Statement of Additional Information for more details about this policy.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to the Valuation Time
on any Business Day (see "Shareholder Account Rules and Policies--Share Price").
You can obtain a list of eligible funds of the Victory Group by calling the
Transfer Agent at 800-539-3863. Key Mutual Funds, which is managed by Key
Advisers and Spears, Benzak, Salomon & Farrell, Inc., both affiliates of
KeyCorp, is a part of the Victory Group. BISYS Fund Services is the
Administrator and Distributor for Key Mutual Funds. Exchange privileges
applicable to the Victory Group will also apply to Key Mutual Funds. Exchanges
of shares involve a redemption of the shares of the Fund and a purchase of
shares of the other fund of the Victory Group.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and issued by the other fund in the
exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern time)
that is in proper form, but either fund may delay the issuance of shares of the
fund into which you are exchanging if it determines it would be disadvantaged by
a same-day transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy might
create excessive turnover in the Fund's portfolio and associated expenses
disadvantageous to the Fund.
o Because excessive trading can hurt fund performance and harm shareholders, the
Victory Portfolios reserves the right to refuse any exchange request that will
impede the Fund's ability to invest effectively or otherwise have the potential
to disadvantage the Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Victory Portfolios may amend, suspend or terminate the exchange privilege
at any time upon 60 days' written notice to shareholders.
o If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible for exchange will be
exchanged.
o Each exchange may produce a gain or loss for tax purposes.
Shareholders of the former Investors Preference Fund for Income, Inc. and
Investors Preference New York Tax-Free Fund, Inc. will not be subject to any
additional sales charge upon an exchange of shares attributable to an Investors
Preference Funds account for shares of other funds of the Victory Portfolios.
HOW TO REDEEM
You may redeem all or a portion of your shares on any day that the Fund is open
for business (see the definition of "Business Day" under "Shareholder Account
Rules and Policies--Share Price" ). Shares will be redeemed at the NAV next
calculated after the Transfer Agent has received the redemption request.
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<PAGE>
You may redeem shares in several ways:
O BY MAIL. Send a written request to: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
Write a "letter of instruction" with your name, the Fund's name, your Fund
account number, the dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular account. You will need the
letter of instruction signed by all persons required to sign for transactions,
exactly as their names appear on the Account Application. A signature guarantee
is required if: you wish to redeem more than $10,000 worth of shares; your Fund
account registration has changed within the last 60 days; the check is not being
mailed to the address on your account; the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
Victory Group account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public. A signature guarantee is designed to
protect you, the Fund and its agents from fraud. The Transfer Agent reserves the
right to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000.
O BY WIRE. You may make redemptions by wire provided you have established a Fund
account to accommodate wire transactions. If telephone instructions are received
before Valuation Time (normally 4:00 p.m. Eastern time), proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. You may change the bank account
designated to receive an amount redeemed at any time by sending a letter of
instruction with a signature guarantee to the Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527.
O BY TELEPHONE. To redeem by telephone, you may call the Transfer Agent toll
free at 800-539-3863 or call your Investment Professional or bank trust
department. See "Special Investor Services" for more information about telephone
transactions.
O ADDITIONAL REDEMPTION REQUIREMENTS. When purchases are made by check or
periodic account investment, payments on redemptions may be delayed until the
investment being redeemed has been in the account for 15 calendar days. Also,
when the NYSE is closed (or when trading is restricted) for any reason other
than its customary weekend or holiday closings, or under any emergency
circumstances as determined by the Commission to merit such action, the right of
redemption may be suspended or the date of payment postponed for a period of
time that may exceed 7 days. In addition, the Fund reserves the right to advance
the time on that day by which purchase and redemption orders must be received.
To the extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the Fund's NAV may be affected on days when investors do not
have access to the Fund to purchase or redeem shares.
If you are unable to reach the Transfer Agent by telephone (for example, during
times of unusual market activity), consider placing your order by mail directly
to the Transfer Agent. In case of suspension of the right of redemption, you may
either withdraw your request for redemption or receive payment based on the NAV
next determined after the termination of the suspension. If your balance in the
Fund falls below $500, you may be given 60 days' notice to reestablish the
minimum balance (except with respect to officers, trustees, directors and
employees, including retired directors and employees, of the Victory Portfolios,
KeyCorp and its affiliates, and the Administrator and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). If you do not increase
your balance, your account may be closed and the proceeds mailed to you at the
address on record. Shares will be redeemed at the last calculated NAV on the day
the account is closed.
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<PAGE>
SHAREHOLDER ACCOUNT RULES AND POLICIES
O SHARE PRICE. The term "net asset value per share," or "NAV", means the value
of one share. The NAV of each class of shares is calculated by adding the value
of all the Fund's investments, plus cash and other assets, deducting liabilities
of the Fund and of the class, and then dividing the result by the number of
shares of the class outstanding. The NAV of the Fund is determined and its
shares are priced as of the close of regular trading of the NYSE which is
normally 4:00 p.m. Eastern time (the "Valuation Time") on each Business Day of
the Fund. A "Business Day" is a day on which the NYSE is open for trading, the
Federal Reserve Bank of Cleveland is open, and any other day (other than a day
on which no shares of the Fund are tendered for redemption and no order to
purchase any shares is received) during which there is sufficient trading in its
portfolio instruments that the Fund's net asset value per share might be
materially affected. The NYSE will not be open in observance of the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The Fund's securities are valued primarily on the basis of market quotations or,
if quotations are not readily available, by a method that the Trustees believe
accurately reflects fair value. Fair value of these portfolio securities is
determined by an independent pricing service based primarily upon information
concerning market transactions and dealers quotations for comparable securities.
o If your account is established with an Investment Professional or a bank, you
may or may not be able to purchase, exchange or sell shares on other holidays
when the Federal Reserve Bank of Cleveland is closed, including Martin Luther
King, Jr. Day, Columbus Day and Veterans Day.
o The offering of shares may be suspended during any period in which the
determination of NAV is suspended, and the offering may be suspended by the
Trustees at any time the Trustees believe it is in the Fund's best interest to
do so.
o Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the Transfer
Agent in its discretion may waive certain of the requirements for redemptions
stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Victory Portfolios if the dealer performs any transaction erroneously.
o The redemption price for shares will vary from day to day because the value of
the securities in the Fund fluctuates, and the value of your shares may be more
or less than their original cost.
o Payment for redeemed shares is ordinarily made in cash and forwarded by check
within three business days after the Transfer Agent receives redemption
instructions in proper form, except under unusual circumstances determined by
the Securities and Exchange Commission delaying or suspending such payments. The
Transfer Agent may delay forwarding a check for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much as 15
days from the date the shares were purchased. That delay may be avoided if you
arrange with your bank to provide telephone or written assurance to the Transfer
Agent that your purchase payment has cleared.
o If your account value has fallen below $500, you may be given 60 days' notice
to reestablish the minimum balance. If you do not increase your minimum balance,
your account may be closed and the proceeds mailed to you at the record address.
In some cases involuntary redemptions may be made to repay the Distributor for
losses from the cancellation of share purchase orders. Under certain
circumstances, shares of the Fund may be redeemed "in kind," which means that
the redemption proceeds will be paid with securities from the Fund. Please refer
to the Statement of Additional Information for more details.
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<PAGE>
o "Backup Withholding" of Federal income tax may be applied at the rate of 31%
from dividends, distributions and redemption proceeds (including exchanges) if
you fail to furnish the Victory Portfolios with a certified Social Security or
taxpayer identification number when you sign your Account Application, or if you
violate Internal Revenue Service regulations on tax reporting of dividends.
o The Victory Portfolios does not charge a redemption fee, but if an Investment
Professional handles your redemption, the Investment Professional may charge a
separate service fee. Under the circumstances described in "How to Invest," you
may be subject to a CDSC when redeeming Class B shares.
o The Distributor, at its expense, may also provide additional cash compensation
to dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 4.00% of the offering price. In
addition, the Distributor will, from time to time and at its own expense,
provide compensation, including financial assistance, to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising campaigns regarding one or more Victory Portfolios
and/or other dealer-sponsored special events including payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within or
outside of the United States for meetings or seminars of a business nature.
Compensation will include the following types of non-cash compensation offered
through sales contests: (1) vacation trips including the provision of travel
arrangements and lodging; (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Fund's shares to
qualify for this compensation if prohibited by the laws of any state or any
self-regulatory organization, such as the National Association of Securities
Dealers, Inc. None of the aforementioned compensation is paid for by the Fund or
its shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund may make
distributions at least annually out of any realized capital gains, and the Fund
may make supplemental distributions of dividends and capital gains following the
end of its fiscal year.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividend distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your income and capital gain dividends, if any,
will be automatically reinvested in additional shares of the Fund.
Income and capital gain dividends will be reinvested at the net asset
value of your class of shares of the Fund as of the day after the
record date. If you do not indicate a choice on your Account
Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each income or capital gain
dividend, if any. Distribution checks will be mailed no later than 7
days after the dividend payment date which may be more than 7 days
after the dividend record date.
3. INCOME EARNED OPTION. You will have your capital gain dividend
distributions, if any, reinvested automatically in the Fund at the NAV
of your class of shares of the Fund as of the day after the record
date, and have your income dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have income and capital gain
dividends, or only capital gain dividends, automatically reinvested in
shares of another fund of the Victory Group. Shares will be purchased
at
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<PAGE>
the NAV as of the day after the record date. If you are reinvesting
dividends of a fund sold without a sales charge in shares of a fund
sold with a sales charge, the shares will be purchased at the public
offering price. If you are reinvesting dividends of a fund sold with a
sales charge in shares of a fund sold with or without a sales charge,
the shares will be purchased at the net asset value of the fund.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your income and capital
gain dividends, or only your income dividends, automatically
transferred to your bank checking or savings account. The amount will
be determined on the dividend record date and will normally be
transferred to your account within 7 days of the dividend record date.
Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please
call or write the Transfer Agent to learn more about this dividend
distribution option.
Any election or revocation of any of the above dividend distribution options may
be made in writing to the Fund and sent to The Victory Funds at P.O. Box 8527,
Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863, and
will become effective with respect to dividends having record dates after
receipt of the Account Application or request by the Transfer Agent.
Reinvested dividend distributions receive the same tax treatment as dividend
distributions paid in cash.
O STATEMENTS AND REPORTS. You will receive a monthly statement reflecting all
transactions that affect the share balance or the registration of your Fund
account. You will receive a confirmation after every transaction that affected
the share balance of your Fund account, except for dividend reinvestment,
systematic investment and systematic withdrawal transactions. These transactions
will be detailed in your Fund account statement. Transactions that affect the
share balance of your Fund investment in an account established with an
Investment Professional or financial institution will be detailed in regular
statements or through confirmation procedures of the financial institution.
Certificates representing shares of the Fund will not be issued. An Internal
Revenue Service ("IRS") Form 1099-DIV with federal tax information will be
mailed to you by January 31 of each tax year and also will be filed with the
IRS. At least twice a year, you will receive the Fund's financial reports.
O REDEMPTIONS OR EXCHANGES. Investors may realize a gain or loss when redeeming
(selling) or exchanging shares. For most types of accounts, the Fund reports the
proceeds to the IRS annually. Because the shareholders' tax treatment also
depends on their purchase price and personal tax positions, shareholders should
keep their regular account statements to use in determining their tax. See
"Buying a Dividend."
O COMPLETE REDEMPTIONS. If you request a complete redemption of all your Fund
shares, any dividend accrued to your account will be included in the redemption
check.
O BUYING A DIVIDEND. On the record date for a distribution of ordinary income or
capital gains dividend, the net asset value of the Fund is reduced by the amount
of the distribution. An investor who buys shares just before the record date
("buying a dividend") will pay the full price for the shares and then receive a
portion of the purchase price back as a taxable distribution.
FEDERAL TAXES
The Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "IRS Code"). The Fund contemplates the distribution of all of its net
investment income and capital gains, if any, in accordance with the timing
requirements imposed by the IRS Code, so that it will not be subject to federal
income taxes or the 4% excise tax on undistributed income.
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<PAGE>
Distributions by the Fund of its net investment income and the excess, if any,
of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but only a portion thereof may
qualify for the 70% dividends received deduction for corporate shareholders
(which portion may not exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund and must be designated by the Fund as
so qualifying). Distributions by the Fund of the excess, if any, of its net
long-term capital gain over its net short-term capital loss are designated as
capital gain dividends and are taxable to shareholders as long-term capital
gains, regardless of the length of time shareholders have held their shares.
Such distributions are not eligible for the dividends-received deduction. If a
shareholder disposes of shares in the Fund at a loss before holding such shares
for more than six months, the loss will be treated as a long-term capital loss
to the extent that the shareholder has received a capital gain dividend on those
shares.
Distributions to shareholders of the Fund will be treated in the same manner for
federal income tax purposes whether received in cash or in additional shares and
may also be subject to state and local taxes. Distributions received by
shareholders of the Fund in January of a given year will be treated as received
on December 31 of the preceding year provided that they were declared to
shareholders of record on a date in October, November or December of such
preceding year. The Fund sends tax statements to its shareholders (with copies
to the IRS) by January 31 showing the amounts and tax status of distributions
made (or deemed made) during the preceding calendar year.
Income from securities of foreign issuers may be subject to foreign withholding
taxes. Credit for such foreign taxes, if any, will not pass through to the
shareholders.
O OTHER TAX INFORMATION. The information above is only a summary of some of the
federal income tax consequences generally affecting the Fund and its U.S.
shareholders, and no attempt has been made to discuss individual tax
consequences. A prospective investor should also review the more detailed
discussion of federal income tax considerations in the Statement of Additional
Information. In addition to the federal income tax, a shareholder may be subject
to state or local taxes on his or her investment in the Fund, depending on the
laws of the shareholder's jurisdiction. INVESTORS CONSIDERING AN INVESTMENT IN
THE FUND SHOULD CONSULT THEIR TAX ADVISERS TO DETERMINE WHETHER THE FUND IS
SUITABLE TO THEIR PARTICULAR TAX SITUATION.
When investors sign their Account Application, they are asked to provide their
correct social security or taxpayer identification number and other required
certifications. If investors do not comply with IRS regulations, the IRS
requires the Fund to withhold 31% of amounts distributed to them by the Fund as
dividends or in redemption of their shares.
PERFORMANCE
From time to time, performance information for each class of shares of the Fund
showing total return of each class of shares may be presented in advertisements,
sales literature and in reports to shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated over a stated period
of more than one year. Average annual total return is measured by comparing the
value of an investment in a class at the beginning of the relevant period (as
adjusted for sales charges, if any) to the redemption value of the investment at
the end of the period (assuming immediate reinvestment of any dividends or
capital gains distributions) and annualizing that figure. Cumulative total
return is calculated similarly to average annual total return, except that the
resulting difference is not annualized.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent thirty-day period by the Fund's maximum offering price
per share (reduced by any undeclared earned income expected to be paid shortly
as a dividend) on the last day of the period and annualizing the result.
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Investors may also judge, and the Victory Portfolios may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and is not necessarily representative of future
results. Any fees charged by service providers with respect to customer accounts
for investing in shares of the Fund will not be reflected in performance
calculations.
Additional information regarding the performance of each fund of the Victory
Portfolios is included in the Victory Portfolios' annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
FUND ORGANIZATION AND FEES
The Victory Portfolios is an open-end management investment company, commonly
known as a mutual fund, and currently consisting of twenty-four series
portfolios. On February 29, 1996, the Victory Portfolios converted from a
Massachusetts business trust to a Delaware Trust. The Victory Portfolios has
been operating continuously since 1986, when it was created under Massachusetts
law as a Massachusetts business trust although certain of its funds have a prior
operating history from their predecessor funds. The Victory Portfolios' offices
are located at 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Overall responsibility for management of the Victory Portfolios rests with its
Board of Trustees, who are elected by the shareholders of the Victory
Portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
KeyCorp Mutual Fund Advisers, Inc. is the investment adviser to the Fund. Key
Advisers directs the investment of the Fund's assets, subject at all times to
the supervision of the Victory Portfolios' Board of Trustees. Key Advisers
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of the Fund investments.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended. It is a wholly-owned subsidiary of KeyCorp Asset Management
Holdings, Inc., which is an indirect wholly-owned subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers
manage approximately $48 billion for numerous clients including large corporate
and public retirement plans, Taft-Hartley plans, foundations and endowments,
high net worth individuals and mutual funds.
For the services provided and expenses incurred pursuant to the investment
advisory agreement between the Victory Portfolios respecting the Fund, Key
Advisers is entitled to receive a fee, computed daily and paid monthly, at an
annual rate of sixty-five one-hundredths of one percent (.65%) of the average
daily net assets of the Fund. The advisory fees for the Fund have been
determined to be fair and reasonable in light of the services provided to the
Fund. Key Advisers may periodically waive all or a portion of its advisory fee
with respect to the Fund. Prior to January 1, 1996, Society Asset Management,
Inc. served as investment adviser to the Fund. During the Fund's fiscal period
ended October 31, 1995, Society Asset Management, Inc. earned investment
advisory fees aggregating .61% of the average daily net assets of Class A shares
of the
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<PAGE>
Fund.
Under the investment advisory agreement between the Victory Portfolios, on
behalf of the Fund and Key Advisers (the "Investment Advisory Agreement"), the
Adviser may delegate a portion of its responsibilities to a sub-adviser. Key
Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc., a registered investment adviser, on
behalf of the Fund ("Sub-advisory Agreement"). The Sub-Adviser is a wholly-owned
subsidiary of KeyCorp Asset Management Holdings, Inc. The Investment Advisory
Agreement and the Sub-advisory Agreement, respectively, provide that Key
Advisers and the Sub-Adviser, respectively, may render services through their
own employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers and
the Sub-Adviser, respectively. Key Advisers and the Sub-Adviser, respectively,
will be as fully responsible to the Fund for the acts and omissions of such
persons as they are for their own acts and omissions.
For its services under the investment sub-advisory agreement, Key Advisers pays
the Sub-Adviser fees as a percentage of average daily net assets as follows:
.65% of the first $10 million of average daily net assets; .50% of the next $15
million of average daily net assets; .40% of the next $25 million of average
daily net assets; and .35% of average daily net assets in excess of $50 million.
The person primarily responsible for the investment management of the Fund as
well as his previous experience is as follows:
PORTFOLIO MANAGING PREVIOUS
MANAGER FUND SINCE EXPERIENCE
- ------- ---------- ----------
Lawrence G. Babin Commencement of Portfolio Manager with Society
Operations Asset Management, Inc. since
1993; Portfolio Manager with
Society National Bank since
1981.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and from issuing, underwriting, selling or distributing securities in general.
Such laws and regulations do not prohibit such a holding company or affiliate
from acting as investment adviser, transfer agent, custodian or shareholder
servicing agent to such an investment company or from purchasing shares of such
a company as agent for and upon the order of their customers, nor should they
prevent Key Advisers, the Sub-Adviser or the Fund from compensating third
parties for performing such functions. Key Advisers, the Sub-Adviser and their
affiliates are subject to such banking laws and regulations.
Key Advisers and the Sub-Adviser believe that they may perform the investment
advisory services for the Fund contemplated by the Investment Advisory Agreement
without violating the Glass-Steagall Act or other applicable banking laws or
regulations and that they or their affiliates can perform the other services
indicated above. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their subsidiaries or
affiliates, as well as further judicial or administrative decisions or
interpretations of present or future statutes and regulations could prevent the
Key Advisers, the Sub-Adviser and their affiliates from continuing to perform
all or a part of the above services for their customers and/or the Fund. In such
event, changes in the operation of the Fund may occur, including the possible
alteration or termination of any service then being provided by Key Advisers,
the
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<PAGE>
Sub-Adviser and their affiliates, and the Trustees would consider alternate
investment advisers and other means of continuing available services. It is not
expected that the Fund's shareholders would suffer any adverse financial
consequences (if other service providers are retained) as a result of any of
these occurrences.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the Administrator, principal underwriter and Distributor
for the Fund.
The Administrator generally assists in all aspects of the Fund's administration
and operation. For expenses incurred and services provided as Administrator
pursuant to its management and administration agreement with the Victory
Portfolios, the Administrator receives a fee from the Fund, computed daily and
paid monthly, at an annual rate of fifteen one-hundredths of one percent (.15%)
of the Fund's average daily net assets. The Administrator may periodically waive
all or a portion of its administrative fee with respect to the Fund.
BISYS sells shares of the Fund as agent on behalf of the Victory Portfolios at
no cost to the Fund. Key Advisers and the Sub-Adviser neither participate in nor
are responsible for the underwriting of Fund shares.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110-3875
("State Street" or the "Transfer Agent") serves as the Transfer Agent for the
Funds, and receives a fee for such services based on various criteria, including
assets, transactions and number of accounts. Boston Financial Data Services,
Inc., Two Heritage Drive, Quincy, MA 02171 ("BFDS") is the dividend disbursing
agent and provides certain shareholder services to the Fund.
SHAREHOLDER SERVICING PLAN
The Victory Portfolios has adopted a Shareholder Servicing Plan for each class
of shares of the Fund. In accordance with the Shareholder Servicing Plan, the
Fund may enter into Shareholder Service Agreements under which the Fund pays
fees of up to .25% of the average daily net assets of each class for fees
incurred in connection with the personal service and maintenance of accounts
holding the shares of such class. Such agreements are entered into between the
Victory Portfolios and various shareholder servicing agents, including the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each, a "Shareholder Servicing
Agent"). Each Shareholder Servicing Agent generally will provide support
services to shareholders by establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
arranging for bank wires, responding to routine inquires, forwarding shareholder
communications, assisting in the processing of purchase, exchange and redemption
requests, and assisting shareholders in changing dividend options, account
designations and addresses. Shareholder Servicing Agents may periodically waive
all or a portion of their respective shareholder servicing fees with respect to
the Fund.
FUND ACCOUNTANT
BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, OH 43219, provides
certain accounting services for the Fund pursuant to a Fund Accounting Agreement
and receives a fee for such services.
CUSTODIAN
Key Trust Company of Ohio, N.A., an affiliate of the Adviser and Sub-Adviser,
serves as custodian for the Fund and receives fees for the services it performs
as custodian.
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<PAGE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
BUSINESS MANAGEMENT AGREEMENT
In connection with its obligations under the investment sub-advisory agreement,
the Sub-Adviser has entered into a Business Management Agreement with Key
Advisers pursuant to which Key Advisers provides certain administrative and
support services to the Sub-Adviser. Such services include preparing reports to
the Victory Portfolios' Board of Trustees, recordkeeping services, services
rendered in connection with the preparation of regulatory filings and other
reports, and regulatory, compliance and other administrative and support
services.
For such services, the Sub-Adviser pays fees to Key Advisers as follows: .30% on
the first $10 million of average daily net assets; .15% of the next $15 million
of average daily net assets ; .05% of the next $25 million of average daily net
assets; and .00% of average daily net assets in excess of $50 million.
EXPENSES
For the fiscal year ended October 31, 1995, total operating expenses for Class A
shares were .95% of average net assets, excluding certain voluntary fee
reductions or reimbursements. For the fiscal period ended April 30, 1996, total
operating expenses for Class B shares were 1.72% of average net assets,
excluding certain voluntary fee reductions or reimbursements.
ADDITIONAL INFORMATION
The Victory Portfolios may issue an unlimited number of shares and classes of
the Fund. Shares of each class of the Fund participate equally in dividends and
distributions and have equal voting, liquidation and other rights. When issued
and paid for, shares will be fully paid and nonassessable by the Victory
Portfolios and will have no preference, conversion, exchange or preemptive
rights. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. For those investors with qualified
trust accounts, the trustee will vote the shares at meetings of the Fund's
shareholders in accordance with the shareholder's instructions or will vote in
the same percentage as shares that are not so held in trust. The trustee will
forward to these shareholders all communications received by the trustee,
including proxy statements and financial reports. The Victory Portfolios and the
Fund are not required to hold annual meetings of shareholders and in ordinary
circumstances do not intend to hold such meetings. The Trustees may call special
meetings of shareholders for action by shareholder vote as may be required by
the 1940 Act or the Trust Instrument. Under certain circumstances, the Trustees
may be removed by action of the Trustees or by the shareholders. Shareholders
holding 10% or more of the Victory Portfolios' outstanding shares may call a
special meeting of shareholders for the purpose of voting upon the question of
removal of Trustees.
The Victory Portfolio's Board of Trustees may authorize the Victory Portfolios
to offer other funds which may differ in the types of securities in which their
assets may be invested.
Key Advisers, the Sub-Adviser and the Victory Portfolios have each adopted a
Code of Ethics (the "Codes") which require investment personnel (a) to pre-clear
all personal securities transactions, (b) to file reports regarding such
transactions, and (c) to refrain from personally engaging in (i) short-term
trading of a security, (ii) transactions involving a security within seven days
of a Fund transaction involving the same security, and (iii) transactions
involving securities being considered for investment by a Victory fund. The Code
also prohibit investment personnel from purchasing securities in an initial
public offering. Personal trading reports are reviewed periodically by Key
Advisers and the Sub-Adviser, and the Trustees review their Codes and any
substantial violations of the Codes. Violations of the Code may result in
censure, monetary penalties, suspension or termination of employment.
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<PAGE>
DELAWARE LAW
On February 29, 1996, the Victory Portfolios converted to a Delaware business
trust. The Delaware Business Trust Act provides that a shareholder of a Delaware
business trust shall be entitled to the same limitation of personal liability
extended to stockholders of Delaware corporations and the Trust Instrument
provides that shareholders will not be personally liable for liabilities of the
Victory Portfolios. In light of Delaware law, the nature of the Victory
Portfolios' business, and the nature of its assets, management of Victory
Portfolios believes that the risk of personal liability to a Fund shareholder
would be extremely remote.
In the unlikely event a shareholder is held personally liable for the Victory
Portfolios' obligations, the Delaware successor to the Victory Portfolios will
be required to use its property to protect or compensate the shareholder. On
request, the Delaware successor to the Victory Portfolios will defend any claim
made and pay any judgment against a shareholder for any act or obligation of the
Victory Portfolios. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Delaware successor to the Victory Portfolios
itself cannot meet its obligations to indemnify shareholders and pay judgments
against them.
Delaware law authorizes electronic or telephone communications between
shareholders and the Victory Portfolios. Under Delaware law, the Delaware
successor to the Victory Portfolios will have the flexibility to respond to
future business contingencies. For example, the Trustees will have the power to
incorporate the Victory Portfolios, to merge or consolidate it with another
entity, to cause each fund to become a separate trust, and to change the Victory
Portfolio's domicile without a shareholder vote. This flexibility could help
reduce the expense and frequency of future shareholder meetings for
non-investment related issues.
MISCELLANEOUS
As of the date of this Prospectus, the Fund offers only the classes of shares
that are offered by this Prospectus. Subsequent to the date of this Prospectus,
the Fund may offer additional classes of shares through a separate prospectus.
Any such additional classes may have different charges and other expenses, which
would affect investment performance. To obtain a free prospectus of another
class of shares or to obtain additional information, call your Investment
Professional , call (800) 539-3863 or write to the address listed below.
Shareholders will receive Semi-Annual Reports, which are unaudited, and Annual
Reports, which are audited by independent public accountants ("Reports"),
describing the investment operations of the Fund. Each of these Reports, when
available for a particular fiscal year end or the end of a semi-annual period,
is incorporated herein by reference. The Victory Portfolios may include
information in their Reports to shareholders that (a) describes general economic
trends, (b) describes general trends within the financial services industry or
the mutual fund industry, (c) describes past or anticipated portfolio holdings
for the Fund or (d) describes investment management strategies for the Victory
Portfolios. Such information is provided to inform shareholders of the
activities of the Victory Portfolios for the most recent fiscal year or
semi-annual period and to provide the views of Key Advisers, the Sub-Adviser
and/or the Victory Portfolios' officers regarding expected trends and
strategies.
The Fund intends to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Reports at no cost by writing to the Fund at the address listed below.
Inquiries regarding the Victory Portfolios or the Fund may be directed in
writing to the Victory Portfolios at The Victory Funds at P.O. Box 8527, Boston,
MA 02266-8527, or by telephone, toll-free, at 800-539-3863.
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<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VICTORY
PORTFOLIOS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE VICTORY PORTFOLIOS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE>
THE VICTORY PORTFOLIOS
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
BALANCED FUND
July 30, 1996
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios Balanced Fund,
dated the same date as the date hereof (the "Prospectus"). This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Funds at P.O Box 8527, Boston, MA 02266-8527, or by telephoning toll free
800-539-FUND or 800-539-3863.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES.........1
INVESTMENT LIMITATIONS AND RESTRICTIONS..10
VALUATION OF PORTFOLIO SECURITIES........12 INVESTMENT ADVISER
PERFORMANCE..............................12 KeyCorp Mutual Fund Advisers,
ADDITIONAL PURCHASE, EXCHANGE AND Inc.
REDEMPTION INFORMATION...............16 INVESTMENT SUB-ADVISER
DIVIDENDS AND DISTRIBUTIONS..............19 Society Asset Management, Inc
TAXES....................................20
TRUSTEES AND OFFICERS....................21 ADMINISTRATOR
ADVISORY AND OTHER CONTRACTS.............26 BISYS Fund Services
ADDITIONAL INFORMATION...................34
APPENDIX.................................38 DISTRIBUTOR
BISYS Fund Services
TRANSFER AGENT
State Street Bank and Trust
Company
CUSTODIAN
Key Trust Company of Ohio,
N.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-four series of
units of beneficial interest ("shares"). The outstanding shares represent
interests in the twenty-four separate investment portfolios which are currently
active. This Statement of Additional Information relates to the Class A and
Class B shares of the Victory Balanced Fund (the "Fund") only. Much of the
information contained in this Statement of Additional Information expands on
subjects discussed in the Prospectus. Capitalized terms not defined herein are
used as defined in the Prospectus. No investment in shares of the Fund should be
made without first reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, found by the Victory Portfolios'
Board of Trustees (the "Trustees") to present minimal credit risks and to be of
comparable quality to instruments that are rated high quality (i.e., in one
<PAGE>
of the two top ratings categories) by an NRSRO that is neither controlling,
controlled by, or under common control with the issuer of, or any issuer,
guarantor, or provider of credit support for, the instruments. For a description
of the rating symbols of each NRSRO see the Appendix to this Statement of
Additional Information.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
FOREIGN INVESTMENT. The Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including American
Depository Receipts ("ADRs") and securities purchased on foreign securities
exchanges. Such investment may subject the Fund to significant investment risks
that are different from, and additional to, those related to investments in
obligations of U.S. domestic issuers or in U.S. securities markets.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Key Advisers or the
Sub-Adviser will be able to anticipate these potential events or counter their
effects.
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<PAGE>
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund currently invests in the securities of issuers based in a number of
foreign countries. The Adviser continuously evaluates issuers based in countries
all over the world. Accordingly, the Fund may invest in the securities of
issuers based in any country, subject to approval by the Trustees, when such
securities met the investment criteria of the Adviser and are consistent with
the investment objectives and policies of the Fund.
VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes may have maturities of more than one year, as
follows:
1. A note that is issued or guaranteed by the United States government or any
agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in one year or less, will be deemed by the Fund to
have a maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature scheduled to be paid
in one year or more will be deemed by the Fund to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
4. A floating rate note that is subject to a demand feature will be deemed by
the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
- 4 -
<PAGE>
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding one year and
upon no more than 30 days' notice.
OPTIONS. The Fund may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. The Fund
must at all times have in its portfolio the securities which it may be obligated
to deliver if the option is exercised. The Fund may write such call options in
an attempt to realize a greater level of current income than would be realized
on the securities alone. The Fund may also write call options as a partial hedge
against a possible stock market decline or to extend a holding period on a stock
which is under consideration for sale in order to create a long-term capital
gain. In view of its investment objective, the Fund generally would write call
options only in circumstances where Key Advisers or the Sub-Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit. The Fund retains the risk of
loss should the value of the underlying security decline. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option. Although the
writing of call options only on national securities exchanges increases the
likelihood of the Fund's ability to make closing purchase transactions, there is
no assurance that the Fund will be able to effect such transactions at any
particular time or at any acceptable price. The writing of call options could
result in increases in the Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate.
MISCELLANEOUS SECURITIES. The Fund can invest in various securities issued by
domestic and foreign corporations, including preferred stocks and investment
grade corporate bonds, notes, and warrants. Bonds are long-term corporate debt
instruments secured by some or all of the issuer's assets, debentures are
general corporate debt obligations backed only by the integrity of the borrower,
and warrants are instruments that entitle the holder to purchase a certain
amount of common stock at a specified price, which price is usually higher than
the current market price at the time of issuance. Preferred stocks are
instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities that
are spelled out in the governing document. Preferred stocks usually pay a fixed
dividend per quarter (or annum) and are senior to common stock in terms of
liquidation and dividends rights, and preferred stocks typically do not have
voting rights. The Fund also may invest in zero coupon bonds, which are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations.
"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when-issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "whenissued" basis,
the custodian will set aside cash or liquid portfolio securities equal to the
amount of the commitment in a separate account. Normally, the custodian will set
aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when-issued" securities for
speculative purposes, but only in furtherance of its investment objective.
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U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers or the Sub-Adviser will waive its
investment advisory fee with respect to assets of the Fund invested in any of
the money market funds of the Victory Portfolios, and, to the extent required by
the laws of any state in which the Fund's shares are sold, Key Advisers or the
Sub-Adviser will waive its investment advisory fee as to all assets invested in
other investment companies.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price, or to the extent that the disposition of
such securities by the Fund is delayed pending court action.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets (such as cash or other liquid
high-grade securities) consistent with the Fund's investment restrictions having
a value equal to the repurchase price (including accrued interest); the
collateral will be marked-to-market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities.
MORTGAGE-RELATED SECURITIES -- IN GENERAL
Mortgage-related securities are backed by mortgage obligations including, among
others, conventional 30-year fixed rate mortgage obligations, graduated payment
mortgage obligations, 15-year mortgage obligations, and adjustable rate mortgage
obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee). Prepayments occur when the
holder of an individual mortgage obligation prepays the remaining principal
before the mortgage obligation's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated
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<PAGE>
maturity would indicate. Because the prepayment characteristics of the
underlying mortgage obligations vary, it is not possible to predict accurately
the realized yield or average life of a particular issue of pass-through
certificates. Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments have an adverse
impact on yields for pass-throughs purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not have been fully amortized at the time the obligation
is repaid. The opposite is true for pass-throughs purchased at a discount. The
Fund may purchase mortgage-related securities at a premium or at a discount.
Among the U.S. Government securities in which the Fund may invest are government
"mortgage-backed" (or government guaranteed mortgage related securities). Such
guarantees do not extend to the value of yield of the mortgage-backed securities
themselves or of the Fund's shares.
GNMA CERTIFICATES. Certificates of the Government National Mortgage Association
("GNMA") are mortgage-backed securities which evidence an undivided interest in
a pool or pools of mortgages. GNMA Certificates that the funds may purchase are
the "modified pass-through" type, which entitle the holder to receive timely
payment of all interest and principal payments due on the mortgage pool, net of
fees paid to the "issuer" and GNMA, regardless of whether or not the mortgagor
actually makes the payment.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal and interest on securities backed by a pool of mortgages insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full faith and credit
of the U.S. Government. GNMA is also empowered to borrow without limitation from
the U.S. Treasury if necessary to make any payments required under its
guarantee.
The estimated average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that the Fund has
purchased the certificates above par in the secondary market.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"), mortgage participation
certificates ("PCs") and collateralized mortgage obligations ("CMOs"). PCs
resemble GNMA Certificates in that each PC represents a pro rata share of all
interest and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal. Recently introduced FHLMC Gold PCs guarantee the timely payment of
both principal and interest.
CMOs are securities backed by a pool of mortgages in which the principal and
interest cash flows of the pool are channeled on a prioritized basis into two or
more classes, or tranches, of bonds. FHLMC CMOs are backed by pools of agency
mortgage-backed securities and the timely payment of principal and interest of
each tranche is guaranteed by the FHLMC. The FHLMC guarantee is not backed by
the full faith and credit of the U.S.
Government.
FNMA SECURITIES. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA, but has expanded its activity to the secondary market for conventional
residential mortgages. FNMA primarily issues two types of mortgage-backed
securities, guaranteed mortgage pass-through certificates ("FNMA Certificates")
and CMOs. FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
and principal on FNMA Certificates and CMOs. The FNMA guarantee is not backed by
the full faith and credit of the U.S. Government.
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<PAGE>
GOVERNMENT "MORTGAGE-BACKED" SECURITIES. The Fund may invest in obligations of
certain agencies and instrumentalities of the U.S. Government. Some such
obligations, such as those issued by GNMA or the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of FNMA, are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or FHLMC, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
and instrumentalities if it is not obligated to do so by law.
The principal governmental (i.e., backed by the full faith and credit of the
U.S. Government) guarantor of mortgage-related securities is GNMA. GNMA is a
wholly owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and pools of FHA-insured or
VA-guaranteed mortgages. Government-related (i.e., not backed by the full faith
and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA and
FHLMC are government-sponsored corporations owned entirely by private
stockholders. Pass-through securities issued by FNMA and FHLMC are guaranteed as
to timely payment of principal and interest by FNMA and FHLMC, respectively, but
are not backed by the full faith and credit of the U.S. Government.
FUTURES CONTRACTS. The Fund may enter into futures contracts, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested and reducing transaction costs. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security, class of securities, or an index at a
specified future time and at a specified price. A stock index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position (buying a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
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<PAGE>
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, the
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The Fund will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase.
The Fund's ability to effectively utilize futures trading depends on several
factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index.
Second, it is possible that a lack of liquidity for futures contracts could
exist in the secondary market, resulting in an inability to close a futures
position prior to its maturity date. Third, the purchase of a futures contract
involves the risk that the Fund could lose more than the original margin deposit
required to initiate a futures transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
to the extent that, immediately thereafter, the sum of its initial margin
deposits on open contracts exceeds 5% of the market value of the Fund's total
assets. In addition, the Fund will not enter into futures contracts to the
extent that the value of the futures contracts held would exceed 33 1/3% of the
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain the Fund's qualification as a regulated investment
company.
The Victory Portfolios have undertaken to restrict their futures contract
trading as follows: first, the Victory Portfolios will not engage in
transactions in futures contracts for speculative purposes; second, the Victory
Portfolios will not market its funds to the public as commodity pools or
otherwise as vehicles for trading in the commodities futures or commodity
options markets; third, the Victory Portfolios will disclose to all prospective
shareholders the purpose of and limitations on its funds' commodity futures
trading; fourth, the Victory Portfolios will submit to the CFTC special calls
for information. Accordingly, registration as a commodities pool operator with
the CFTC is not required.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the Commission. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures
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<PAGE>
contract, it may cover by owning the instruments underlying the contract. The
Fund may also cover such a position by holding a call option permitting it to
purchase the same futures contract at a price no higher than the price at which
the short position was established. Where the Fund sells a call option on a
futures contract, it may cover either by entering into a long position in the
same contract at a price no higher than the strike price of the call option or
by owning the instruments underlying the futures contract. The Fund could also
cover this position by holding a separate call option permitting it to purchase
the same futures contract at a price no higher than the strike price of the call
option sold by the Fund.
In addition, the extent to which the Fund may enter into transactions involving
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a registered investment company and the Fund's intention to
qualify as such.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. The Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchase or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Fund are only for hedging purposes, Key
Advisers and the Sub-Adviser do not believe that the Fund is subject to the
risks of loss frequently associated with futures transactions. The Fund would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying financial instrument and sold it after the
decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contract
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
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<PAGE>
INVESTMENT LIMITATIONS AND RESTRICTIONS
The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "ADDITIONAL INFORMATION -Miscellaneous" of this Statement of
Additional Information).
THE FUND MAY NOT:
1. Participate on a joint or joint and several basis in any securities trading
account.
2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
4. Issue any senior security (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.
5. Borrow money, except that (a) the Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3% of the Fund's total
assets; and (b) the Fund may borrow money for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 5% of the Fund's total
assets must be repaid before the Fund may make additional investments.
6. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.
8. With respect to 75% of the Fund's total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
9. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
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<PAGE>
The following restrictions are not fundamental and may be changed without
shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if the officers
or Trustees of the Victory Portfolios or the officers or directors of its
investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.
2. The Fund will not invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less than three
years of continuous operation.
3. The Fund will not write or sell puts, straddles, spreads or combinations
thereof or write or purchase put options or purchase call options.
4. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.
5. The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.
6. The Fund may invest up to 5% of its total assets in the securities of any one
investment company, but may not own more than 3% of the securities of any one
investment company or invest more than 10% of its total assets in the securities
of other investment companies. Pursuant to an exemptive order received by the
Victory Portfolios from the Commission, the Fund may invest in the other market
funds of the Victory Portfolios.
STATE REGULATIONS.
In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.
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<PAGE>
GENERAL.
The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent
change in values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and limitations. If the value of the Fund's holdings of illiquid securities at
any time exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.
The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.
VALUATION OF PORTFOLIO SECURITIES
Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment securities not having
readily available market quotations will be priced at fair value using a
methodology approved in good faith by the Trustees.
PERFORMANCE
From time to time the "standardized yield," "distribution return," "dividend
yield," "average annual total return," "total return," and "total return at net
asset value" of an investment in each class of Fund shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and operating expenses.
Performance - Class B Shares
Class B shares of the Fund were initially offered on March 1, 1996. The
performance figures for Class B shares for periods prior to such date represent
the performance for Class A shares of the Fund which has been restated to
reflect the applicable CDSC payable at redemption within 6 years from purchase.
Class B shares are subject to an asset-based sales charge of .75% of average
daily net assets per year and other class-specific expenses. Had these fees and
expenses been reflected, performance quoted would have been lower.
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STANDARDIZED YIELD.
The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares for the 30-day period ended
October 31, 1995 was 3.25%. The yield on Class B shares for the 30-day period
ended April 30, 1996 was 2.38%.
DIVIDEND YIELD AND DISTRIBUTION RETURNS.
From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared during
a stated period of one year or less (for example, 30 days) are added together,
and the sum is divided by the maximum offering price per share of that class on
the last day of the period. When the result is annualized for a period of less
than one year, the "dividend yield" is calculated as follows:
Dividend Yield
of the Class = Dividends of the Class + Number of days (accrual period) x365
---------------------------
Max. Offering Price of the
Class (last day of period)
The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, without considering the effect of contingent deferred sales
charges ("CDSC").
From time to time similar yield or distribution return calculations may also be
made using the Class A net asset value (instead of its respective maximum
offering price) at the end of the period. The dividend yields on Class A shares
at maximum offering price and net asset value for the 30-day period ended
October 31, 1995 were 3.61% and 3.80%, respectively. The distribution returns on
Class A shares at maximum offering price and net asset value as of October 31,
1995 were 3.61% and 3.80%, respectively. The dividend yields on Class B shares,
with and without the CDSC for the 30-day period ended April 30, 1996, were 2.92%
and 3.06%, respectively. The
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distribution returns on Class B shares, with and without the CDSC and net asset
value as of April 30, 1996 were 3.50% and 3.68%, respectively.
TOTAL RETURNS.
The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
( ERV )^1^n - 1 = Average Annual Total Return
-------
( P )
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable CDSC (5.0%
for the first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). Total returns also
assume that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual total return
and cumulative total return on Class A shares at maximum offering price and on
Class B shares with the CDSC for the period December 10, 1993 (commencement of
operations) to October 31, 1995 (life of fund) were 6.63% and 12.92%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares. For the one year ended October 31, 1995 the annual total return for
Class A shares at maximum offering price and for Class B shares with the CDSC
was 13.57% and ____% for Class B shares.
From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value" for Class A or
Class B shares. It is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales charges) and
takes into consideration the reinvestment of dividends and capital gains
distributions. The average annual total return and cumulative total return on
Class A shares at net asset value and on Class B shares without the CDSC for the
period December 10, 1993 (commencement of operations) to October 31, 1995 (life
of fund) was 9.41% and 18.56%, respectively, for Class A shares and ____% and
____%, respectively, for Class B shares. For the year ended October 31, 1995,
the average annual total return for Class A shares at net asset value and on
Class B shares without the CDSC was 1.92% for Class A shares and ____% for Class
B shares.
OTHER PERFORMANCE COMPARISONS.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the
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<PAGE>
Fund's classes against (1) all other funds, excluding money market funds, and
(2) all other government bond funds. The Lipper performance rankings are based
on total return that includes the reinvestment of capital gains distributions
and income dividends but does not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded as an index of U.S. stock market
performance. The foregoing bond indices are unmanaged indices of securities that
do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time, the yields and the total returns of Class A or Class B shares
of the Fund may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Fund may also include calculations in such
communications that describe hypothetical investment results. (Such performance
examples are based on an express set of assumptions and are not indicative of
the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund.) The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stock,
bonds, and Treasury bills, as compared to an investment in shares of the Fund,
as well as charts or graphs which illustrate strategies such as
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<PAGE>
dollar cost averaging, and comparisons of hypothetical yields of investment in
tax-exempt versus taxable investments. In addition, advertisements or
shareholder communications may include a discussion of certain attributes or
benefits to be derived by an investment in the Fund. Such advertisements or
communications may include symbols, headlines or other material which highlight
or summarize the information discussed in more detail therein. With proper
authorization, the Fund may reprint articles (or excerpts) written regarding the
Fund and provide them to prospective shareholders. Performance information with
respect to the Fund is generally available by calling 1-800-539-3863.
Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, and U.S.A. Today. In addition to yield information,
general information about the Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis.
Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management, and its
investment philosophy.
When comparing yield, total return and investment risk of an investment in Class
A or Class B shares of the Fund with other investments, investors should
understand that certain other investments have different risk characteristics
than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may seek to maintain a
fixed price per share.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The New York Stock Exchange ("NYSE") holiday closing schedule indicated in the
Prospectus under "Share Price" is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.
If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.
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<PAGE>
Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
PURCHASING SHARES.
ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial depending on the amount of the purchase, the length of
time the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred sales
charge and asset-based sales charge with respect to Class B shares are the same
as those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including the asset-based sales charge to which
Class B shares are subject.
CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured Class
B shares that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan after
such shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's
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<PAGE>
total net assets, and then pro rata to each outstanding share within a given
class. Such general expenses include (1) management fees, (2) legal, bookkeeping
and audit fees, (3) printing and mailing costs of shareholder reports,
prospectuses, statements of additional information and other materials for
current shareholders, (4) fees to the Trustees who are not affiliated with Key
Advisers, (5) custodian expenses, (6) share issuance costs, (7) organization and
start-up costs, (8) interest, taxes and brokerage commissions, and (9)
non-recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding share
within that class. Such expenses include (1) Rule 12b-1 distribution fees and
shareholder servicing fees, (2) incremental transfer and shareholder servicing
agent fees and expenses, (3) registration fees and (4) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class rather
than to the Fund as a whole.
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of shares of other Class A shares of funds of the Victory Portfolios.
To obtain the reduction of the sales charge, you or your Investment Professional
must notify the Transfer Agent at the time of purchase whenever a quantity
discount is applicable to your purchase.
In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Victory Portfolios Class A shares held by you,
your spouse, and your children under age 21, determined at the previous day's
net asset value at the close of business, to the amount of your new purchase
valued at the current offering price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
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<PAGE>
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
EXCHANGING SHARES.
EXCHANGING SHARES.
Shares of any Victory money market fund or Class A shares of any other fund of
the Victory Portfolios with a reduced sales charge may be exchanged for shares
of the Fund upon payment of the difference in the sales charge. Shares of any
Victory money market fund may be used to purchase Class B shares of the Fund.
Shares of the Fund may be exchanged for the same class of shares of any other
fund of the Victory Portfolios. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares. If you do not
make a selection, your investment will be made in Class A shares.
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
service charge is currently made for reinvestment in shares of the Fund . The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were redeemed
is taxable, and reinvestment will not alter any capital gains tax payable on
that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code of 1986, as amended (the "IRS
Code"), if the redemption proceeds of Fund shares on which a sales charge was
paid are reinvested in shares of the Fund or another of the Victory Portfolios
within 90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the sales
charge paid. That would reduce the loss or increase the gain recognized from
redemption. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation. The reinstatement must be into an account bearing the
same registration.
DIVIDENDS AND DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income monthly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.
The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements - Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will also
differ in amount as a consequence of any difference in net asset value between
Class A and Class B shares.
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<PAGE>
For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.
TAXES
It is the policy of the Fund to seek the favorable tax treatment accorded
regulated investment companies ("RICs") under Subchapter M of the IRS Code for
so long as such qualification is in the best interest of its shareholders. By
following such policy and distributing its income and gains currently with
respect to each taxable year, the Fund expects to eliminate or reduce to a
nominal amount the federal income and excise taxes to which it may otherwise be
subject.
In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.
A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during
a calendar year are less than the required amount, the fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.
Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.
- 21 -
<PAGE>
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his or her income tax return payments of
interest or dividends. This "backup withholding" is not an additional tax, and
any amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.
- 22 -
<PAGE>
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee, The Victory
Funds and the Key Mutual
Funds.
Robert G. Brown, 73 Trustee Retired; from October
5460 N. Ocean Drive 1983 to November 1990,
Singer Island President, Cleveland
Riviera Beach, FL 33404 Advanced Manufacturing
Program (non-profit
corporation engaged in
regional economic
development).
Edward P. Campbell, 46 Trustee From March 1994 to
Nordson Corporation present, Executive Vice
28601 Clemens Road President and Chief
Westlake, OH 44145 Operating Officer of
Nordson Corporation
(manufacturer of
application equipment);
from May 1988 to March
1994, Vice President of
Nordson Corporation; from
1987 to December 1994,
member of the Supervisory
Committee of Society's
Collective Investment
Retirement Fund; from May
1991 to August 1994,
Trustee, Financial
Reserves Fund and from
May 1993 to August 1994,
Trustee, Ohio Municipal
Money Market Fund;
Trustee, The Victory
Funds and the Key Mutual
Funds.
- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
- 23 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
Dr. H. Patrick Swygert, 53 Trustee President, Howard
Howard University University; formerly
2400 6th Street, N.W. President, State
Suite 320 University of New York at
Washington, D.C. 20059 Albany; formerly,
Executive Vice President,
Temple University;
Trustee, the Victory
Funds.
- 24 -
<PAGE>
The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until August 1997. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until August 1997. The function
of the Business, Legal and Audit Committee is to recommend independent auditors
and monitor accounting and financial matters; to nominate persons to serve as
Independent Trustees and Trustees to serve on committees of the Board; and to
review compliance and contract matters.
The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).
Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).
The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.
<TABLE>
<CAPTION>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" ^(1)
----------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee..... -0- -0- $1,112.55 $46,716.97
Robert G. Brown, Trustee..... -0- -0- 1,178.91 39,815.98
John D. Buckingham, Trustee(2) -0- -0- 541.57 18,841.89
Edward P. Campbell,Trustee.... -0- -0- 1,539.75 33,799.68
Harry Gazelle, Trustee....... -0- -0- 974.79 35,916.98
John W. Kemper, Trustee(2)... -0- -0- 541.47 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 1,014.75 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 1,539.75 40,366.98
H. Patrick Swygert, Trustee.. -0- -0- 1,014.75 37,116.98
John R. Young, Trustee(2).... -0- -0- 577.04 21,963.81
</TABLE>
(1) For certain Trustees, these amounts include compensation received from The
Victory Funds (which were reorganized into the Victory Portfolios as of
June 5, 1995), the Key Funds, formerly the SBSF Funds (the investment
adviser of which was acquired by KeyCorp effective April, 1995) and
Society's Collective Investment Retirement Funds, which were reorganized
into the Victory Balanced Fund and Victory Government Mortgage Fund as of
December 19, 1994. There are presently 24 mutual funds from which the
above-named Trustees are compensated in the Victory "Fund Complex," but not
all of the above-named Trustees serve on the board of each fund in the
"Fund Complex."
(2) Resigned
- 25 -
<PAGE>
OFFICERS.
The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh
International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas
North America and
Paribas Corporation;
President and Trustee
to The Victory Funds
the SBSF Funds Inc.,
dba Key Mutual Funds.
William B. Blundin, 57 Vice President Senior Vice President
BISYS Fund Services of BISYS Fund
125 West 55th Street Services ("BISYS");
New York, New York 10019 Officer of other
investment companies
administered by BISYS
; President and Chief
Executive Officer of
Vista Broker-Dealer
Services, Inc.,
Emerald Asset
Management, Inc. and
BNY Hamilton
Distributors, Inc.,
registered
broker/dealers.
J. David Huber, 50 Vice President Executive Vice
BISYS Fund Services President, BISYS .
3435 Stelzer Road
Columbus, OH 43219-3035
Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS .
Columbus, OH 43219-3035
George O. Martinez, 37 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and
Columbus, OH 43219-3035 Director of Legal and
Compliance Services,
BISYS ; from June
1989 to March 1995,
Vice President and
Associate General
Counsel, Alliance
Capital Management.
- 26 -
<PAGE>
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Kevin L. Martin , 35 Treasurer From February 1996 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS ; From 1984 to
Columbus, OH 43219-3035 February 1996, Senior
Manager, Ernst &
Young
The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. BISYS receives fees from the Victory Portfolios as Administrator.
As of July 1, 1996, the Trustees and officers as a group owned beneficially less
than 1% of the Fund.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER AND SUB-ADVISER.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of KeyBank National Association ("KeyBank"),
a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $48 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of March 31, 1996, KeyCorp had an asset base
of $65 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which
KeyBank, formerly Society National Bank was a wholly-owned subsidiary, and
KeyCorp, the former bank holding company. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies. Key Bank is the lead affiliate bank of
KeyCorp.
The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.
.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund
- 27 -
<PAGE>
.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund
Victory U.S. Government Obligations Fund
Victory Tax-Free Money Market Fund
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund
Victory Limited Term Income Fund
Victory Government Mortgage Fund
Victory Financial Reserves Fund
Victory Fund for Income
.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund
Victory Government Bond Fund
Victory New York Tax-Free Fund
.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund
Victory Stock Index Fund
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund
Victory Investment Quality Bond Fund
Victory Ohio Regional Stock Fund
1% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
___________________________
(1) Society Asset Management, Inc. serves as sub-adviser to each of these
funds. For its services under the Investment Sub-Advisory Agreement, Key
Advisers pays the Sub-Adviser sub-advisory fees at rates (based on an
annual percentage of average daily net assets) which vary according to the
table set forth below.
- 28 -
<PAGE>
The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:
For the Victory Balanced Fund, For theVictory International Growth
Diversified Stock Fund, Growth Fund, Ohio Regional Stock Fund and
Fund, Stock Index Fund and Value Special Value Fund:
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund,
Limited Term Income Fund, Ohio U.S. Government Obligations
Municipal Bond Fund, Government Financial Reserves Fund,
Bond Fund, Fund, Government Institutional Money Market Fund and
Mortgage Fund, National Municipal Ohio Municipal Money Market Fund:
Bond Fund and New York Tax-Free
Fund:
- 24 -
<PAGE>
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
- --------------------
(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of rendering
sub-investment advisory services by the Sub-Adviser, and will be in
writing.
THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Trustees or by vote
of a majority of the outstanding shares of the Fund (as defined under
"Additional Information - Miscellaneous"), and, in either case, by a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement, by votes cast in person at a meeting called for such
purpose.
The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation
- 29 -
<PAGE>
for services or a loss resulting from willful misfeasance, bad faith, or gross
negligence on the part of Key Advisers in the performance of its duties, or from
reckless disregard by it of its duties and obligations thereunder.
From January, 1993 until December 31, 1995, Society Asset Management, Inc.
served as investment adviser to the Fund. For the fiscal years ended October 31,
1994 and 1995, the Adviser earned investment advisory fees of $536,712 and
$1,024,165, respectively, after fee reductions of $396,767 and $624,474,
respectively.
Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers
Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of KeyCorp;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the Sub-Adviser. The sub-advisory arrangement does not result in the payment
of additional fees by the Fund.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the SubAdviser
including, but not limited to, (1) descriptions of the operations of Key Trust
Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2) descriptions of
certain personnel and their functions; and (3) statistics and rankings related
to the operations of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and
- 30 -
<PAGE>
which brokers are to be eligible to execute its portfolio transactions.
Purchases from underwriters and/or broker-dealers of portfolio securities
include a commission or concession paid by the issuer to the underwriter and/or
broker-dealer and purchases from dealers serving as market makers may include
the spread between the bid and asked price. While Key Advisers and the
Sub-Adviser generally seek competitive spreads or commissions, the Fund may not
necessarily pay the lowest spread or commission available on each transaction,
for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions. In such event, the Trustees will adopt procedures
incorporating the standards of Rule 17e-1 of the 1940 Act, which require that
the commission paid to affiliated broker-dealers must be reasonable and fair
compared to the commission, fee or other remuneration received, or to be
received, by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. At times, the Fund may
also purchase portfolio securities directly from dealers acting as principals,
underwriters or market makers. As these transactions are usually conducted on a
net basis, no brokerage commissions are paid by the Fund.
The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. ("Key Trust") or their affiliates, or BISYS or
its affiliates, and will not give preference to Key Trust's correspondent banks
or affiliates, or BISYS with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result that would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the SubAdviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.
In the fiscal years ended October 31, 1994 and 1995, the Fund paid $238,762 and
$125,079, respectively, in brokerage commissions.
PORTFOLIO TURNOVER.
The turnover rate stated in the Prospectus for the Fund's investment portfolio
is calculated by dividing the lesser of the Fund's purchases or sales of
portfolio securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities, at the
time of acquisition, were one
- 31 -
<PAGE>
year or less. In the fiscal year ended October 31, 1995 and the period from
December 10, 1993 through October 31, 1994, the Fund's portfolio turnover rates
were 69.22% and 118.49%, respectively.
ADMINISTRATOR.
As of July 1, 1996, BISYS serves as administrator (the "Administrator") to the
Fund. The Administrator assists in supervising all operations of the Fund (other
than those performed by Key Advisers or the Sub-Adviser under the Investment
Advisory Agreement and Sub-Investment Advisory Agreement). The Winsbury Company
("Winsbury"), served as the Fund's administrator prior to June 5, 1995. Winsbury
was succeeded by Concord Holding Corporation on that date. Both entities are
affiliated with BISYS.
BISYS receives a fee from the Fund for its services as Administrator and
expenses assumed pursuant to the Administration Agreements, calculated daily and
paid monthly, at the annual rate of fifteen one hundredths of one percent (.15%)
of the Fund's average daily net assets. BISYS may periodically waive all or a
portion of its fee with respect to the Fund in order to increase the net income
of the Fund.
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.
The Administration Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Victory
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
Under the Administration Agreement, BISYS assists in the Fund's administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
In the fiscal years ended October 31, 1994 and October 31, 1995, the
Administrator earned aggregate administration fees of $131,378, and $246,993,
respectively, after fee reductions of $8,644 and $303, respectively.
DISTRIBUTOR.
BISYS Fund Services serves as distributor (the "Distributor") for the continuous
offering of the shares of the Fund pursuant to a Distribution Agreement between
the Distributor and the Victory Portfolios. Prior to May 31, 1995, Winsbury
served as distributor of the Fund. Unless otherwise terminated, the Distribution
Agreement will remain in effect with respect to the Fund for two years, and
thereafter for consecutive one-year terms, provided that it is approved at least
annually (1) by the Trustees or by the vote of a majority of the outstanding
shares of the Fund, and (2) by the vote of a majority of the Trustees of the
Victory Portfolios who are not parties to the Distribution Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate in
the event of its assignment, as defined under the 1940 Act. For the Victory
Portfolios' fiscal year ended October 31, 1994 Winsbury earned $212,021, in
underwriting commissions, and retained $15; for the fiscal year ended October
31, 1995, the Distributor earned $0 in underwriting commissions, and retained
$0.
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TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Fund. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Fund, pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Victory
Portfolios, State Street has agreed (1) to issue and redeem shares of the
Victory Portfolios; (2) to address and mail all communications by the Victory
Portfolios to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of shareholders; (3)
to respond to correspondence or inquiries by shareholders and others relating to
its duties; (4) to maintain shareholder accounts and certain sub-accounts; and
(5) to make periodic reports to the Trustees concerning the Victory Portfolios'
operations.
SHAREHOLDER SERVICING PLAN.
Payments made under the Service Plan to Shareholder Servicing Agents (which may
include affiliates of the Adviser and Sub- Adviser) are for administrative
support services to customers who may from time to time beneficially own shares,
which services may include: (1) aggregating and processing purchase and
redemption requests for shares from customers and transmitting promptly net
purchase and redemption orders to our distributor or transfer agent; (2)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or pre-authorized instructions; (3) processing
dividend and distribution payments on behalf of customers; (4) providing
information periodically to customers showing their positions in shares; (5)
arranging for bank wires; (6) responding to customer inquiries; (7) providing
subaccounting with respect to shares beneficially owned by customers or
providing the information to the Fund as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any proposals regarding this Plan; and (10)
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations.
CLASS B SHARES DISTRIBUTION PLAN.
The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the 1940 Act.
The Distribution Plan adopted by the Trustees with respect to the Class B shares
of the Fund provides that the Fund will pay the Distributor a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares. The distribution fees may be used
by the Distributor for: (a) costs of printing and distributing the Fund's
prospectus, statement of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of the Fund's Class B shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions and providing
any other shareholder services not otherwise provided by the Victory Portfolios'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee and the CDSCs received by the
Distributor; and (f) any other expense primarily intended to result in the sale
of the Fund's Class B shares, including, without limitation, payments to
salesmen and selling dealers at the time of the sale of Class B shares, if
applicable, and continuing fees to each such salesmen and selling dealers, which
fee shall begin to accrue immediately after the sale of such shares.
The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.
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The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.
The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the SubAdviser or
the Distributor greater flexibility in connection with the distribution of Class
B shares of the Fund, additional sales of the Fund's Class B shares may result.
Additionally, certain Class B shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have other
relationships.
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. ("BISYS, Inc.") serves as fund accountant for the
Fund pursuant to a fund accounting agreement with the Victory Portfolios dated
June 5, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS, Inc. calculates the Fund's net asset value, the
dividend and capital gain distribution, if any, and the yield. BISYS Fund
Services Ohio, Inc. also provides a current security position report, a summary
report of transactions and pending maturities, a current cash position report,
and maintains the general ledger accounting records for the Fund. Under the Fund
Accounting Agreement, BISYS, Inc. is entitled to receive annual fees of .03% of
the first $100 million of the Fund's daily average net assets, .02% of the next
$100 million of the Fund's daily average net assets, and .01% of the Fund's
remaining daily average net assets. These annual fees are subject to a minimum
monthly assets charge of $2,500 per taxable fund, and does not include
out-of-pocket expenses or multiple class charges of $833 per month assessed for
each class of shares after the first class. For the fiscal years ended October
31, 1994 and October 31, 1995 the Fund accountant earned fund accounting fees of
$60,781, and $87,894, respectively.
CUSTODIAN.
Cash and securities owned by each of the Victory Portfolio's are held by Key
Trust as custodian pursuant to a Custodian Agreement dated May 24, 1995. Cash
and securities owned by the Fund are also held by Morgan Stanley Trust Company
("Morgan Stanley") as Sub-Custodian, and certain foreign Sub-Custodians,
pursuant to a Sub-Custody Agreement. Under their Agreements, Key Trust and
Morgan Stanley each (1) maintains a separate account or accounts in the name of
each respective fund; (2) makes receipts and disbursements of money on behalf of
each fund; (3) collects and receives all income and other payments and
distributions on account of portfolio securities; (4) responds to correspondence
from security brokers and others relating to its duties; and (5) makes periodic
reports to the Trustees concerning the Victory Portfolios' operations. Key Trust
and Morgan Stanley each may, with the approval of a fund and at the custodian's
own expense, open and maintain a sub-custody account or accounts on behalf of a
fund, provided that Key Trust and Morgan Stanley each shall remain liable for
the performance of all of its duties under the Custodian Agreement.
INDEPENDENT ACCOUNTANTS.
The unaudited financial statements for the period ended April 30, 1996 and the
audited financial statements for the fiscal year ended October 31, 1995 are
incorporated by reference herein. The audited financial statements for the
fiscal year ended October 31, 1995 have been audited by Coopers & Lybrand L.L.P.
as set forth in their report incorporated by reference herein, and are included
in reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P. serves as the Victory
Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
LEGAL COUNSEL.
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Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 is
the counsel to the Victory Portfolios.
EXPENSES.
The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.
If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
Sub-Adviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, without
par value. The Victory Portfolios presently has twenty- four series of shares,
which represent interests in the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the Stock
Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund, the
Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the
International Growth Fund, the Limited Term Income Fund, the Government Mortgage
Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment
Quality Bond Fund, the Government Bond Fund, the Fund for Income, the National
Municipal Bond Fund, the New York Tax-Free Fund, the Institutional Money Market
Fund, the Financial Reserves Fund and the Ohio Municipal Money Market Fund,
respectively. The Victory Portfolios' Trust Instrument authorizes the Trustees
to divide or redivide any unissued shares of the Victory Portfolios into one or
more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
As of July 1, 1996, the Fund believes that Society National Bank of Cleveland
and Company was shareholder of record of 96.89% of the outstanding Class A
shares of the
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Fund, but did not hold such shares beneficially. The following shareholders
beneficially owned 5% or more of the outstanding shares of the Fund as of July
1, 1996:
Number of Shares % of Shares of
Outstanding Class A Outstanding
----------- -------------------
Class A
- -------
KeyCorp Plan Balanced Fund 3,230,707.07 15.57%
127 Public Square
Cleveland, OH 44114
Class B
- -------
Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Victory Portfolios voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY .
The Victory Portfolios converted to a Delaware business trust from a
Massachusetts business trust on February 29, 1996. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Delaware Trust
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<PAGE>
Instrument provides that shareholders of the Victory Portfolios shall not be
liable for the obligations of the Victory Portfolios. The Delaware Trust
Instrument also provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Delaware Trust Instrument also provides that the
Victory Portfolios shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Victory Portfolios, and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered to be extremely
remote.
The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.
MISCELLANEOUS.
As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund are charged with the direct liabilities and expenses in respect
of that fund, and with a share of the general liabilities and expenses of each
of the funds not readily identified as belonging to a particular fund, which are
allocated to each fund in accordance with its proportionate share of the net
asset values of the Victory Portfolios at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of the
Victory Portfolios to a particular fund will be determined by the Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular fund are conclusive.
As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN
OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.
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APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
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<PAGE>
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt.
AA+.High credit quality Protection factors are strong.
AA.Risk is modest but may vary slightly from time to time
AA-.because of economic conditions.
A+.Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA. Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions are unlikely to increase
investment risk significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
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<PAGE>
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-. High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify issue as to
investment grade.
- 40 -
<PAGE>
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely repayment.
A1. Obligations supported by a very strong capacity for timely repayment.
A2. Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
- 41 -
<PAGE>
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
These obligations may include Treasury bills, notes and bonds, and issues of
agencies and instrumentalities of the U.S. Government, provided such obligations
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations issued by agencies and instrumentalities of the U.S. Government
include such agencies and instrumentalities as the Government National Mortgage
Association, the Export-Import Bank of the United States, the Tennessee Valley
Authority, the Farmers Home Administration, the Federal Home Loan Banks, the
Federal Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal
Land Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. A Fund will invest in the obligations of such instrumentalities
only when the investment adviser believes that the credit risk with respect to
the instrumentality is minimal.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
DIVERSIFIED STOCK FUND
July 30, 1996
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios Diversified Stock
Fund, dated the same date as the date hereof (the "Prospectus"). This Statement
of Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Funds at P.O. Box 8527, Boston, MA 02266-8527, or by telephoning toll free
800-539-FUND or 800-539-3863.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES.........1 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS..10 KeyCorp Mutual Fund Advisers,
VALUATION OF PORTFOLIO SECURITIES........12 Inc.
PERFORMANCE..............................12
INVESTMENT SUB-ADVISER
ADDITIONAL PURCHASE, EXCHANGE AND Society Asset Management,
Inc.
REDEMPTION INFORMATION...............16
DIVIDENDS AND DISTRIBUTIONS..............19 ADMINISTRATOR
TAXES....................................20 BISYS Fund Services
TRUSTEES AND OFFICERS....................21
ADVISORY AND OTHER CONTRACTS.............26 DISTRIBUTOR
ADDITIONAL INFORMATION...................34 BISYS Fund Services
APPENDIX................................38
TRANSFER AGENT
State Street Bank and Trust
Company
CUSTODIAN
Key Trust Company of Ohio,
N.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-four series of
units of beneficial interest ("shares"). The outstanding shares represent
interests in the twenty-four separate investment portfolios which are currently
active. This Statement of Additional Information relates to the Victory
Diversified Stock Fund (the "Fund") only. Much of the information contained in
this Statement of Additional Information expands on subjects discussed in the
Prospectus. Capitalized terms not defined herein are used as defined in the
Prospectus. No investment in shares of the Fund should be made without first
reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, found by the Victory Portfolios'
Board of Trustees (the "Trustees") to present minimal credit risks and to be of
comparable quality to instruments that are rated high quality (i.e., in one of
the two top ratings categories) by an NRSRO that is neither controlling,
controlled by, or under common control
<PAGE>
with the issuer of, or any issuer, guarantor, or provider of credit support for,
the instruments. For a description of the rating symbols of each NRSRO see the
Appendix to this Statement of Additional Information.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
FOREIGN INVESTMENT. The Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including American
Depository Receipts ("ADRs") and securities purchased on foreign securities
exchanges. Such investment may subject the Fund to significant investment risks
that are different from, and additional to, those related to investments in
obligations of U.S. domestic issuers or in U.S. securities markets.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Key Advisers or the
Sub-Adviser will be able to anticipate these potential events or counter their
effects.
- 2 -
<PAGE>
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund currently invests in the securities of issuers based in a number of
foreign countries. The Adviser continuously evaluates issuers based in countries
all over the world. Accordingly, the Fund may invest in the securities of
issuers based in any country, subject to approval by the Trustees, when such
securities met the investment criteria of the Adviser and are consistent with
the investment objectives and policies of the Fund.
VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes may have maturities of more than one year, as
follows:
1. A note that is issued or guaranteed by the United States government or any
agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in one year or less, will be deemed by the Fund to
have a maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature scheduled to be paid
in one year or more will be deemed by the Fund to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
4. A floating rate note that is subject to a demand feature will be deemed by
the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
- 3 -
<PAGE>
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding one year and
upon no more than 30 days' notice.
OPTIONS. The Fund may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. The Fund
must at all times have in its portfolio the securities which it may be obligated
to deliver if the option is exercised. The Fund may write such call options in
an attempt to realize a greater level of current income than would be realized
on the securities alone. The Fund may also write call options as a partial hedge
against a possible stock market decline or to extend a holding period on a stock
which is under consideration for sale in order to create a long-term capital
gain. In view of its investment objective, the Fund generally would write call
options only in circumstances where Key Advisers or the Sub-Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit.
The Fund retains the risk of loss should the value of the underlying security
decline. The Fund may also enter into "closing purchase transactions" in order
to terminate its obligation as a writer of a call option prior to the expiration
of the option. Although the writing of call options only on national securities
exchanges increases the likelihood of the Fund's ability to make closing
purchase transactions, there is no assurance that the Fund will be able to
effect such transactions at any particular time or at any acceptable price. The
writing of call options could result in increases in the Fund's portfolio
turnover rate, especially during periods when market prices of the underlying
securities appreciate.
MISCELLANEOUS SECURITIES. The Fund can invest in various securities issued by
domestic and foreign corporations, including preferred stocks and investment
grade corporate bonds, notes, and warrants. Bonds are long-term corporate debt
instruments secured by some or all of the issuer's assets, debentures are
general corporate debt obligations backed only by the integrity of the borrower,
and warrants are instruments that entitle the holder to purchase a certain
amount of common stock at a specified price, which price is usually higher than
the current market price at the time of issuance. Preferred stocks are
instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities that
are spelled out in the governing document. Preferred stocks usually pay a fixed
dividend per quarter (or annum) and are senior to common stock in terms of
liquidation and dividends rights, and preferred stocks typically do not have
voting rights. The Fund also may invest in zero coupon bonds, which are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations.
"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "when issued"
basis, the custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when issued" securities for
speculative purposes, but only in furtherance of its investment objective.
- 4 -
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. [The Fund will
invest in the obligations of such agencies and instrumentalities only when Key
Advisers or the Sub-Adviser believes that the credit risk with respect thereto
is minimal.]
OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers or the Sub-Adviser will waive its
investment advisory fee with respect to assets of the Fund invested in any of
the money market funds of the Victory Portfolios, and, to the extent required by
the laws of any state in which the Fund's shares are sold, Key Advisers or the
Sub-Adviser will waive its investment advisory fee as to all assets invested in
other investment companies.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price, or to the extent that the disposition of
such securities by the Fund is delayed pending court action.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets (such as cash or other liquid
high-grade securities) consistent with the Fund's investment restrictions having
a value equal to the repurchase price (including accrued interest); the
collateral will be marked-to-market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities.
INVESTMENT LIMITATIONS AND RESTRICTIONS
The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "ADDITIONAL INFORMATION -Miscellaneous" of this Statement of
Additional Information.
- 5 -
<PAGE>
THE FUND MAY NOT:
1. Participate on a joint or joint and several basis in any securities trading
account.
2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
4. Issue any senior security (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.
5. Borrow money, except that (a) the Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3% of the Fund's total
assets; and (b) the Fund may borrow money for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 5% of the Fund's total
assets must be repaid before the Fund may make additional investments.
6. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.
8. With respect to 75% of the Fund's total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
9. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
The following restrictions are not fundamental and may be changed without
shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if the officers
or Trustees of the Victory Portfolios or the officers or directors of its
investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.
- 6 -
<PAGE>
2. The Fund will not invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less than three
years of continuous operation.
3. The Fund will not write or sell puts, straddles, spreads or combinations
thereof or write or purchase put options or purchase call options.
4. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.
5. The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.
6. The Fund may invest up to 5% of its total assets in the securities of any one
investment company, but may not own more than 3% of the securities of any one
investment company or invest more than 10% of its total assets in the securities
of other investment companies. Pursuant to an exemptive order received by the
Victory Portfolios from the Commission, the Fund may invest in the other money
market funds of the Victory Portfolios.
7. The Fund will not buy state, municipal, or private activity bonds.
STATE REGULATIONS.
In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.
GENERAL.
The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior
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security" under the 1940 Act). Accordingly, any subsequent change in values, net
assets, or other circumstances will not be considered when determining whether
the investment complies with the Fund's investment policies and limitations. If
the value of the Fund's holdings of illiquid securities at any time exceeds the
percentage limitation applicable at the time of acquisition due to subsequent
fluctuations in value or other reasons, the Trustees will consider what actions,
if any, are appropriate to maintain adequate liquidity.
The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.
VALUATION OF PORTFOLIO SECURITIES
Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment securities not having
readily available market quotations will be priced at fair value using a
methodology approved in good faith by the Trustees.
PERFORMANCE
From time to time the "standardized yield," "dividend yield," "distribution
return," "average annual total return," "total return," and "total return at net
asset value" of an investment in each class of Fund shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and operating expenses.
Performance - Class B Shares
Class B shares of the Fund were initially offered on March 1, 1996. The
performance figures for Class B shares for periods prior to such date represent
the performance for Class A shares of the Fund which has been restated to
reflect the applicable CDSC payable at redemption within 6 years from purchase.
Class B shares are subject to an asset-based sales charge of .75% of average
daily net assets per year and other class-specific expenses. Had these fees and
expenses been reflected, performance quoted would have been lower.
STANDARDIZED YIELD.
The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:
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Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares for the 30-day period ended
October 31, 1995 was 1.65%. The yield on Class B shares for the 30-day period
ended April 30, 1996 was .56%.
DIVIDEND YIELD AND DISTRIBUTION RETURNS.
From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared during
a stated period of one year or less (for example, 30 days) are added together,
and the sum is divided by the maximum offering price per share of that class on
the last day of the period. When the result is annualized for a period of less
than one year, the "dividend yield" is calculated as follows:
Dividend Yield
of the Class = Dividends of the Class + Number of days (accrual period) x365
---------------------------
Max. Offering Price of the
Class (last day of period)
The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, without considering the effect of contingent deferred sales
charges ("CDSC").
From time to time similar yield or distribution return calculations may also be
made using the Class A net asset value (instead of its respective maximum
offering price) at the end of the period. The dividend yields on Class A shares
at maximum offering price and net asset value as of October 31, 1995 were 1.97%
and 2.07%, respectively. The distribution returns on Class A shares at maximum
offering price and net asset value as of October 31, 1995 were 11.59% and
12.17%, respectively. The dividend yields on Class B shares with and without the
CDSC for the 30-day period ended April 30, 1996, were 1.49% and 1.57%,
respectively. The distribution returns on Class B shares with and without the
CDSC as of April 30, 1996 were 8.58% and 9.01%, respectively.
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<PAGE>
TOTAL RETURNS.
The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
( ERV )^1^n - 1 = Average Annual Total Return
-------
( P )
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable CDSC (5.0%
for the first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). Total returns also
assume that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual total return
and cumulative total return on Class A shares at maximum offering price and on
Class B shares with the CDSC for the period October 20, 1989 (commencement of
operations) to October 31, 1995 (life of fund) were 11.61% and 94.07%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares. For the one and five year periods ended October 31, 1995 annual total
returns for Class A shares at maximum offering price and on Class B shares with
the CDSC were 17.69% and 15.42%, respectively, for Class A shares and ____% and
____%, respectively, for Class B shares.
From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value" for Class A or
Class B shares. It is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales charges) and
takes into consideration the reinvestment of dividends and capital gains
distributions. The average annual total return and cumulative total return on
Class A shares at net assets value and on Class B shares without the CDSC for
the period October 20, 1989 (commencement of operations) to October 31, 1995
(life of fund) was 12.52% and 103.77%, respectively, for Class A shares and
____% and ____%, respectively, for Class B shares. For the one and five year
periods ended October 31, 1995, average annual total return for Class A shares
at net asset value and on Class B shares without the CDSC was 23.54% and 16.55%,
respectively for Class A shares and ____% and ____%, respectively, for Class B
shares.
OTHER PERFORMANCE COMPARISONS.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the Fund's classes against (1) all other funds, excluding
money market funds, and (2) all other government bond funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
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<PAGE>
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded as an index of U.S. stock market
performance. The foregoing bond indices are unmanaged indices of securities that
do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time, the yields and the total returns of Class A or Class B shares
of the Fund may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Fund may also include calculations in such
communications that describe hypothetical investment results. (Such performance
examples are based on an express set of assumptions and are not indicative of
the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund.) The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, and Treasury bills, as compared to an investment in shares of the Fund,
as well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail
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<PAGE>
therein. With proper authorization, the Fund may reprint articles (or excerpts)
written regarding the Fund and provide them to prospective shareholders.
Performance information with respect to the Fund is generally available by
calling 1-800-539-3863.
Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, and U.S.A. Today. In addition to yield information,
general information about the Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis. Advertisements may also
include descriptive information about the investment adviser, including, but not
limited to, its status within the industry, other services and products it makes
available, total assets under management, and its investment philosophy.
When comparing yield, total return and investment risk of an investment in Class
A or Class B shares of the Fund with other investments, investors should
understand that certain other investments have different risk characteristics
than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may seek to maintain a
fixed price per share.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The New York Stock Exchange ("NYSE") holiday closing schedule indicated in the
Prospectus under "Share Price" is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.
If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily
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<PAGE>
suspends the offering of shares as permitted under the 1940 Act or by the
Commission or because it is unable to invest amounts effectively in accordance
with its investment objective and policies.
The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
PURCHASING SHARES.
ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial depending on the amount of the purchase, the length of
time the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred sales
charge and asset-based sales charge with respect to Class B shares are the same
as those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including the asset-based sales charge to which
Class B shares are subject.
CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured Class
B shares that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan after
such shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's total net assets, and then pro rata to each
outstanding share within a given class. Such general expenses include (1)
management fees, (2) legal, bookkeeping and audit fees, (3) printing and mailing
costs of shareholder reports, prospectuses, statements of additional information
and other materials for current shareholders, (4) fees to the Trustees who are
not affiliated with Key Advisers, (5) custodian expenses, (6) share issuance
costs, (7) organization and start-up costs, (8) interest, taxes and brokerage
commissions, and (9) non-recurring expenses, such as litigation
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<PAGE>
costs. Other expenses that are directly attributable to a class are allocated
equally to each outstanding share within that class. Such expenses include (1)
Rule 12b-1 distribution fees and shareholder servicing fees, (2) incremental
transfer and shareholder servicing agent fees and expenses, (3) registration
fees and (4) shareholder meeting expenses, to the extent that such expenses
pertain to a specific class rather than to the Fund as a whole.
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of Class A shares of other funds of the Victory Portfolios. To obtain
the reduction of the sales charge, you or your Investment Professional must
notify the Transfer Agent at the time of purchase whenever a quantity discount
is applicable to your purchase.
In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Class A shares of Victory Portfolios (excluding
money markets) held by you, your spouse, and your children under age 21,
determined at the previous day's net asset value at the close of business, to
the amount of your new purchase valued at the current offering price to
determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
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EXCHANGING SHARES.
Shares of any Victory money market fund or Class A shares of any other fund of
the Victory Portfolios with a reduced sales charge may be exchanged for shares
of the Fund upon payment of the difference in the sales charge. Shares of any
Victory money market fund may be used to purchase Class B shares of the Fund.
Shares of the Fund may be exchanged for the same class of shares of any other
fund of the Victory Portfolios. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares. If you do not
make a selection, your investment will be made in Class A shares.
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
service charge is currently made for reinvestment in shares of the Fund . The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were redeemed
is taxable, and reinvestment will not alter any capital gains tax payable on
that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code of 1986, as amended (the "IRS
Code"), if the redemption proceeds of Fund shares on which a sales charge was
paid are reinvested in shares of the Fund or another of the Victory Portfolios
within 90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the sales
charge paid. That would reduce the loss or increase the gain recognized from
redemption. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation. The reinstatement must be into an account bearing the
same registration.
DIVIDENDS AND DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.
The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements - Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will also
differ in amount as a consequence of any difference in net asset value between
Class A and Class B shares.
For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
- 15 -
<PAGE>
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.
TAXES
It is the policy of the Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code for so long as such qualification is in the best interest of its
shareholders. By following such policy and distributing its income and gains
currently with respect to each taxable year, the Fund expects to eliminate or
reduce to a nominal amount the federal income and excise taxes to which it may
otherwise be subject.
In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.
A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during
a calendar year are less than the required amount, the fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.
Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his
- 16 -
<PAGE>
or her income tax return payments of interest or dividends. This "backup
withholding" is not an additional tax, and any amounts withheld may be credited
against the shareholder's ultimate U.S. tax liability.
Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee, The Victory
Funds and the Key Mutual
Funds.
- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
- 17 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Robert G. Brown, 73 Trustee Retired; from October
5460 N. Ocean Drive 1983 to November 1990,
Singer Island President, Cleveland
Riviera Beach, FL 33404 Advanced Manufacturing
Program (non-profit
corporation engaged in
regional economic
development).
Edward P. Campbell, 46 Trustee From March 1994 to
Nordson Corporation present, Executive Vice
28601 Clemens Road President and Chief
Westlake, OH 44145 Operating Officer of
Nordson Corporation
(manufacturer of
application equipment);
from May 1988 to March
1994, Vice President of
Nordson Corporation; from
1987 to December 1994,
member of the Supervisory
Committee of Society's
Collective Investment
Retirement Fund; from May
1991 to August 1994,
Trustee, Financial
Reserves Fund and from
May 1993 to August 1994,
Trustee, Ohio Municipal
Money Market Fund;
Trustee, The Victory
Funds and the Key Mutual
Funds.
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
- 18 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
Dr. H. Patrick Swygert, 53 Trustee President, Howard
Howard University University; formerly
2400 6th Street, N.W. President, State
Suite 320 University of New York at
Washington, D.C. 20059 Albany; formerly,
Executive Vice President,
Temple University;
Trustee, the Victory
Funds.
The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until August 1997. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until August 1997. The function
of the Business, Legal and Audit Committee is to recommend independent auditors
and monitor accounting and financial matters; to nominate persons to serve as
Independent Trustees and Trustees to serve on committees of the Board; and to
review compliance and contract matters.
The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).
- 19 -
<PAGE>
Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).
The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.
<TABLE>
<CAPTION>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" ^(1)
----------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee..... -0- -0- $2,206.35 $46,716.97
Robert G. Brown, Trustee..... -0- -0- 2,331.48 39,815.98
John D. Buckingham, Trustee(2) -0- -0- 1,060.05 18,841.89
Edward P. Campbell,Trustee.... -0- -0- 2,009.87 33,799.68
Harry Gazelle, Trustee....... -0- -0- 1,929.86 35,916.98
John W. Kemper, Trustee(2)... -0- -0- 1,060.05 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 2,009.87 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 2,009.87 40,366.98
H. Patrick Swygert, Trustee.. -0- -0- 2,009.87 37,116.98
John R. Young, Trustee(2).... -0- -0- 1,132.82 21,963.81
</TABLE>
(1) For certain Trustees, these amounts include compensation received from The
Victory Funds (which were reorganized into the Victory Portfolios as of
June 5, 1995), the Key Funds, formerly the SBSF Funds (the investment
adviser of which was acquired by KeyCorp effective April, 1995) and
Society's Collective Investment Retirement Funds, which were reorganized
into the Victory Balanced Fund and Victory Government Mortgage Fund as of
December 19, 1994. There are presently 24 mutual funds from which the
above-named Trustees are compensated in the Victory "Fund Complex," but not
all of the above-named Trustees serve on the board of each fund in the
"Fund Complex."
(2) Resigned
OFFICERS.
The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh
International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas
North America and
Paribas Corporation;
President and Trustee
to The Victory Funds
and Key Mutual Funds.
- 20 -
<PAGE>
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
William B. Blundin, 57 Vice President Senior Vice President
BISYS Fund Services of BISYS Fund
125 West 55th Street Services ("BISYS");
New York, New York 10019 Officer of other
investment companies
administered by BISYS
; President and Chief
Executive Officer of
Vista Broker-Dealer
Services, Inc.,
Emerald Asset
Management, Inc. and
BNY Hamilton
Distributors, Inc.,
registered
broker/dealers.
J. David Huber, 50 Vice President Executive Vice
BISYS Fund Services President, BISYS .
3435 Stelzer Road
Columbus, OH 43219-3035
Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS .
Columbus, OH 43219-3035
George O. Martinez, 37 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and
Columbus, OH 43219-3035 Director of Legal and
Compliance Services,
BISYS ; from June
1989 to March 1995,
Vice President and
Associate General
Counsel, Alliance
Capital Management.
Kevin L. Martin , 35 Treasurer From February 1996 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS ; From 1984 to
Columbus, OH 43219-3035 February 1996, Senior
Manager, Ernst &
Young
The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. BISYS receives fees from the Victory Portfolios as Administrator.
As of July 1, 1996, the Trustees and officers as a group owned beneficially less
than 1% of the Fund.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER AND SUB-ADVISER.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of KeyBank National Association ("KeyBank"),
a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $48 billion for numerous clients
- 21 -
<PAGE>
including large corporate and public retirement plans, Taft-Hartley plans,
foundations and endowments, high net worth individuals and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of March 31, 1996, KeyCorp had an asset base
of $65 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which
KeyBank, formerly Society National Bank was a wholly-owned subsidiary, and
KeyCorp, the former bank holding company. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies. Key Bank is the lead affiliate bank of
KeyCorp.
The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.
.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund
.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund
Victory U.S. Government Obligations Fund
Victory Tax-Free Money Market Fund
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund
Victory Limited Term Income Fund
Victory Government Mortgage Fund
Victory Financial Reserves Fund
Victory Fund for Income
.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund
Victory Government Bond Fund
Victory New York Tax-Free Fund
- 23 -
<PAGE>
.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund
Victory Stock Index Fund
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund
Victory Investment Quality Bond Fund
Victory Ohio Regional Stock Fund
- 22 -
<PAGE>
1% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
Society Asset Management, Inc. serves as sub-adviser to each of these funds. For
its services under the Investment Sub-Advisory Agreement, Key Advisers pays the
Sub-Adviser sub-advisory fees at rates (based on an annual percentage of average
daily net assets) which vary according to the table set forth below.
The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:
For the Victory Balanced Fund, For theVictory International Growth
Diversified Stock Fund, Growth Fund, Ohio Regional Stock Fund and
Fund, Stock Index Fund and Value Special Value Fund:
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund,
Limited Term Income Fund, Ohio U.S. Government Obligations
Municipal Bond Fund, Government Financial Reserves Fund,
Bond Fund, Fund, Government Institutional Money Market Fund and
Mortgage Fund, National Municipal Ohio Municipal Money Market Fund:
Bond Fund and New York Tax-Free
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
- --------------------
(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of rendering
sub-investment advisory services by the Sub-Adviser, and will be in
writing.
- 23 -
<PAGE>
THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Trustees or by vote
of a majority of the outstanding shares of the Fund (as defined under
"Additional Information - Miscellaneous"), and, in either case, by a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement, by votes cast in person at a meeting called for such
purpose.
The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of Key Advisers
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Prior to January, 1993, Society served as investment adviser to the Fund. From
January, 1993 until December 31, 1995, Society Asset Management, Inc. served as
investment adviser to the Fund. For the fiscal years ended October 31, 1993,
1994 and 1995 the Adviser earned investment advisory fees of $1,563,647,
$1,548,683 and $2,006,479, respectively, after fee reductions of $33,190,
$82,207 and $126,000, respectively.
Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers
Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of KeyCorp;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the Sub-Adviser. The sub-advisory arrangement does not result in the payment
of additional fees by the Fund.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting
- 24 -
<PAGE>
as investment adviser, transfer agent, and custodian to such an investment
company. In 1981 the United States Supreme Court held in Board of Governors of
the Federal Reserve System v. Investment Company Institute that the Board did
not exceed its authority under the Holding Company Act when it adopted its
regulation and interpretation authorizing bank holding companies and their
non-bank affiliates to act as investment advisers to registered closed-end
investment companies. In the Board of Governors case, the Supreme Court also
stated that if a national bank complied with the restrictions imposed by the
Board in its regulation and interpretation authorizing bank holding companies
and their non-bank affiliates to act as investment advisers to investment
companies, a national bank performing investment advisory services for an
investment company would not violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the SubAdviser
including, but not limited to, (1) descriptions of the operations of Key Trust
Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2) descriptions of
certain personnel and their functions; and (3) statistics and rankings related
to the operations of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions. In such event, the Trustees will adopt procedures
incorporating the standards of Rule 17e-1 of the 1940 Act, which require that
the commission paid to affiliated broker-dealers must be reasonable and fair
compared to the commission, fee or other remuneration received, or to be
received, by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. At times, the Fund may
also purchase portfolio securities directly from dealers acting as principals,
underwriters or market makers. As these transactions are usually conducted on a
net basis, no brokerage commissions are paid by the Fund.
The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. ("Key Trust") or their affiliates, or BISYS or
its affiliates, and will not give preference to Key Trust's correspondent banks
or affiliates, or BISYS with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds,
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investment companies or accounts may also invest in the securities in which the
Fund invests. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another fund, investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which Key Advisers or the
Sub-Adviser believes to be equitable to the Fund and such other fund, investment
company or account. In some instances, this investment procedure may affect the
price paid or received by the Fund or the size of the position obtained by the
Fund in an adverse manner relative to the result that would have been obtained
if only the Fund had participated in or been allocated such trades. To the
extent permitted by law, Key Advisers or the SubAdviser may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for the other funds of the Victory Portfolios or for other investment
companies or accounts in order to obtain best execution. In making investment
recommendations for the Victory Portfolios, Key Advisers and the Sub-Adviser
will not inquire or take into consideration whether an issuer of securities
proposed for purchase or sale by the Fund is a customer of Key Advisers or the
Sub-Adviser, their parents or subsidiaries or affiliates and, in dealing with
their commercial customers, Key Advisers or the Sub-Adviser, their parents,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Victory Portfolios.
In the fiscal years ended October 31, 1993, 1994 and 1995, the Fund paid
$421,782, $550,131 and $615,260, respectively, in brokerage commissions.
PORTFOLIO TURNOVER.
The turnover rate stated in the Prospectus for the Fund's investment portfolio
is calculated by dividing the lesser of the Fund's purchases or sales of
portfolio securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities, at the
time of acquisition, were one year or less. In the fiscal years ended October
31, 1995 and 1994, the Fund's portfolio turnover rates were 75.05% and 103.62%,
respectively.
ADMINISTRATOR.
As of July 1, 1996 BISYS Fund Services ("BISYS") serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the Fund (other than those performed by Key Advisers or the
SubAdviser under the Investment Advisory Agreement and Sub-Investment Advisory
Agreement). The Winsbury Company served as the Fund's administrator prior to
June 5, 1995, Winsbury was succeeded by Concord Holding Corporation on that
date. Both entities are affiliated with BISYS.
BISYS receives a fee from the Fund for its services as Administrator and
expenses assumed pursuant to the Administration Agreements, calculated daily and
paid monthly, at the annual rate of fifteen one hundredths of one percent (.15%)
of the Fund's average daily net assets. BISYS may periodically waive all or a
portion of its fee with respect to the Fund.
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.
The Administration Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Victory
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
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Under the Administration Agreement, BISYS assists in the Fund's administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
In the fiscal years ended October 31, 1993, October 31, 1994 and October 31,
1995, the Administrator earned aggregate administration fees of $360,842,
$364,211, and $490,419, respectively, after fee reductions of $1,520, $12,148
and $1,612, respectively.
DISTRIBUTOR.
BISYS Fund Services serves as distributor (the "Distributor") for the continuous
offering of the shares of the Fund pursuant to a Distribution Agreement between
the Distributor and the Victory Portfolios. Prior to May 31, 1995, Winsbury
served as Distributor of the Fund. Unless otherwise terminated, the Distribution
Agreement will remain in effect with respect to the Fund for two years, and
thereafter for consecutive one-year terms, provided that it is approved at least
annually (2) by the Trustees or by the vote of a majority of the outstanding
shares of the Fund, and (2) by the vote of a majority of the Trustees of the
Victory Portfolios who are not parties to the Distribution Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate in
the event of its assignment, as defined under the 1940 Act. For the Victory
Portfolios' fiscal years ended October 31, 1993 and 1994 Winsbury earned $0 and
$0, respectively, in underwriting commissions, and retained $0 and $15,
respectively; for the fiscal year ended October 31, 1995, the Distributor earned
$107,000 in underwriting commissions, and retained $721,000.
TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Fund. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Fund, pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Victory
Portfolios, State Street has agreed (1) to issue and redeem shares of the
Victory Portfolios; (2) to address and mail all communications by the Victory
Portfolios to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of shareholders; (3)
to respond to correspondence or inquiries by shareholders and others relating to
its duties; (4) to maintain shareholder accounts and certain sub-accounts; and
(5) to make periodic reports to the Trustees concerning the Victory Portfolios'
operations.
SHAREHOLDER SERVICING PLAN.
Payments made under the Shareholder Service Plan to Shareholder Servicing Agents
(which may include affiliates of the Adviser and Sub- Adviser) are for
administrative support services to customers who may from time to time
beneficially own shares, which services may include: (1) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (2) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments on behalf of customers; (4)
providing information periodically to customers showing their positions in
shares; (5) arranging for bank wires; (6) responding to customer inquiries; (7)
providing subaccounting with respect to shares beneficially owned by customers
or providing the information to the Fund as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any
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proposals regarding this Plan; and (10) providing such other similar services as
we may reasonably request to the extent you are permitted to do so under
applicable statutes, rules or regulations.
CLASS B SHARES DISTRIBUTION PLAN.
The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the 1940 Act.
The Distribution Plan adopted by the Trustees with respect to the Class B shares
of the Fund provides that the Fund will pay the Distributor a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares. The distribution fees may be used
by the Distributor for: (a) costs of printing and distributing the Fund's
prospectus, statement of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of the Fund's Class B shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions and providing
any other shareholder services not otherwise provided by the Victory Portfolios'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee and the CDSCs received by the
Distributor; and (f) any other expense primarily intended to result in the sale
of the Fund's Class B shares, including, without limitation, payments to
salesmen and selling dealers at the time of the sale of Class B shares, if
applicable, and continuing fees to each such salesmen and selling dealers, which
fee shall begin to accrue immediately after the sale of such shares.
The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.
The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.
The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the SubAdviser or
the Distributor greater flexibility in connection with the distribution of Class
B shares of the Fund, additional sales of the Fund's Class B shares may result.
Additionally, certain Class B shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have other
relationships.
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. ("BISYS, Inc.") serves as fund accountant for the
Fund pursuant to a fund accounting agreement with the Victory Portfolios dated
June 5, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS, Inc. calculates the Fund's net asset value, the
dividend and capital gain distribution, if any, and the yield. BISYS, Inc. also
provides a current security position report,
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a summary report of transactions and pending maturities, a current cash position
report, and maintains the general ledger accounting records for the Fund. Under
the Fund Accounting Agreement, BISYS, Inc. is entitled to receive annual fees of
.03% of the first $100 million of the Fund's daily average net assets, .02% of
the next $100 million of the Fund's daily average net assets, and .01% of the
Fund's remaining daily average net assets. These annual fees are subject to a
minimum monthly assets charge of $2,500 per taxable fund, and does not include
out-of-pocket expenses or multiple class charges of $833 per month assessed for
each class of shares after the first class. For the fiscal years ended October
31, 1993, October 31, 1994 and October 31, 1995, the fund accountant earned fund
accounting fees of $144,288, $152,663 and $141,598, respectively.
CUSTODIAN.
Cash and securities owned by the Fund are held by Key Trust as custodian. Key
Trust serves as custodian to the Fund pursuant to a Custodian Agreement dated
May 24, 1995. Under this Agreement, Key Trust (1) maintains a separate account
or accounts in the name of the Fund; (2) makes receipts and disbursements of
money on behalf of the Fund; (3) collects and receives all income and other
payments and distributions on account of portfolio securities; (4) responds to
correspondence from security brokers and others relating to its duties; and (5)
makes periodic reports to the Trustees concerning the Victory Portfolios'
operations. Key Trust may, with the approval of the Victory Portfolios and at
the custodian's own expense, open and maintain a sub-custody account or accounts
on behalf of the Fund, provided that Key Trust shall remain liable for the
performance of all of its duties under the Custodian Agreement.
INDEPENDENT ACCOUNTANTS.
The unaudited financial statements for the period ended April 30, 1996 and the
audited financial statements for the fiscal year ended October 31, 1995 are
incorporated by reference herein. The audited financial statements for the
fiscal year ended October 31, 1995 have been audited by Coopers & Lybrand L.L.P.
as set forth in their report incorporated by reference herein, and are included
in reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P. serves as the Victory
Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
LEGAL COUNSEL.
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 is
the counsel to the Victory Portfolios.
EXPENSES.
The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.
If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator
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will be estimated daily and reconciled and paid on a monthly basis. Fees imposed
upon customer accounts by Key Advisers, the Sub-Adviser, Key Trust Company of
Ohio, N.A. or its correspondents, affiliated banks and other non-bank affiliates
for cash management services are not fund expenses for purposes of any such
expense limitation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, without
par value. The Victory Portfolios presently has twenty- four series of shares,
which represent interests in the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the Stock
Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund, the
Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the
International Growth Fund, the Limited Term Income Fund, the Government Mortgage
Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment
Quality Bond Fund, the Government Bond Fund, the Fund for Income, the National
Municipal Bond Fund, the New York Tax-Free Fund, the Institutional Money Market
Fund, the Financial Reserves Fund and the Ohio Municipal Money Market Fund,
respectively. The Victory Portfolios' Trust Instrument authorizes the Trustees
to divide or redivide any unissued shares of the Victory Portfolios into one or
more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
As of July 1, 1996, the Fund believes that SNBOC and Company was shareholder of
record of ___% of the outstanding Class A shares of the Fund, but did not hold
such shares beneficially.
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Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of Trustees may be effectively acted upon by
shareholders of the Victory Portfolios voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY .
The Victory Portfolios converted to a Delaware business trust from a
Massachusetts business trust on February 29, 1996. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Delaware Trust Instrument provides that
shareholders of the Victory Portfolios shall not be liable for the obligations
of the Victory Portfolios. The Delaware Trust Instrument also provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder. The
Delaware Trust Instrument also provides that the Victory Portfolios shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Victory Portfolios, and shall satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered to be extremely remote.
The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the Funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.
MISCELLANEOUS.
As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general
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liabilities and expenses are not readily identified as belonging to a particular
fund (or the Fund) that are allocated to that fund (or the Fund) by the
Trustees. The Trustees may allocate such general assets in any manner they deem
fair and equitable. It is anticipated that the factor that will be used by the
Trustees in making allocations of general assets to a particular fund of the
Victory Portfolios will be the relative net asset value of each respective fund
at the time of allocation. Assets belonging to a particular fund are charged
with the direct liabilities and expenses in respect of that fund, and with a
share of the general liabilities and expenses of each of the funds not readily
identified as belonging to a particular fund, which are allocated to each fund
in accordance with its proportionate share of the net asset values of the
Victory Portfolios at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of the Victory Portfolios to
a particular fund will be determined by the Trustees and will be in accordance
with generally accepted accounting principles. Determinations by the Trustees as
to the timing of the allocation of general liabilities and expenses and as to
the timing and allocable portion of any general assets with respect to a
particular fund are conclusive.
As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.
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APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The nationally recognized statistical rating organizations (individually,
an "NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard
to portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
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BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt.
AA+.High credit quality Protection factors are strong.
AA.Risk is modest but may vary slightly from time to time
AA-.because of economic conditions.
A+.Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA. Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions are unlikely to increase
investment risk significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
- 34 -
<PAGE>
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-. High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify issue as to
investment grade.
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<PAGE>
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely repayment.
A1. Obligations supported by a very strong capacity for timely repayment.
A2. Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
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<PAGE>
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
These obligations may include Treasury bills, notes and bonds, and issues of
agencies and instrumentalities of the U.S. Government, provided such obligations
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations issued by agencies and instrumentalities of the U.S. Government
include such agencies and instrumentalities as the Government National Mortgage
Association, the Export-Import Bank of the United States, the Tennessee Valley
Authority, the Farmers Home Administration, the Federal Home Loan Banks, the
Federal Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal
Land Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. A Fund will invest in the obligations of such instrumentalities
only when the investment adviser believes that the credit risk with respect to
the instrumentality is minimal.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
INTERNATIONAL GROWTH FUND
July 30, 1996
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios International
Growth Fund, dated the same date as the date hereof (the "Prospectus"). This
Statement of Additional Information is incorporated by reference in its entirety
into the Prospectus. Copies of the Prospectus may be obtained by writing The
Victory Funds at P.O. Box 8527, Boston, MA 02266-8527, or by telephoning toll
free 800-539-FUND or 800-539-3863.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES........1 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS.10 KeyCorp Mutual Fund Advisers,
Inc.
VALUATION OF PORTFOLIO SECURITIES.......12
PERFORMANCE.............................12 INVESTMENT SUB-ADVISER
ADDITIONAL PURCHASE, EXCHANGE AND Society Asset Management, Inc.
REDEMPTION INFORMATION................16
DIVIDENDS AND DISTRIBUTIONS.............19 ADMINISTRATOR
TAXES...................................20 BISYS Fund Services
TRUSTEES AND OFFICERS...................21
ADVISORY AND OTHER CONTRACTS............26 DISTRIBUTOR
ADDITIONAL INFORMATION..................34 BISYS Fund Services
APPENDIX................................38
TRANSFER AGENT
State Street Bank and Trust
Company
CUSTODIAN
Key Trust Company of Ohio, N.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-four series of
units of beneficial interest ("shares"). The outstanding shares represent
interests in the twenty-four separate investment portfolios which are currently
active. This Statement of Additional Information relates to the Victory
International Growth Fund (the "Fund") only. Much of the information contained
in this Statement of Additional Information expands on subjects discussed in the
Prospectus. Capitalized terms not defined herein are used as defined in the
Prospectus. No investment in shares of the Fund should be made without first
reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, found by the Victory Portfolios'
Board of Trustees (the "Trustees") to present minimal credit risks and to be of
comparable quality to instruments that are rated high quality (i.e., in
<PAGE>
one of the two top ratings categories) by an NRSRO that is neither controlling,
controlled by, or under common control with the issuer of, or any issuer,
guarantor, or provider of credit support for, the instrument). For a description
of the rating symbols of each NRSRO see the Appendix to this Statement of
Additional Information.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
FOREIGN INVESTMENT. The Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including sponsored and
unsponsored American Depository Receipts ("ADRs") and securities purchased on
foreign securities exchanges. Such investment may subject the Fund to
significant investment risks that are different from, and additional to, those
related to investments in obligations of U.S. domestic issuers or in U.S.
securities markets. Unsponsored ADRs may involve additional risks.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Key Advisers or the
Sub-Adviser will be able to anticipate these potential events or counter their
effects.
- 2 -
<PAGE>
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund currently invests in the securities of issuers based in a number of
foreign countries. The Adviser continuously evaluates issuers based in countries
all over the world. Accordingly, the Fund may invest in the securities of
issuers based in any country, subject to approval by the Trustees, when such
securities met the investment criteria of the Adviser and are consistent with
the investment objectives and policies of the Fund.
VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes may have maturities of more than one year, as
follows:
1. A note that is issued or guaranteed by the United States government or any
agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the face
of the instrument to be paid in one year or less, will be deemed by the Fund to
have a maturity equal to the period remaining until the next readjustment of the
interest rate.
3. A variable rate note that is subject to a demand feature scheduled to be paid
in one year or more will be deemed by the Fund to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
4. A floating rate note that is subject to a demand feature will be deemed by
the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
- 3 -
<PAGE>
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding one year and
upon no more than 30 days' notice.
OPTIONS. The Fund may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. The Fund
must at all times have in its portfolio the securities which it may be obligated
to deliver if the option is exercised. The Fund may write such call options in
an attempt to realize a greater level of current income than would be realized
on the securities alone. The Fund may also write call options as a partial hedge
against a possible stock market decline or to extend a holding period on a stock
which is under consideration for sale in order to create a long-term capital
gain. In view of its investment objective, the Fund generally would write call
options only in circumstances where Key Advisers or the Sub-Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit. The Fund retains the risk of
loss should the value of the underlying security decline. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option. Although the
writing of call options only on national securities exchanges increases the
likelihood of the Fund's ability to make closing purchase transactions, there is
no assurance that the Fund will be able to effect such transactions at any
particular time or at any acceptable price. The writing of call options could
result in increases in the Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate.
MISCELLANEOUS SECURITIES. The Fund can invest in various securities issued by
domestic and foreign corporations, including preferred stocks and investment
grade corporate bonds, notes, and warrants. Bonds are long-term corporate debt
instruments secured by some or all of the issuer's assets, debentures are
general corporate debt obligations backed only by the integrity of the borrower,
and warrants are instruments that entitle the holder to purchase a certain
amount of common stock at a specified price, which price is usually higher than
the current market price at the time of issuance. Preferred stocks are
instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities that
are spelled out in the governing document. Preferred stocks usually pay a fixed
dividend per quarter (or annum) and are senior to common stock in terms of
liquidation and dividends rights, and preferred stocks typically do not have
voting rights. The Fund also may invest in zero coupon bonds, which are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations.
"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "when issued"
basis, the custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when issued" securities for
speculative purposes, but only in furtherance of its investment objective.
- 4 -
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers or the Sub-Adviser will waive its
investment advisory fee with respect to assets of the Fund invested in any of
the money market funds of the Victory Portfolios, and, to the extent required by
the laws of any state in which the Fund's shares are sold, Key Advisers or the
Sub-Adviser will waive its investment advisory fee as to all assets invested in
other investment companies.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price, or to the extent that the disposition of
such securities by the Fund is delayed pending court action.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets (such as cash or other liquid
high-grade securities) consistent with the Fund's investment restrictions having
a value equal to the repurchase price (including accrued interest); the
collateral will be marked-to-market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities.
FUTURES CONTRACTS. The Fund may enter into futures contracts, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested and reducing transaction costs. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security, class of securities, or an index at a
specified future time and at a specified price. A stock index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out
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<PAGE>
an open futures position is done by taking an opposite position (buying a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, the
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The Fund will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase.
The Fund's ability to effectively utilize futures trading depends on several
factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index.
Second, it is possible that a lack of liquidity for futures contracts could
exist in the secondary market, resulting in an inability to close a futures
position prior to its maturity date. Third, the purchase of a futures contract
involves the risk that the Fund could lose more than the original margin deposit
required to initiate a futures transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
to the extent that, immediately thereafter, the sum of its initial margin
deposits on open contracts exceeds 5% of the market value of the Fund's total
assets. In addition, the Fund will not enter into futures contracts to the
extent that the value of the futures contracts held would exceed 1/3 of the
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain the Fund's qualification as a regulated investment
company.
The Victory Portfolios have undertaken to restrict their futures contract
trading as follows: first, the Victory Portfolios will not engage in
transactions in futures contracts for speculative purposes; second, the Victory
Portfolios will not market its funds to the public as commodity pools or
otherwise as vehicles for trading in the commodities futures or commodity
options markets; third, the Victory Portfolios will disclose to all prospective
shareholders the
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<PAGE>
purpose of and limitations on its funds' commodity futures trading; fourth, the
Victory Portfolios will submit to the CFTC special calls for information.
Accordingly, registration as a commodities pool operator with the CFTC is not
required.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the Commission. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.
In addition, the extent to which the Fund may enter into transactions involving
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a registered investment company and the Fund's intention to
qualify as such.
RISK FACTORS IN FUTURES TRANSACTIONs. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. The Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or
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<PAGE>
sale of a futures contract may result in losses in excess of the amount invested
in the contract. However, because the futures strategies engaged in by the Fund
are only for hedging purposes, Key Advisers and the Sub-Adviser do not believe
that the Fund is subject to the risks of loss frequently associated with futures
transactions. The Fund would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contract
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
INVESTMENT LIMITATIONS AND RESTRICTIONS
The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "ADDITIONAL INFORMATION -Miscellaneous" of this Statement of
Additional Information.
THE FUND MAY NOT:
1. Participate on a joint or joint and several basis in any securities trading
account.
2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
4. Issue any senior security (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.
5. Borrow money, except that (a) the Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3% of the Fund's total
assets; and (b) the Fund may borrow money for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 5% of the Fund's total
assets must be repaid before the Fund may make additional investments. For
purposes of this restriction, collateral arrangements with respect to margins
for currency futures contracts are not deemed to be a pledge of assets.
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<PAGE>
6. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.
8. With respect to 75% of the Fund's total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
9. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
The following restrictions are not fundamental and may be changed without
shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if the officers
or Trustees of the Victory Portfolios or the officers or directors of its
investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.
2. The Fund will not invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less than three
years of continuous operation.
3. The Fund will not write or sell puts, straddles, spreads or combinations
thereof or write or purchase put options or purchase call options.
4. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.
5. The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund, and shall not limit
the Fund's ability to make margin payments in connection with transactions in
currency future options.
6. The Fund may invest up to 5% of its total assets in the securities of any one
investment company, but may not own more than 3% of the securities of any one
investment company or invest more than 10% of its total assets
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<PAGE>
in the securities of other investment companies. Pursuant to an exemptive order
received by the Victory Portfolios from the Commission, the Fund may invest in
the other money market funds of the Victory Portfolios.
7. The Fund will not buy state, municipal, or private activity bonds.
STATE REGULATIONS.
In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.
Furthermore, the Fund will invest only in debt securities which are rated, at
the time of purchase, within the three highest rating groups assigned by a
NRSRO, or if unrated, those securities which Key Advisers or the Sub-Adviser
deems to be of comparable quality.
GENERAL.
The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent
change in values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and limitations. If the value of the Fund's holdings of illiquid securities at
any time exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.
The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.
VALUATION OF PORTFOLIO SECURITIES
Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment securities not having
readily available market quotations will be priced at fair value using a
methodology approved in good faith by the Trustees.
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<PAGE>
PERFORMANCE
From time to time the "standardized yield," "dividend yield," "distribution
return," "average annual total return," "total return," and "total return at net
asset value" of an investment in each class of Fund shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and operating expenses.
Performance - Class B Shares
Class B shares of the Fund were initially offered on March 1, 1996. The
performance figures for Class B shares for periods prior to such date represent
the performance for Class A shares of the Fund which has been restated to
reflect the applicable CDSC payable at redemption within 6 years from purchase.
Class B shares are subject to an asset-based sales charge of .75% of average
daily net assets per year and other class-specific expenses. Had these fees and
expenses been reflected, performance quoted would have been lower.
STANDARDIZED YIELD.
The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares for the 30-day period ended
October 31, 1996 was ____%. The yield on Class B shares for the 30-day period
ended April 30, 1996 was ___%.
DIVIDEND YIELD AND DISTRIBUTION RETURNS.
From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared
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during a stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one year or less
(for example, 30 days) are added together, and the sum is divided by the maximum
offering price per share of that class A) on the last day of the period. When
the result is annualized for a period of less than one year, the "dividend
yield" is calculated as follows:
Dividend Yield
of the Class = Dividends of the Class + Number of days (accrual period) x365
---------------------------
Max. Offering Price of the
Class (last day of period)
The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, considering the effect of contingent deferred sales charges
("CDSC").
From time to time similar yield or distribution return calculations may also be
made using the Class A or Class B net asset value (instead of its respective
maximum offering price) at the end of the period. The dividend yields on Class A
shares at maximum offering price and net asset value as of October 31, 1995,
were ___% and ___%, respectively. The distribution return on Class A shares at
maximum offering price and net asset value as of October 31, 1995, were 4.79%
and 5.03%, respectively. The dividend yields on Class B shares with and without
the CDSC for the 30-day period ended April 30, 1996, were 0.01% and 0.01%,
respectively. The distribution returns on Class B shares with and without the
CDSC as of April 30, 1996 were 0.01% and 0.01%, respectively.
TOTAL RETURNS.
The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
( ERV )^1^n - 1 = Average Annual Total Return
-------
( P )
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable contingent
deferred sales charge (5.0% for the first year, 4.0% for the second year, 3.0%
for the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year
and none thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as described below).
Total returns also assume that all dividends and capital gains distributions
during the period are reinvested to buy additional shares at net asset value per
share, and that the investment is redeemed at the end of the period. The average
annual total return and cumulative total return on Class A shares at maximum
offering price and on Class B shares with the CDSC for the period May 18, 1990
(commencement of operations) to October 31, 1995 (life of fund) were 5.40% and
33.26%, respectively for Class A shares and ____% and ____%, respectively for
Class B shares. For the one and five year periods ended October 31, 1995 annual
total returns for Class A shares at maximum offering price and on Class B shares
with the CDSC were 7.10% and 6.91%, respectively for Class A shares and ____%
and ____%, respectively for Class B shares.
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<PAGE>
From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value" for Class A or
Class B shares. It is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales charges) and
takes into consideration the reinvestment of dividends and capital gains
distributions. The average annual total return and cumulative total return on
Class A shares at net asset value and Class B shares without the CDSC for the
period May 18, 1990 (commencement of operations) to October 31, 1995 (life of
fund) was 6.35% and 39.92%, respectively, for Class A shares and ____% and
____%, respectively, for Class B shares. For the one and five year periods ended
October 31, 1995, average annual total return for Class A shares at net asset
value and for Class B shares without the CDSC was -2.50% and 7.95%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares
OTHER PERFORMANCE COMPARISONS.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the Fund's classes against (1) all other funds, excluding
money market funds, and (2) all other government bond funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded as an index of U.S. stock market
performance. The foregoing bond indices are unmanaged indices of securities that
do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time, the yields and the total returns of Class A or Class B shares
of the Fund may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Fund may also include calculations in such
communications that describe
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<PAGE>
hypothetical investment results. (Such performance examples are based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of a Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. The Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or retirement planning), investment management techniques, policies or
investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund.) The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, and Treasury bills, as compared to an investment in shares of the Fund,
as well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, the
Fund may reprint articles (or excerpts) written regarding the Fund and provide
them to prospective shareholders. Performance information with respect to the
Fund is generally available by calling 1-800-539-3863.
Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey;
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, and U.S.A. Today. In addition to yield information,
general information about the Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis.
Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management, and its
investment philosophy.
When comparing yield, total return and investment risk of an investment in Class
A or Class B shares of the Fund with other investments, investors should
understand that certain other investments have different risk characteristics
than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and
- 14 -
<PAGE>
may offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds may seek to maintain a fixed price per share.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The New York Stock Exchange (the "NYSE") holiday closing schedule indicated in
the Prospectus under "Share Price" is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.
If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
PURCHASING SHARES.
ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial depending on the amount of the purchase, the length of
time the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred sales
charge and asset-based sales charge with respect to Class B shares are the same
as those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including the asset-based sales charge to which
Class B shares are subject.
CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class
- 15 -
<PAGE>
B shares convert to Class A shares, any Class B shares acquired by the
reinvestment of dividends or distributions on such Matured Class B shares that
are still held will also convert to Class A shares, on the same basis. The
conversion feature is intended to relieve holders of Matured Class B shares of
the asset-based sales charge under the Class B Distribution Plan after such
shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's total net assets, and then pro rata to each
outstanding share within a given class. Such general expenses include (1)
management fees, (2) legal, bookkeeping and audit fees, (3) printing and mailing
costs of shareholder reports, prospectuses, statements of additional information
and other materials for current shareholders, (4) fees to the Trustees who are
not affiliated with Key Advisers, (5) custodian expenses, (6) share issuance
costs, (7) organization and start-up costs, (8) interest, taxes and brokerage
commissions, and (9) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (1) Rule 12b-1
distribution fees and shareholder servicing fees, (2) incremental transfer and
shareholder servicing agent fees and expenses, (3) registration fees and (4)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of shares of other Class A shares of funds of the Victory Portfolios.
To obtain the reduction of the sales charge, you or your Investment Professional
must notify the Transfer Agent at the time of purchase whenever a quantity
discount is applicable to your purchase.
In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Victory Portfolios Class A shares held by you,
your spouse, and your children under age 21, determined at the previous day's
net asset value
- 16 -
<PAGE>
at the close of business, to the amount of your new purchase valued at the
current offering price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
EXCHANGING SHARES.
EXCHANGING SHARES.
Shares of any Victory money market fund or Class A shares of any other fund of
the Victory Portfolios with a reduced sales charge may be exchanged for shares
of the Fund upon payment of the difference in the sales charge. Shares of any
Victory money market fund may be used to purchase Class B shares of the Fund.
Shares of the Fund may be exchanged for the same class of shares of any other
fund of the Victory Portfolios. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares. If you do not
make a selection, your investment will be made in Class A shares.
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
service charge is currently made for reinvestment in shares of the Fund. The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were redeemed
is taxable, and reinvestment will not alter any capital gains tax payable on
that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code of 1986, as amended (the "IRS
Code"), if the redemption proceeds of Fund shares on which a sales charge was
paid are
- 17 -
<PAGE>
reinvested in shares of the Fund or another of the Victory Portfolios within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from redemption. The
Fund may amend, suspend or cease offering this reinvestment privilege at any
time as to shares redeemed after the date of such amendment, suspension or
cessation. The reinstatement must be into an account bearing the same
registration.
DIVIDENDS AND DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.
The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements - Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will also
differ in amount as a consequence of any difference in net asset value between
Class A and Class B shares.
For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.
TAXES
It is the policy of the Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code for so long as such qualification is in the best interest of its
shareholders. By following such policy and distributing its income and gains
currently with respect to each taxable year, the Fund expects to eliminate or
reduce to a nominal amount the federal income and excise taxes to which it may
otherwise be subject.
In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
- 18 -
<PAGE>
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.
A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during
a calendar year are less than the required amount, the fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.
Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his or her income tax return payments of
interest or dividends. This "backup withholding" is not an additional tax, and
any amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.
Gain or loss on the sale or other disposition of foreign currency on a spot (or
cash) basis will result in ordinary gain or loss for federal income tax
purposes.
Investment by the Fund in certain "passive foreign investment companies" might
subject the Fund to a U.S. federal income tax or other charge on distributions
received from or the sale of its investment in such a company at a gain, which
tax would not be eliminated by making distributions to Fund shareholders. The
Fund could avoid such a tax or charge by electing to treat the passive foreign
investment company as a "qualified electing fund;" however, the Fund may not be
in the position to make such an election.
- 19 -
<PAGE>
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee, The Victory
Funds and the Key Mutual
Funds.
Robert G. Brown, 73 Trustee Retired; from October
5460 N. Ocean Drive 1983 to November 1990,
Singer Island President, Cleveland
Riviera Beach, FL 33404 Advanced Manufacturing
Program (non-profit
corporation engaged in
regional economic
development).
Edward P. Campbell, 46 Trustee From March 1994 to
Nordson Corporation present, Executive Vice
28601 Clemens Road President and Chief
Westlake, OH 44145 Operating Officer of
Nordson Corporation
(manufacturer of
application equipment);
from May 1988 to March
1994, Vice President of
Nordson Corporation; from
1987 to December 1994,
member of the Supervisory
Committee of Society's
Collective Investment
Retirement Fund; from May
1991 to August 1994,
Trustee, Financial
Reserves Fund and from
May 1993 to August
- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
- 20 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
1994, Trustee, Ohio
Municipal Money Market
Fund; Trustee, The
Victory Funds and the Key
Mutual Funds.
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
Dr. H. Patrick Swygert, 53 Trustee President, Howard
Howard University University; formerly
2400 6th Street, N.W. President, State
Suite 320 University of New York at
Washington, D.C. 20059 Albany; formerly,
Executive Vice President,
Temple University;
Trustee, the Victory
Funds.
- 21 -
<PAGE>
The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until August 1997. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until August 1997. The function
of the Business, Legal and Audit Committee is to recommend independent auditors
and monitor accounting and financial matters; to nominate persons to serve as
Independent Trustees and Trustees to serve on committees of the Board; and to
review compliance and contract matters.
The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).
Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).
The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.
<TABLE>
<CAPTION>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" ^(1)
----------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee..... -0- -0- 865.44 $46,716.97
Robert G. Brown, Trustee..... -0- -0- 880.52 39,815.98
John D. Buckingham, Trustee(2) -0- -0- 409.93 18,841.89
Edward P. Campbell,Trustee.... -0- -0- 670.63 33,799.68
Harry Gazelle, Trustee....... -0- -0- 735.72 35,916.98
John W. Kemper, Trustee(2)... -0- -0- 506.60 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 708.01 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 802.87 40,366.98
H. Patrick Swygert, Trustee.. -0- -0- 802.87 37,116.98
John R. Young, Trustee(2).... -0- -0- 494.95 21,963.81
</TABLE>
(1) For certain Trustees, these amounts include compensation received from The
Victory Funds (which were reorganized into the Victory Portfolios as of
June 5, 1995), the Key Funds, formerly the SBSF Funds (the investment
adviser of which was acquired by KeyCorp effective April, 1995) and
Society's Collective Investment Retirement Funds, which were reorganized
into the Victory Balanced Fund and Victory Government Mortgage Fund as of
December 19, 1994. There are presently 24 mutual funds from which the
above-named Trustees are compensated in the Victory "Fund Complex," but not
all of the above-named Trustees serve on the board of each fund in the
"Fund Complex."
(2) Resigned
- 22 -
<PAGE>
OFFICERS.
The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh
International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas
North America and
Paribas Corporation;
President and Trustee
to The Victory Funds
the SBSF Funds Inc.,
dba Key Mutual Funds.
William B. Blundin, 57 Vice President Senior Vice President
BISYS Fund Services of BISYS Fund
125 West 55th Street Services ("BISYS");
New York, New York 10019 Officer of other
investment companies
administered by BISYS
; President and Chief
Executive Officer of
Vista Broker-Dealer
Services, Inc.,
Emerald Asset
Management, Inc. and
BNY Hamilton
Distributors, Inc.,
registered
broker/dealers.
J. David Huber, 50 Vice President Executive Vice
BISYS Fund Services President, BISYS .
3435 Stelzer Road
Columbus, OH 43219-3035
Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS .
Columbus, OH 43219-3035
George O. Martinez, 37 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and
Columbus, OH 43219-3035 Director of Legal and
Compliance Services,
BISYS ; from June
1989 to March 1995,
Vice President and
Associate General
Counsel, Alliance
Capital Management.
Kevin L. Martin , 35 Treasurer From February 1996 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS ; From 1984 to
Columbus, OH 43219-3035 February 1996, Senior
Manager, Ernst &
Young
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<PAGE>
The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. BISYS receives fees from the Victory Portfolios as Administrator.
As of July 1, 1996, the Trustees and officers as a group owned beneficially less
than 1% of the Fund.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER AND SUB-ADVISER.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of KeyBank National Association ("KeyBank"),
a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $48 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of March 31, 1996, KeyCorp had an asset base
of $65 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which
KeyBank, formerly Society National Bank was a wholly-owned subsidiary, and
KeyCorp, the former bank holding company. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies. Key Bank is the lead affiliate
bank of KeyCorp.
The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.
.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund
.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund
Victory U.S. Government Obligations Fund
Victory Tax-Free Money Market Fund
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund
Victory Limited Term Income Fund
Victory Government Mortgage Fund
Victory Financial Reserves Fund
Victory Fund for Income
.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund
Victory Government Bond Fund
Victory New York Tax-Free Fund
.60 OF 1% OF AVERAGE DAILY NET ASSETS
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<PAGE>
Victory Ohio Municipal Bond Fund
Victory Stock Index Fund
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund
Victory Investment Quality Bond Fund
Victory Ohio Regional Stock Fund
1% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
Society Asset Management, Inc. serves as sub-adviser to each of these funds. For
its services under the Investment Sub-Advisory Agreement, Key Advisers pays the
Sub-Adviser sub-advisory fees at rates (based on an annual percentage of average
daily net assets) which vary according to the table set forth below.
The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:
For the Victory Balanced Fund, For theVictory International Growth
Diversified Stock Fund, Growth Fund, Ohio Regional Stock Fund and
Fund, Stock Index Fund and Value Special Value Fund:
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund,
Limited Term Income Fund, Ohio U.S. Government Obligations
Municipal Bond Fund, Government Financial Reserves Fund,
Bond Fund, Fund, Government Institutional Money Market Fund and
Mortgage Fund, National Municipal Ohio Municipal Money Market Fund:
Bond Fund and New York Tax-Free
Fund:
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<PAGE>
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of rendering
sub-investment advisory services by the Sub-Adviser, and will be in
writing.
THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Trustees or by vote
of a majority of the outstanding shares of the Fund (as defined under
"Additional Information - Miscellaneous"), and, in either case, by a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement, by votes cast in person at a meeting called for such
purpose.
The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of Key Advisers
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Prior to January, 1993, Society National Bank served as investment adviser to
the Fund. From January, 1993 through December 31, 1995, Society Asset
Management, Inc. served as investment adviser to the Fund. Clay Finlay Inc.
served as sub-adviser to the Fund from February 22, 1994 until June 5, 1995. For
the fiscal years ended October 31, 1993, 1994 and 1995, the Advisor earned
investment advisory fees of $284,002, $532,331 and $901,337, respectively, after
fee reductions of $25,853, $90,406 and $116,464, respectively.
Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers
Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes
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<PAGE>
decisions concerning, and places all orders for, purchases and sales of
securities and helps maintain the records relating to such purchases and sales.
The Sub-Adviser may, in its discretion, provide such services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser to the Company under applicable laws
and are under the common control of KeyCorp; provided that (i) all persons, when
providing services under the sub-advisory agreement, are functioning as part of
an organized group of persons, and (ii) such organized group of persons is
managed at all times by authorized officers of the Sub-Adviser. The sub-advisory
arrangement does not result in the payment of additional fees by the Fund.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the SubAdviser
including, but not limited to, (1) descriptions of the operations of Key Trust
Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2) descriptions of
certain personnel and their functions; and (3) statistics and rankings related
to the operations of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions.
- 27 -
<PAGE>
In such event, the Trustees will adopt procedures incorporating the standards of
Rule 17e-1 of the 1940 Act, which require that the commission paid to affiliated
broker-dealers must be reasonable and fair compared to the commission, fee or
other remuneration received, or to be received, by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time. At times, the Fund may also purchase portfolio securities
directly from dealers acting as principals, underwriters or market makers. As
these transactions are usually conducted on a net basis, no brokerage
commissions are paid by the Fund.
The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. ("Key Trust") or their affiliates, or BISYS or
its affiliates, and will not give preference to Key Trust's correspondent banks
or affiliates, or BISYS with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result that would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the SubAdviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.
In the fiscal years ended October 31, 1993, 1994 and 1995, the Fund paid
$187,410, $272,288 and $333,609, respectively, in brokerage commissions.
PORTFOLIO TURNOVER.
The turnover rate stated in the Prospectus for the Fund's investment portfolio
is calculated by dividing the lesser of the Fund's purchases or sales of
portfolio securities for the year by the monthly average value of the portfolio
securities. The calculation excludes all securities whose maturities, at the
time of acquisition, were one year or less. In the fiscal years ended October
31, 1995 and 1994, the Fund's portfolio turnover rates were 68.09% and 50.66%,
respectively.
ADMINISTRATOR.
As of July 1, 1996, BISYS serves as administrator (the "Administrator") to the
Fund. The Administrator assists in supervising all operations of the Fund (other
than those performed by Key Advisers or the Sub-Adviser under the Investment
Advisory Agreement and Sub-Investment Advisory Agreement). The Winsbury Company
("Winsbury"), served as the Fund's administrator prior to June 5, 1995. Winsbury
was succeeded by Concord Holding Corporation on that date. Both entities are
affiliates with BISYS.
BISYS receives a fee from the Fund for its services as Administrator and
expenses assumed pursuant to the Administration Agreements, calculated daily and
paid monthly, at the annual rate of fifteen one hundredths of one percent (.15%)
of the Fund's average daily net assets. BISYS may periodically waive all or a
portion of its fee with respect to the Fund.
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<PAGE>
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.
The Administration Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Victory
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
Under the Administration Agreement, BISYS assists in the Fund's administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
In the fiscal years ended October 31, 1993, October 31, 1994 and October 31,
1995, the Administrator earned aggregate administration fees of $24,124,
$69,419, and $138,965, respectively, after fee reductions of $1,711, $15,500 and
$0, respectively.
DISTRIBUTOR.
BISYS Fund Services serves as distributor (the "Distributor") for the continuous
offering of the shares of the Fund pursuant to a Distribution Agreement between
the Distributor and the Victory Portfolios. Prior to May 31, 1995, Winsbury
served as distributor of the Fund. Unless otherwise terminated, the Distribution
Agreement will remain in effect with respect to the Fund for two years, and
thereafter for consecutive one-year terms, provided that it is approved at least
annually (1) by the Trustees or by the vote of a majority of the outstanding
shares of the Fund, and (2) by the vote of a majority of the Trustees of the
Victory Portfolios who are not parties to the Distribution Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement will terminate in
the event of its assignment, as defined under the 1940 Act. For the Victory
Portfolios' fiscal years ended October 31, 1993 and 1994 Winsbury earned $77,258
and $212,021, respectively, in underwriting commissions, and retained $0 and
$15, respectively; for the fiscal year ended October 31, 1995, the Distributor
earned $0 in underwriting commissions, and retained $0.
TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Fund. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Fund, pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Victory
Portfolios, State Street has agreed (1) to issue and redeem shares of the
Victory Portfolios; (2) to address and mail all communications by the Victory
Portfolios to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of shareholders; (3)
to respond to correspondence or inquiries by shareholders and others relating to
its duties; (4) to maintain shareholder accounts and certain sub-accounts; and
(5) to make periodic reports to the Trustees concerning the Victory Portfolios'
operations.
SHAREHOLDER SERVICING PLAN.
Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser and Sub-Adviser)are for
administrative support services to customers who may from time to time
beneficially own shares, which services may include: (1) aggregating and
processing purchase and redemption requests for shares
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<PAGE>
from customers and transmitting promptly net purchase and redemption orders to
our distributor or transfer agent; (2) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (3) processing dividend and distribution payments
on behalf of customers; (4) providing information periodically to customers
showing their positions in shares; (5) arranging for bank wires; (6) responding
to customer inquiries; (7) providing subaccounting with respect to shares
beneficially owned by customers or providing the information to the Fund as
necessary for subaccounting; (8) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (9) forwarding to customers proxy statements and proxies containing
any proposals regarding this Plan; and (10) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules or regulations.
CLASS B SHARES DISTRIBUTION PLAN.
The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the Act.
The Distribution Plan adopted by the Trustees with respect to the Class B shares
of the Fund provides that the Fund will pay the Distributor a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares. The distribution fees may be used
by the Distributor for: (a) costs of printing and distributing the Fund's
prospectus, statement of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of the Fund's Class B shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions and providing
any other shareholder services not otherwise provided by the Victory Portfolios'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee and the CDSCs received by the
Distributor; and (f) any other expense primarily intended to result in the sale
of the Fund's Class B shares, including, without limitation, payments to
salesmen and selling dealers at the time of the sale of Class B shares, if
applicable, and continuing fees to each such salesmen and selling dealers, which
fee shall begin to accrue immediately after the sale of such shares.
The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.
The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.
The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the SubAdviser or
the Distributor greater flexibility in connection with the distribution of Class
B shares of the Fund, additional sales of the Fund's Class B shares may result.
Additionally, certain Class B shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have other
relationships.
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<PAGE>
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. serves as fund accountant for the Fund pursuant
to a fund accounting agreement ("BISYS, Inc.")with the Victory Portfolios dated
June 5, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS, Inc. calculates the Fund's net asset value, the
dividend and capital gain distribution, if any, and the yield. BISYS, Inc. also
provides a current security position report, a summary report of transactions
and pending maturities, a current cash position report, and maintains the
general ledger accounting records for the Fund. Under the Fund Accounting
Agreement, BISYS, Inc. is entitled to receive annual fees of .03% of the first
$100 million of the Fund's daily average net assets, .02% of the next $100
million of the Fund's daily average net assets, and .01% of the Fund's remaining
daily average net assets. These annual fees are subject to a minimum monthly
assets charge of $3,333 per international fund, and does not include
out-of-pocket expenses or multiple class charges of $833 per month assessed for
each class of shares after the first class. For the fiscal years ended October
31, 1994 and October 31, 1995 the fund accountant earned fund accounting fees of
$24,044, $84,710 and $121,305, respectively.
CUSTODIAN.
Cash and securities owned by the Fund are held by Key Trust Company of Ohio,
N.A. ("Key Trust") as custodian. Key Trust serves as custodian to the Fund
pursuant to a Custodian Agreement dated May 24, 1995. Under this Agreement, Key
Trust (1) maintains a separate account or accounts in the name of the Fund; (2)
makes receipts and disbursements of money on behalf of the Fund; (3) collects
and receives all income and other payments and distributions on account of
portfolio securities; (4) responds to correspondence from security brokers and
others relating to its duties; and (5) makes periodic reports to the Trustees
concerning the Victory Portfolios' operations. Key Trust may, with the approval
of the Victory Portfolios and at the custodian's own expense, open and maintain
a sub-custody account or accounts on behalf of the Fund, provided that Key Trust
shall remain liable for the performance of all of its duties under the Custodian
Agreement.
INDEPENDENT ACCOUNTANTS.
The unaudited financial statements for the period ended April 30, 1996 and the
audited financial statements for the fiscal year ended October 31, 1995 are
incorporated by reference herein. The audited financial statements for the
fiscal year ended October 31, 1995 have been audited by Coopers & Lybrand L.L.P.
as set forth in their report incorporated by reference herein, and are included
in reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P. serves as the Victory
Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
LEGAL COUNSEL.
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 is
the counsel to the Victory Portfolios.
EXPENSES.
The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums,
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<PAGE>
costs of maintenance of the fund's existence, costs of shareholders' reports and
meetings, and any extraordinary expenses incurred in the Fund's operation.
If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
Sub-Adviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, without
par value. The Victory Portfolios presently has twenty- four series of shares,
which represent interests in the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the Stock
Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund, the
Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the
International Growth Fund, the Limited Term Income Fund, the Government Mortgage
Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment
Quality Bond Fund, the Government Bond Fund, the Fund for Income, the National
Municipal Bond Fund, the New York Tax-Free Fund, the Institutional Money Market
Fund, the Financial Reserves Fund and the Ohio Municipal Money Market Fund,
respectively. The Victory Portfolios' Trust Instrument authorizes the Trustees
to divide or redivide any unissued shares of the Victory Portfolios into one or
more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
As of July 1, 1996, the Fund believes that SNBOC and Company was shareholder of
record of 96.49% of the outstanding Class A shares of the Fund, but did not hold
such shares beneficially. The following shareholders beneficially owned 5% or
more of the outstanding shares of the Class B shares of the Fund as of July 29,
1996:
Number of Shares % of Shares
Outstanding Outstanding
----------- -----------
Class B
- -------
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<PAGE>
KeyBank C/F 2,340.09 24.95%
IRA of Jerry L. Ufford
22315 Berry Drive
Rocky River, OH 44116
Louise D. May 1,526.09 16.27%
420 7th St. NW #202
Washington, D.C. 20004
A. Buell Arnold 1,076.92 11.48%
Doris B. Arnold Trustees
Arnold Family Trust
12 Bartlett Lane
Delmar, NY 12054
Josephine E. Marx 766.28 8.17%
1 Scott Place
Schenectady, NY 12309
Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having an net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Victory Portfolios voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY .
The Victory Portfolios converted to a Delaware business trust from a
Massachusetts business trust on February 29, 1996. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Delaware Trust
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<PAGE>
Instrument provides that shareholders of the Victory Portfolios shall not be
liable for the obligations of the Victory Portfolios. The Delaware Trust
Instrument also provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Delaware Trust Instrument also provides that the
Victory Portfolios shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Victory Portfolios, and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered to be extremely
remote.
The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.
MISCELLANEOUS.
As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund are charged with the direct liabilities and expenses in respect
of that fund, and with a share of the general liabilities and expenses of each
of the funds not readily identified as belonging to a particular fund, which are
allocated to each fund in accordance with its proportionate share of the net
asset values of the Victory Portfolios at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of the
Victory Portfolios to a particular fund will be determined by the Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular fund are conclusive.
As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.
- 34 -
<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
- 35 -
<PAGE>
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt.
AA+.High credit quality Protection factors are strong.
AA.Risk is modest but may vary slightly from time to time
AA-.because of economic conditions.
A+.Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA. Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions are unlikely to increase
investment risk significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
- 36 -
<PAGE>
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-. High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
- 37 -
<PAGE>
Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify issue as to
investment grade.
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely repayment.
A1. Obligations supported by a very strong capacity for timely repayment.
A2. Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
- 38 -
<PAGE>
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
These obligations may include Treasury bills, notes and bonds, and issues of
agencies and instrumentalities of the U.S. Government, provided such obligations
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations issued by agencies and instrumentalities of the U.S. Government
include such agencies and instrumentalities as the Government National Mortgage
Association, the Export-Import Bank of the United States, the Tennessee Valley
Authority, the Farmers Home Administration, the Federal Home Loan Banks, the
Federal Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal
Land Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government
- 39 -
<PAGE>
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government-sponsored instrumentalities if it
is not obligated to do so by law. A Fund will invest in the obligations of such
instrumentalities only when the investment adviser believes that the credit risk
with respect to the instrumentality is minimal.
- 40 -
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
OHIO REGIONAL STOCK FUND
July 30, 1996
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios Ohio Regional Stock
Fund, dated the same date as the date hereof (the "Prospectus"). This Statement
of Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Funds at P.O. Box 8527 Boston, MA 02266-8527, or by telephoning toll free
800-539-FUND or 800-539-3863.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES........1 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS.10 KeyCorp Mutual Fund Advisers,
Inc.
VALUATION OF PORTFOLIO SECURITIES.......12
PERFORMANCE.............................12 INVESTMENT SUB-ADVISER
ADDITIONAL PURCHASE, EXCHANGE AND Society Asset Management, Inc.
REDEMPTION INFORMATION................16
DIVIDENDS AND DISTRIBUTIONS.............19 ADMINISTRATOR
TAXES...................................20 BISYS Fund Services
TRUSTEES AND OFFICERS...................21
ADVISORY AND OTHER CONTRACTS............26 DISTRIBUTOR
ADDITIONAL INFORMATION..................34 BISYS Fund Services
APPENDIX................................38
TRANSFER AGENT
State Street Bank and Trust
Company
CUSTODIAN
Key Trust Company of Ohio, N.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-four series of
units of beneficial interest ("shares"). The outstanding shares represent
interests in the twenty-four separate investment portfolios which are currently
active. This Statement of Additional Information relates to the Class A and
Class B shares of the Victory Ohio Regional Stock Fund (the "Fund") only. Much
of the information contained in this Statement of Additional Information expands
on subjects discussed in the Prospectus. Capitalized terms not defined herein
are used as defined in the Prospectus. No investment in shares of the Fund
should be made without first reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, found by the Trustees to
<PAGE>
present minimal credit risks and to be of comparable quality to instruments that
are rated high quality (i.e., in one of the two top ratings categories) by an
NRSRO that is neither controlling, controlled by, or under common control with
the issuer of, or any issuer, guarantor, or provider of credit support for, the
instruments. For a description of the rating symbols of each NRSRO see the
Appendix to this Statement of Additional Information.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
FOREIGN INVESTMENT. The Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including American
Depository Receipts ("ADRs") and securities purchased on foreign securities
exchanges. Such investment may subject the Fund to significant investment risks
that are different from, and additional to, those related to investments in
obligations of U.S. domestic issuers or in U.S. securities markets.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Key Advisers or the
Sub-Adviser will be able to anticipate these potential events or counter their
effects.
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The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund currently invests in the securities of issuers based in a number of
foreign countries. The Adviser continuously evaluates issuers based in countries
all over the world. Accordingly, the Fund may invest in the securities of
issuers based in any country, subject to approval by the Board of Trustees, when
such securities met the investment criteria of the Adviser and are consistent
with the investment objectives and policies of the Fund.
VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes may have maturities of more than one year, as
follows:
1. A note that is issued or guaranteed by the United States government
or any agency thereof and which has a variable rate of interest readjusted no
less frequently than annually will be deemed by the Fund to have a maturity
equal to the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on
the face of the instrument to be paid in one year or less, will be deemed by the
Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature scheduled
to be paid in one year or more will be deemed by the Fund to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
4. A floating rate note that is subject to a demand feature will be
deemed by the Fund to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount
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of the note either at any time on no more than 30 days' notice or at specified
intervals not exceeding one year and upon no more than 30 days' notice.
OPTIONS. The Fund may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. The Fund
must at all times have in its portfolio the securities which it may be obligated
to deliver if the option is exercised. The Fund may write such call options in
an attempt to realize a greater level of current income than would be realized
on the securities alone. The Fund may also write call options as a partial hedge
against a possible stock market decline or to extend a holding period on a stock
which is under consideration for sale in order to create a long-term capital
gain. In view of its investment objective, the Fund generally would write call
options only in circumstances where Key Advisers or the Sub-Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit. The Fund retains the risk of
loss should the value of the underlying security decline. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option. Although the
writing of call options only on national securities exchanges increases the
likelihood of the Fund's ability to make closing purchase transactions, there is
no assurance that the Fund will be able to effect such transactions at any
particular time or at any acceptable price. The writing of call options could
result in increases in the Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate.
MISCELLANEOUS SECURITIES. The Fund can invest in various securities issued by
domestic and foreign corporations, including preferred stocks and investment
grade corporate bonds, notes, and warrants. Bonds are long-term corporate debt
instruments secured by some or all of the issuer's assets, debentures are
general corporate debt obligations backed only by the integrity of the borrower,
and warrants are instruments that entitle the holder to purchase a certain
amount of common stock at a specified price, which price is usually higher than
the current market price at the time of issuance. Preferred stocks are
instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities that
are spelled out in the governing document. Preferred stocks usually pay a fixed
dividend per quarter (or annum) and are senior to common stock in terms of
liquidation and dividends rights, and preferred stocks typically do not have
voting rights. The Fund also may invest in zero coupon bonds, which are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations.
"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "when-issued"
basis, the custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when issued" securities for
speculative purposes, but only in furtherance of its investment objective.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government,
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its agencies and instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the U.S. Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and still
others are supported only by the credit of the agency or instrumentality. No
assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers or the Sub-Adviser will waive its
investment advisory fee with respect to assets of the Fund invested in any of
the money market funds of the Victory Portfolios, and, to the extent required by
the laws of any state in which the Fund's shares are sold, Key Advisers or the
Sub-Adviser will waive its investment advisory fee as to all assets invested in
other investment companies.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price.
INVESTMENT LIMITATIONS AND RESTRICTIONS
The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "ADDITIONAL INFORMATION -Miscellaneous" of this Statement of
Additional Information).
THE FUND MAY NOT:
1. Participate on a joint or joint and several basis in any securities trading
account.
2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
4. Issue any senior security (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.
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<PAGE>
5. Borrow money, except that (a) the Fund may enter into commitments to purchase
securities in accordance with its investment program, including delayed-delivery
and when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33 1/3% of the Fund's total
assets; and (b) the Fund may borrow money for temporary or emergency purposes in
an amount not exceeding 5% of the value of its total assets at the time when the
loan is made. Any borrowings representing more than 5% of the Fund's total
assets must be repaid before the Fund may make additional investments.
6. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.
8. With respect to 75% of the Fund's total assets, the Fund may not purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities) if, as a result, (a)
more than 5% of the Fund's total assets would be invested in the securities of
that issuer, or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer.
9. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
The following restrictions are not fundamental and may be changed without
shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if the officers
or Trustees of the Victory Portfolios or the officers or directors of its
investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.
2. The Fund will not invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less than three
years of continuous operation.
3. The Fund will not write or sell puts, straddles, spreads or combinations
thereof or write or purchase put options or purchase call options.
4. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.
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<PAGE>
5. The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.
6. The Fund may invest up to 5% of its total assets in the securities of any one
investment company, but may not own more than 3% of the securities of any one
investment company or invest more than 10% of its total assets in the securities
of other investment companies. Pursuant to an exemptive order received by the
Victory Portfolios from the Commission, the Fund may invest in the other money
market funds of the Victory Portfolios.
7. The Fund will not buy state, municipal, or private activity bonds.
STATE REGULATIONS.
In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies which invest in real estate); and (2) the
Fund has represented to the Texas State Securities Board that it will not invest
more than 5% of its net assets in warrants valued at the lower of cost or
market; provided that, included within that amount, but not to exceed 2% of net
assets, may be warrants which are not listed on the New York or American Stock
Exchanges. For purposes of this restriction, warrants acquired in units or
attached to securities are deemed to be without value.
GENERAL.
The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent
change in values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and limitations. If the value of the Fund's holdings of illiquid securities at
any time exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.
The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.
VALUATION OF PORTFOLIO SECURITIES
Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according
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<PAGE>
to quotations obtained from dealers who are market makers in those securities.
Investment securities with less than 60 days to maturity when purchased are
valued at amortized cost which approximates market value. Investment securities
not having readily available market quotations will be priced at fair value
using a methodology approved in good faith by the Trustees.
PERFORMANCE
From time to time the "standardized yield," "dividend yield," "distribution
return," "average annual total return," "total return," and "total return at net
asset value" of an investment in each class of Fund shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's shares
may be worth more or less than their original cost. Yield and total return for
any given past period are not a prediction or representation by the Victory
Portfolios of future yields or rates of return on its shares. The yield and
total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and operating expenses.
Performance - Class B Shares
Class B shares of the Fund were initially offered on March 1, 1996. The
performance figures for Class B shares for periods prior to such date represent
the performance for Class A shares of the Fund which has been restated to
reflect the applicable CDSC payable at redemption within 6 years from purchase.
Class B shares are subject to an asset-based sales charge of .75% of average
daily net assets per year and other class-specific expenses. Had these fees and
expenses been reflected, performance quoted would have been lower.
STANDARDIZED YIELD.
The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares for the 30-day period ended
October 31, 1995 was 1.08%. The yield on Class B shares for the
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30-day period ended April 30, 1996 was 0.27%.
DIVIDEND YIELD AND DISTRIBUTION RETURNS.
From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared during
a stated period of one year or less (for example, 30 days) are added together,
and the sum is divided by the maximum offering price per share of that class )
on the last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield
of the Class = Dividends of the Class + Number of days (accrual period) x365
---------------------------
Max. Offering Price of the
Class (last day of period)
The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, without considering the effect of contingent deferred sales
charges ("CDSC").
From time to time similar yield or distribution return calculations may also be
made using the Class A net asset value (instead of its respective maximum
offering price) at the end of the period. The dividend yields on Class A shares
at maximum offering price and net asset value as of October 31, 1995 were 1.06%
and 1.11%, respectively. The distribution return on Class A Shares at maximum
offering price and net asset value as of October 31, 1995 were 5.47% and 5.47%,
respectively. The dividend yields on Class B shares with and without the CDSC
for the 30-day period ended April 30, 1996, were .82% and .87%, respectively.
The distribution returns on Class B shares with and without the CDSC as of April
30, 1996 were 4.12% and 4.33%, respectively.
TOTAL RETURNS.
The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
( ERV )^1^n - 1 = Average Annual Total Return
-------
( P )
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable CDSC (5.0%
for the first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). Total returns also
assume that all dividends and capital gains distributions during the period are
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<PAGE>
reinvested to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual total return
and cumulative total return on Class A shares at maximum offering price and on
Class B shares with the CDSC for the period October 20, 1989 (commencement of
operations) to October 31, 1995 (life of fund) were 10.83% and 86.02%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares. For the one and five year periods ended October 31, 1995 annual total
returns for Class A shares at maximum offering price and on Class B shares with
the CDSC were 11.35% and 21.80%, respectively, for Class A shares and ____% and
____%, respectively, for Class B shares.
From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value" for Class A or
Class B shares. It is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales charges) and
takes into consideration the reinvestment of dividends and capital gains
distributions. The average annual total return and cumulative total return on
Class A shares at net asset value and on Class B shares without the CDSC for the
period October 20, 1989 (commencement of operations) to October 31, 1995 (life
of fund) was 11.93% and 95.32%, respectively, for Class A shares and ____% and
____%,respectively, for Class B shares. For the one and five year periods ended
October 31, 1995, average annual total return for Class A shares at net asset
value and on Class B shares without the CDSC was 16.93% and 23.00%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares.
OTHER PERFORMANCE COMPARISONS.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the Fund's classes against (1) all other funds, excluding
money market funds, and (2) all other government bond funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded
- 10 -
<PAGE>
as an index of U.S. stock market performance. The foregoing bond indices are
unmanaged indices of securities that do not reflect reinvestment of capital
gains or take investment costs into consideration, as these items are not
applicable to indices.
From time to time, the yields and the total returns of Class A or Class B shares
of the Fund may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Fund may also include calculations in such
communications that describe hypothetical investment results. (Such performance
examples are based on an express set of assumptions and are not indicative of
the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund.) The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, and Treasury bills, as compared to an investment in shares of the Fund,
as well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, the
Fund may reprint articles (or excerpts) written regarding the Fund and provide
them to prospective shareholders. Performance information with respect to the
Fund is generally available by calling 1-800-539-3863.
Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, and U.S.A. Today. In addition to yield information,
general information about the Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis.
Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management, and its
investment philosophy.
- 11 -
<PAGE>
When comparing yield, total return and investment risk of an investment in Class
A or Class B shares of the Fund with other investments, investors should
understand that certain other investments have different risk characteristics
than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may seek to maintain a
fixed price per share.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The New York Stock Exchange ("NYSE") holiday closing schedule indicated in the
Prospectus under "Share Price" is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.
If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
PURCHASING SHARES.
ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial depending on the amount of the purchase, the length of
time the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred sales
charge and asset-based sales charge with respect to Class B shares are the same
as those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including
- 12 -
<PAGE>
the asset-based sales charge to which Class B shares are subject.
CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured Class
B shares that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan after
such shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's total net assets, and then pro rata to each
outstanding share within a given class. Such general expenses include (1)
management fees, (2) legal, bookkeeping and audit fees, (3) printing and mailing
costs of shareholder reports, prospectuses, statements of additional information
and other materials for current shareholders, (4) fees to the Trustees who are
not affiliated with Key Advisers, (5) custodian expenses, (6) share issuance
costs, (7) organization and start-up costs, (8) interest, taxes and brokerage
commissions, and (9) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (1) Rule 12b-1
distribution fees and shareholder servicing fees, (2) incremental transfer and
shareholder servicing agent fees and expenses, (3) registration fees and (4)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of shares of other Class A shares of funds of the Victory Portfolios.
To obtain the reduction of the sales charge, you or your Investment Professional
must notify the Transfer Agent at the time of purchase whenever a quantity
discount is applicable to your purchase.
In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.
- 13 -
<PAGE>
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Victory Portfolios Class A shares held by you,
your spouse, and your children under age 21, determined at the previous day's
net asset value at the close of business, to the amount of your new purchase
valued at the current offering price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay such
charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
EXCHANGING SHARES.
Shares of any Victory money market fund or Class A shares of any other fund of
the Victory Portfolios with a reduced sales charge may be exchanged for shares
of the Fund upon payment of the difference in the sales charge. Shares of any
Victory money market fund may be used to purchase Class B shares of the Fund.
Shares of the Fund may be exchanged for the same class of shares of any other
fund of the Victory Portfolios. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares. If you do not
make a selection, your investment will be made in Class A shares.
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
service charge is currently made for reinvestment in shares of the Fund . The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares
- 14 -
<PAGE>
were redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption, some
or all of the loss may not be tax deductible, depending on the timing and amount
of the reinvestment. Under the Internal Revenue Code of 1986, as amended (the
"IRS Code"), if the redemption proceeds of Fund shares on which a sales charge
was paid are reinvested in shares of the Fund or another of the Victory
Portfolios within 90 days of payment of the sales charge, the shareholder's
basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain
recognized from redemption. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation. The reinstatement must be into an account
bearing the same registration.
DIVIDENDS AND DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.
The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements - Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will also
differ in amount as a consequence of any difference in net asset value between
Class A and Class B shares.
For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.
TAXES
It is the policy of the Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code for so long as such qualification is in the best interest of its
shareholders. By following such policy and distributing its income and gains
currently with respect to each taxable year, the Fund expects to eliminate or
reduce to a nominal amount the federal income and excise taxes to which it may
otherwise be subject.
In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
- 15 -
<PAGE>
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.
A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during
a calendar year are less than the required amount, the fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.
Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to such transactions in
a manner believed to be in the best interest of the Fund and its shareholders.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his or her income tax return payments of
interest or dividends. This "backup withholding" is not an additional tax, and
any amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five
- 16 -
<PAGE>
years are as follows:
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee, The Victory
Funds and the Key Mutual
Funds.
Robert G. Brown, 73 Trustee Retired; from October
5460 N. Ocean Drive 1983 to November 1990,
Singer Island President, Cleveland
Riviera Beach, FL 33404 Advanced Manufacturing
Program (non-profit
corporation engaged in
regional economic
development).
Edward P. Campbell, 46 Trustee From March 1994 to
Nordson Corporation present, Executive Vice
28601 Clemens Road President and Chief
Westlake, OH 44145 Operating Officer of
Nordson Corporation
(manufacturer of
application equipment);
from May 1988 to March
1994, Vice President of
Nordson Corporation; from
1987 to December 1994,
member of the Supervisory
Committee of Society's
Collective Investment
Retirement Fund; from May
1991 to August 1994,
Trustee, Financial
Reserves Fund and from
May 1993 to August 1994,
Trustee, Ohio Municipal
Money Market Fund;
Trustee, The Victory
Funds and the Key Mutual
Funds.
- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
- 17 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
Dr. H. Patrick Swygert, 53 Trustee President, Howard
Howard University University; formerly
2400 6th Street, N.W. President, State
Suite 320 University of New York at
Washington, D.C. 20059 Albany; formerly,
Executive Vice President,
Temple University;
Trustee, the Victory
Funds.
The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until August 1997. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until August 1997. The
- 18 -
<PAGE>
function of the Business, Legal and Audit Committee is to recommend independent
auditors and monitor accounting and financial matters; to nominate persons to
serve as Independent Trustees and Trustees to serve on committees of the Board;
and to review compliance and contract matters.
The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).
Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).
The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.
<TABLE>
<CAPTION>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" ^(1)
----------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee..... -0- -0- $1,036.09 $46,716.97
Robert G. Brown, Trustee..... -0- -0- 1,091.75 39,815.98
John D. Buckingham, Trustee(2) -0- -0- 489.58 18,841.89
Edward P. Campbell,Trustee.... -0- -0- 942.58 33,799.68
Harry Gazelle, Trustee....... -0- -0- 904.37 35,916.98
John W. Kemper, Trustee(2)... -0- -0- 489.58 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 942.58 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 942.58 40,366.98
H. Patrick Swygert, Trustee.. -0- -0- 942 37,116.98
John R. Young, Trustee(2).... -0- -0- 523.93 21,963.81
</TABLE>
(1) For certain Trustees, these amounts include compensation received from The
Victory Funds (which were reorganized into the Victory Portfolios as of
June 5, 1995), the Key Funds, formerly the SBSF Funds (the investment
adviser of which was acquired by KeyCorp effective April, 1995) and
Society's Collective Investment Retirement Funds, which were reorganized
into the Victory Balanced Fund and Victory Government Mortgage Fund as of
December 19, 1994. There are presently 24 mutual funds from which the
above-named Trustees are compensated in the Victory "Fund Complex," but not
all of the above-named Trustees serve on the board of each fund in the
"Fund Complex."
(2) Resigned
- 19 -
<PAGE>
OFFICERS.
The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh
International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas
North America and
Paribas Corporation;
President and Trustee
to The Victory Funds
the SBSF Funds Inc.,
dba Key Mutual Funds.
William B. Blundin, 57 Vice President Senior Vice President
BISYS Fund Services of BISYS Fund
125 West 55th Street Services ("BISYS");
New York, New York 10019 Officer of other
investment companies
administered by BISYS
; President and Chief
Executive Officer of
Vista Broker-Dealer
Services, Inc.,
Emerald Asset
Management, Inc. and
BNY Hamilton
Distributors, Inc.,
registered
broker/dealers.
J. David Huber, 50 Vice President Executive Vice
BISYS Fund Services President, BISYS .
3435 Stelzer Road
Columbus, OH 43219-3035
Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS .
Columbus, OH 43219-3035
George O. Martinez, 37 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and
Columbus, OH 43219-3035 Director of Legal and
Compliance Services,
BISYS ; from June
1989 to March 1995,
Vice President and
Associate General
Counsel, Alliance
Capital Management.
Kevin L. Martin , 35 Treasurer From February 1996 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS ; From 1984 to
Columbus, OH 43219-3035 February 1996, Senior
Manager, Ernst &
Young
The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-
- 20 -
<PAGE>
3035.
The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. BISYS receives fees from the Victory Portfolios as Administrator.
As of July 1, 1996, the Trustees and officers as a group owned beneficially less
than 1% of the Fund.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER AND SUB-ADVISER.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of KeyBank National Association ("KeyBank"),
a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $48 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of March 31, 1996, KeyCorp had an asset base
of $65 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which
KeyBank, formerly Society National Bank was a wholly-owned subsidiary, and
KeyCorp, the former bank holding company. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies. Key Bank is the lead affiliate bank of
KeyCorp.
The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.
.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund
.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund
Victory U.S. Government Obligations Fund
Victory Tax-Free Money Market Fund
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund
Victory Limited Term Income Fund
Victory Government Mortgage Fund
Victory Financial Reserves Fund
Victory Fund for Income
.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund
Victory Government Bond Fund
Victory New York Tax-Free Fund
.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund
Victory Stock Index Fund
- 21 -
<PAGE>
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund
Victory Investment Quality Bond Fund
Victory Ohio Regional Stock Fund
1% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
Society Asset Management, Inc. serves as sub-adviser to each of these funds. For
its services under the Investment Sub-Advisory Agreement, Key Advisers pays the
Sub-Adviser sub-advisory fees at rates (based on an annual percentage of average
daily net assets) which vary according to the table set forth below.
The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:
For the Victory Balanced Fund, For theVictory International Growth
Diversified Stock Fund, Growth Fund, Ohio Regional Stock Fund and
Fund, Stock Index Fund and Value Special Value Fund:
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
- 22 -
<PAGE>
For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund,
Limited Term Income Fund, Ohio U.S. Government Obligations
Municipal Bond Fund, Government Financial Reserves Fund,
Bond Fund, Fund, Government Institutional Money Market Fund and
Mortgage Fund, National Municipal Ohio Municipal Money Market Fund:
Bond Fund and New York Tax-Free
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
- --------------------
(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of rendering
sub-investment advisory services by the Sub-Adviser, and will be in
writing.
THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Victory Portfolios'
Trustees or by vote of a majority of the outstanding shares of the Fund (as
defined under "Additional Information - Miscellaneous"), and, in either case, by
a majority of the Trustees who are not parties to the Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Investment Advisory Agreement, by votes cast in person at a meeting called for
such purpose.
The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of Key Advisers
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Prior to January, 1993, Society served as investment adviser to the Fund. From
January, 1993 until December 31, 1995, Society Asset Management, Inc. served as
investment adviser to the Fund. For the fiscal years ended October 31, 1993,
1994 and 1995 the Adviser earned investment advisory fees of $252,982, $247,755
and $253,943, respectively, after fee reductions of $5,574, $10,682 and $13,584
respectively.
Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers
Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.
- 23 -
<PAGE>
With respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company under applicable laws and are under the common control of KeyCorp;
provided that (i) all persons, when providing services under the sub-advisory
agreement, are functioning as part of an organized group of persons, and (ii)
such organized group of persons is managed at all times by authorized officers
of the Sub-Adviser. The sub-advisory arrangement does not result in the payment
of additional fees by the Fund.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the SubAdviser
including, but not limited to, (1) descriptions of the operations of Key Trust
Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2) descriptions of
certain personnel and their functions; and (3) statistics and rankings related
to the operations of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may
- 24 -
<PAGE>
also authorize the allocation of brokerage to affiliated broker-dealers on an
agency basis to effect portfolio transactions. In such event, the Trustees will
adopt procedures incorporating the standards of Rule 17e-1 of the 1940 Act,
which require that the commission paid to affiliated broker-dealers must be
reasonable and fair compared to the commission, fee or other remuneration
received, or to be received, by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time. At
times, the Fund may also purchase portfolio securities directly from dealers
acting as principals, underwriters or market makers. As these transactions are
usually conducted on a net basis, no brokerage commissions are paid by the Fund.
The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. or their affiliates, BISYS or its affiliates,
and will not give preference to Key Trust Company of Ohio, N.A.'s correspondent
banks or affiliates, or BISYS with respect to such transactions, securities,
savings deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result that would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the SubAdviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.
In the fiscal years ended October 31, 1993, 1994 and 1995, the Fund paid
$14,502, $21,467 and $15,420, respectively, in brokerage commissions.
PORTFOLIO TURNOVER. The turnover rate stated in the Prospectus for the Fund's
investment portfolio is calculated by dividing the lesser of the Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities, at the time of acquisition, were one year or less. In the fiscal
years ended October 31, 1995 and 1994, the Fund's portfolio turnover rates were
11.44% and 14.38%, respectively.
ADMINISTRATOR.
As of July 1, 1996, BISYS serves as administrator (the "Administrator") to the
Fund. The Administrator assists in supervising all operations of the Fund (other
than those performed by Key Advisers or the Sub-Adviser under the Investment
Advisory Agreement and Sub-Investment Advisory Agreement). The Winsbury Company
served as the Fund's administrator prior to June 5, 1995. The Winsbury Company
was succeeded by Concord Holding Corporation on that date. Both entities are
affiliated with BISYS.
BISYS receives a fee from the Fund for its services as Administrator and
expenses assumed pursuant to the Administration Agreements, calculated daily and
paid monthly, at the annual rate of fifteen one hundredths of one
- 25 -
<PAGE>
percent (.15%) of the Fund's average daily net assets. BISYS may periodically
waive all or a portion of its fee with respect to the Fund.
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the Administration Agreement, by votes cast in person at a meeting
called for such purpose.
The Administration Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Victory
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
Under the Administration Agreement, BISYS assists in the Fund's administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
In the fiscal years ended October 31, 1993, October 31, 1994 and October 31,
1995, the Administrator earned aggregate administration fees of $50,596,
$39,095, and $53,484, respectively, after fee reductions of $1,458, $12,592 and
$21, respectively.
DISTRIBUTOR.
BISYS Fund Services, Inc. serves as distributor (the "Distributor") for the
continuous offering of the shares of the Fund pursuant to a Distribution
Agreement between the Distributor and the Victory Portfolios. Prior to May 31,
1995, Winsbury served as distributor of the Fund. Unless otherwise terminated,
the Distribution Agreement will remain in effect with respect to the Fund for
two years, and thereafter for consecutive one-year terms, provided that it is
approved at least annually (1) by the Trustees or by the vote of a majority of
the outstanding shares of the Fund, and (2) by the vote of a majority of the
Trustees of the Victory Portfolios who are not parties to the Distribution
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate in the event of its assignment, as defined under the 1940 Act.
For the Victory Portfolios' fiscal years ended October 31, 1993 and 1994
Winsbury earned $77,258 and $212,021 respectively, in underwriting commissions,
and retained $0 and $15, respectively; for the fiscal year ended October 31,
1995, the Distributor earned $721,000 in underwriting commissions, and retained
$107,000.
TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Fund. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Fund, pursuant
to a Transfer Agency Agreement and Service. Under its agreement with the Victory
Portfolios, State Street has agreed (1) to issue and redeem shares of the
Victory Portfolios; (2) to address and mail all communications by the Victory
Portfolios to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of shareholders; (3)
to respond to correspondence or inquiries by shareholders and others relating to
its duties; (4) to maintain shareholder accounts and certain sub-accounts; and
(5) to make periodic reports to the Trustees concerning the Victory Portfolios'
operations.
- 26 -
<PAGE>
SHAREHOLDER SERVICING PLAN.
Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser and Sub- Adviser) are for
administrative support services to customers who may from time to time
beneficially own shares, which services may include: (1) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (2) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments on behalf of customers; (4)
providing information periodically to customers showing their positions in
shares; (5) arranging for bank wires; (6) responding to customer inquiries; (7)
providing subaccounting with respect to shares beneficially owned by customers
or providing the information to the Fund as necessary for subaccounting; (8) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (9) forwarding to customers proxy
statements and proxies containing any proposals regarding this Plan; and (10)
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations.
CLASS B SHARES DISTRIBUTION PLAN.
The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the 1940 Act.
The Distribution Plan adopted by the Trustees with respect to the Class B shares
of the Fund provides that the Fund will pay the Distributor a distribution fee
under the Plan at the annual rate of 0.75% of the average daily net assets of
the Fund attributable to the Class B shares. The distribution fees may be used
by the Distributor for: (a) costs of printing and distributing the Fund's
prospectus, statement of additional information and reports to prospective
investors in the Fund; (b) costs involved in preparing, printing and
distributing sales literature pertaining to the Fund; (c) an allocation of
overhead and other branch office distribution-related expenses of the
Distributor; (d) payments to persons who provide support services in connection
with the distribution of the Fund's Class B shares, including but not limited
to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Fund, processing shareholder transactions and providing
any other shareholder services not otherwise provided by the Victory Portfolios'
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the distribution fee and the CDSCs received by the
Distributor; and (f) any other expense primarily intended to result in the sale
of the Fund's Class B shares, including, without limitation, payments to
salesmen and selling dealers at the time of the sale of Class B shares, if
applicable, and continuing fees to each such salesmen and selling dealers, which
fee shall begin to accrue immediately after the sale of such shares.
The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.
The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.
The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the Sub-
- 27 -
<PAGE>
Adviser or the Distributor greater flexibility in connection with the
distribution of Class B shares of the Fund, additional sales of the Fund's Class
B shares may result. Additionally, certain Class B shareholder support services
may be provided more effectively under the Plan by local entities with whom
shareholders have other relationships.
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. ("BISYS, Inc.") serves as fund accountant for the
Fund pursuant to a fund accounting agreement with the Victory Portfolios dated
June 5, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS, Inc. calculates the Fund's net asset value, the
dividend and capital gain distribution, if any, and the yield. BISYS Fund
Services Ohio, Inc. also provides a current security position report, a summary
report of transactions and pending maturities, a current cash position report,
and maintains the general ledger accounting records for the Fund. Under the Fund
Accounting Agreement, BISYS, Inc. is entitled to receive annual fees of .03% of
the first $100 million of the Fund's daily average net assets, .02% of the next
$100 million of the Fund's daily average net assets, and .01% of the Fund's
remaining daily average net assets. These annual fees are subject to a minimum
monthly assets charge of $2,500 per taxable fund, and does not include
out-of-pocket expenses or multiple class charges of $833 per month assessed for
each class of shares after the first class. For the fiscal years ended October
31, 1993, October 31, 1994 and October 31, 1995, the Fund accountant earned fund
accounting fees of $20,240, $23,521 and $30,563, respectively.
CUSTODIAN.
Cash and securities owned by the Fund are held by Key Trust Company of Ohio,
N.A. ("Key Trust") as custodian. Key Trust serves as custodian to the Fund
pursuant to a Custodian Agreement dated May 24, 1995. Under this Agreement, Key
Trust (1) maintains a separate account or accounts in the name of the Fund; (2)
makes receipts and disbursements of money on behalf of the Fund; (3) collects
and receives all income and other payments and distributions on account of
portfolio securities; (4) responds to correspondence from security brokers and
others relating to its duties; and (5) makes periodic reports to the Trustees
concerning the Victory Portfolios' operations. Key Trust may, with the approval
of the Victory Portfolios and at the custodian's own expense, open and maintain
a sub-custody account or accounts on behalf of the Fund, provided that Key Trust
shall remain liable for the performance of all of its duties under the Custodian
Agreement.
INDEPENDENT ACCOUNTANTS.
The unaudited financial statements for the period ended April 30, 1996 and the
audited financial statements for the fiscal year ended October 31, 1995 are
incorporated by reference herein. The audited financial statements for the
fiscal year ended October 31, 1995 have been audited by Coopers & Lybrand L.L.P.
as set forth in their report incorporated by reference herein, and are included
in reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P. serves as the Victory
Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
LEGAL COUNSEL.
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 is
the counsel to the Victory Portfolios.
EXPENSES.
The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.
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If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
Sub-Adviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, without
par value. The Victory Portfolios presently has twenty- four series of shares,
which represent interests in the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the Stock
Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund, the
Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the
International Growth Fund, the Limited Term Income Fund, the Government Mortgage
Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment
Quality Bond Fund, the Government Bond Fund, the Fund for Income, the National
Municipal Bond Fund, the New York Tax-Free Fund, the Institutional Money Market
Fund, the Financial Reserves Fund and the Ohio Municipal Money Market Fund,
respectively. The Victory Portfolios' Trust Instrument authorizes the Trustees
to divide or redivide any unissued shares of the Victory Portfolios into one or
more additional series by setting or changing in any one or more aspects their
respective preferences, conversion or other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
As of July 1, 1996, the Fund believes that SNBOC was shareholder of record of
____% of the outstanding Class A shares of the Fund, but did not hold such
shares beneficially. The following shareholders beneficially owned 5% or more of
the outstanding shares of the Fund as of July 1, 1996:
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<PAGE>
Number of Shares % of Shares
Outstanding Outstanding
----------- -----------
Class B
- -------
KeyBank C/F 2,417.98 18.31%
IRA of Jerry Ufford
22315 Berry Drive
Rocky River, OH 44116
KeyBank C/F 1,387.39 10.50%
IRA of Gerald Mencl
5899 Canal Road
Valley View, OH 44125
KeyBank C/F 846.14 6.41%
IRA of Hector W. Grisw
728 Courts Drive
Naples, FL 33999
Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the ratification of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Victory Portfolios voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY .
The Victory Portfolios converted to a Delaware business trust from a
Massachusetts business trust on February 29, 1996. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Delaware Trust
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Instrument provides that shareholders of the Victory Portfolios shall not be
liable for the obligations of the Victory Portfolios. The Delaware Trust
Instrument also provides for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his or her being or
having been a shareholder. The Delaware Trust Instrument also provides that the
Victory Portfolios shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Victory Portfolios, and
shall satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered to be extremely
remote.
The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the Funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.
MISCELLANEOUS.
As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund are charged with the direct liabilities and expenses in respect
of that fund, and with a share of the general liabilities and expenses of each
of the funds not readily identified as belonging to a particular fund, which are
allocated to each fund in accordance with its proportionate share of the net
asset values of the Victory Portfolios at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of the
Victory Portfolios to a particular fund will be determined by the Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular fund are conclusive.
As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS
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<PAGE>
AND THIS STATEMENT OF ADDITIONAL INFORMATION.
- 32 -
<PAGE>
APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated
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<PAGE>
categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt.
AA+.High credit quality Protection factors are strong.
AA.Risk is modest but may vary slightly from time to time
AA-.because of economic conditions.
A+.Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA. Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions are unlikely to increase
investment risk significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior
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short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by many of the following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-. High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify issue as to
investment grade.
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
Fitch's description of its four highest short-term debt ratings:
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<PAGE>
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely repayment.
A1. Obligations supported by a very strong capacity for timely repayment.
A2. Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings:
SP-1. Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
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<PAGE>
TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
These obligations may include Treasury bills, notes and bonds, and issues of
agencies and instrumentalities of the U.S. Government, provided such obligations
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations issued by agencies and instrumentalities of the U.S. Government
include such agencies and instrumentalities as the Government National Mortgage
Association, the Export-Import Bank of the United States, the Tennessee Valley
Authority, the Farmers Home Administration, the Federal Home Loan Banks, the
Federal Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal
Land Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. A Fund will invest in the obligations of such instrumentalities
only when the investment adviser believes that the credit risk with respect to
the instrumentality is minimal.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE VICTORY PORTFOLIOS
SPECIAL VALUE FUND
July 30, 1996
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of The Victory Portfolios Special Value Fund,
dated the same date as the date hereof (the "Prospectus"). This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. Copies of the Prospectus may be obtained by writing The Victory
Funds at P.O. Box 8527, Boston, MA 02266-8527, or by telephoning toll free
800-539-FUND or 800-539-3863.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES........1 INVESTMENT ADVISER
INVESTMENT LIMITATIONS AND RESTRICTIONS.10 KeyCorp Mutual Fund Advisers,
Inc.
VALUATION OF PORTFOLIO SECURITIES.......12
PERFORMANCE.............................12 INVESTMENT SUB-ADVISER
ADDITIONAL PURCHASE, EXCHANGE AND Society Asset Management, Inc.
REDEMPTION INFORMATION................16
DIVIDENDS AND DISTRIBUTIONS.............19 ADMINISTRATOR
TAXES...................................20 BISYS Fund Services
TRUSTEES AND OFFICERS...................21
ADVISORY AND OTHER CONTRACTS............26 DISTRIBUTOR
ADDITIONAL INFORMATION..................34 BISYS Fund Services
APPENDIX................................38
TRANSFER AGENT
State Street Bank and Trust
Company
CUSTODIAN
Key Trust Company of Ohio, N.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Victory Portfolios (the "Victory Portfolios") is an open-end management
investment company. The Victory Portfolios consist of twenty-four series of
units of beneficial interest ("shares"). The outstanding shares represent
interests in the twenty-four separate investment portfolios which are currently
active. This Statement of Additional Information relates to the Victory Special
Value Fund (the "Fund") only. Much of the information contained in this
Statement of Additional Information expands on subjects discussed in the
Prospectus. Capitalized terms not defined herein are used as defined in the
Prospectus. No investment in shares of the Fund should be made without first
reading the Fund's Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
ADDITIONAL INFORMATION REGARDING FUND INVESTMENTS.
The following policies supplement the investment policies of the Fund set forth
in the Prospectus. The Fund's investments in the following securities and other
financial instruments are subject to the other investment policies and
limitations described in the Prospectus and this Statement of Additional
Information.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. The Fund may invest in
bankers' acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign banks, if
at the time of purchase such banks have capital, surplus, and undivided profits
in excess of $100,000,000 (as of the date of their most recently published
financial statements). Certificates of deposit and demand and time deposits
invested in by the Fund will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of purchase such financial
institutions have capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements) or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation (the "FDIC") or the Savings
Association Insurance Fund.
The Fund may also invest in Eurodollar Certificates of Deposit ("ECDs") which
are U.S. dollar-denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTDs") which are U.S. dollar-denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory notes issued
by corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
The Fund will purchase only commercial paper rated in one of the two highest
categories at the time of purchase by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, found by the Trustees to present
minimal credit risks and to be of comparable quality to instruments that are
rated high quality (i.e., in one
<PAGE>
of the two top ratings categories) by an NRSRO that is neither controlling,
controlled by, or under common control with the issuer of, or any issuer,
guarantor, or provider of credit support for, the instrument. For a description
of the rating symbols of each NRSRO see the Appendix to this Statement of
Additional Information.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes in
which the Fund may invest are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Although there is no
secondary market for these notes, the Fund may demand payment of principal and
accrued interest at any time and may resell the notes at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable amount master demand note if the
issuer defaulted on its payment obligations, and the Fund could, for this or
other reasons, suffer a loss to the extent of the default. While the notes are
not typically rated by credit rating agencies, issuers of variable amount master
demand notes must satisfy the same criteria as set forth above for unrated
commercial paper, and Key Advisers or the Sub-Adviser will continuously monitor
the issuer's financial status and ability to make payments due under the
instrument. Where necessary to ensure that a note is of "high quality," the Fund
will require that the issuer's obligation to pay the principal of the note be
backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. For purposes of the Fund's investment policies, a variable
amount master note will be deemed to have a maturity equal to the longer of the
period of time remaining until the next readjustment of its interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
FOREIGN INVESTMENT. The Fund may invest in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including American
Depository Receipts ("ADRs") and securities purchased on foreign securities
exchanges. Such investment may subject the Fund to significant investment risks
that are different from, and additional to, those related to investments in
obligations of U.S. domestic issuers or in U.S.
securities markets.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial condition and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that Key Advisers or the
Sub-Adviser will be able to anticipate these potential events or counter their
effects.
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<PAGE>
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund currently invests in the securities of issuers based in a number of
foreign countries. The Adviser continuously evaluates issuers based in countries
all over the world. Accordingly, the Fund may invest in the securities of
issuers based in any country, subject to approval by the Board of Trustees, when
such securities met the investment criteria of the Adviser and are consistent
with the investment objectives and policies of the Fund.
VARIABLE AND FLOATING RATE NOTES. The Fund may acquire variable and floating
rate notes. A variable rate note is one whose terms provide for the readjustment
of its interest rate on set dates and which, upon such readjustment, can
reasonably be expected to have a market value that approximates its par value. A
floating rate note is one whose terms provide for the readjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value. Such notes are frequently not rated by credit rating agencies; however,
unrated variable and floating rate notes purchased by the Fund will only be
those determined by Key Advisers or the Sub-Adviser, under guidelines
established by the Trustees, to pose minimal credit risks and to be of
comparable quality, at the time of purchase, to rated instruments eligible for
purchase under the Fund's investment policies. In making such determinations,
Key Advisers or the Sub-Adviser will consider the earning power, cash flow and
other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by the Fund, the Fund may resell the note at any time to a third
party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, for this or other reasons, suffer a loss to the extent of the default.
Variable or floating rate notes may be secured by bank letters of credit.
Variable or floating rate notes may have maturities of more than one year, as
follows:
1. A note that is issued or guaranteed by the United States government or
any agency thereof and which has a variable rate of interest readjusted no less
frequently than annually will be deemed by the Fund to have a maturity equal to
the period remaining until the next readjustment of the interest rate.
2. A variable rate note, the principal amount of which is scheduled on the
face of the instrument to be paid in one year or less, will be deemed by the
Fund to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate note that is subject to a demand feature scheduled to
be paid in one year or more will be deemed by the Fund to have a maturity equal
to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand.
4. A floating rate note that is subject to a demand feature will be deemed
by the Fund to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
As used above, a note is "subject to a demand feature" where the Fund is
entitled to receive the principal amount of the note either at any time on no
more than 30 days' notice or at specified intervals not exceeding one year
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<PAGE>
and upon no more than 30 days' notice.
OPTIONS. The Fund may sell (write) call options which are traded on national
securities exchanges with respect to common stock in its portfolio. The Fund
must at all times have in its portfolio the securities which it may be obligated
to deliver if the option is exercised. The Fund may write such call options in
an attempt to realize a greater level of current income than would be realized
on the securities alone. The Fund may also write call options as a partial hedge
against a possible stock market decline or to extend a holding period on a stock
which is under consideration for sale in order to create a long-term capital
gain. In view of its investment objective, the Fund generally would write call
options only in circumstances where Key Advisers or the Sub-Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security. As the writer of
a call option, the Fund receives a premium for undertaking the obligation to
sell the underlying security at a fixed price during the option period, if the
option is exercised. So long as the Fund remains obligated as a writer of a call
option, it forgoes the opportunity to profit from increases in the market price
of the underlying security above the exercise price of the option, except
insofar as the premium represents such a profit. The Fund retains the risk of
loss should the value of the underlying security decline. The Fund may also
enter into "closing purchase transactions" in order to terminate its obligation
as a writer of a call option prior to the expiration of the option. Although the
writing of call options only on national securities exchanges increases the
likelihood of the Fund's ability to make closing purchase transactions, there is
no assurance that the Fund will be able to effect such transactions at any
particular time or at any acceptable price. The writing of call options could
result in increases in the Fund's portfolio turnover rate, especially during
periods when market prices of the underlying securities appreciate.
MISCELLANEOUS SECURITIES. The Fund can invest in various securities issued by
domestic and foreign corporations, including preferred stocks and investment
grade corporate bonds, notes, and warrants. Bonds are long-term corporate debt
instruments secured by some or all of the issuer's assets, debentures are
general corporate debt obligations backed only by the integrity of the borrower,
and warrants are instruments that entitle the holder to purchase a certain
amount of common stock at a specified price, which price is usually higher than
the current market price at the time of issuance. Preferred stocks are
instruments that combine qualities both of equity and debt securities.
Individual issues of preferred stock will have those rights and liabilities that
are spelled out in the governing document. Preferred stocks usually pay a fixed
dividend per quarter (or annum) and are senior to common stock in terms of
liquidation and dividends rights, and preferred stocks typically do not have
voting rights. The Fund also may invest in zero coupon bonds, which are debt
instruments that do not pay current interest and are typically sold at prices
greatly discounted from par value. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations.
"WHEN-ISSUED" SECURITIES. The Fund may purchase securities on a "when issued"
basis (i.e., for delivery beyond the normal settlement date at a stated price
and yield). When the Fund agrees to purchase securities on a "when issued"
basis, the custodian will set aside cash or liquid portfolio securities equal to
the amount of the commitment in a separate account. Normally, the custodian will
set aside portfolio securities to satisfy the purchase commitment, and in such a
case, the Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitment. It may be expected that the Fund's net
assets will fluctuate to a greater degree when it sets aside portfolio
securities to cover such purchase commitments than when it sets aside cash. When
the Fund engages in "when-issued" transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in the Fund
incurring a loss or missing the opportunity to obtain a price considered to be
advantageous. The Fund does not intend to purchase "when issued" securities for
speculative purposes, but only in furtherance of its investment objective.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
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<PAGE>
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the U.S. Treasury; others
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and still others are supported only by the credit of
the agency or instrumentality. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law.
OTHER INVESTMENT COMPANIES. The Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than 3% of
the securities of any one investment company or invest more than 10% of its
total assets in the securities of other investment companies. Pursuant to an
exemptive order received by the Victory Portfolios from the Securities and
Exchange Commission (the "Commission"), the Fund may invest in the money market
funds of the Victory Portfolios. Key Advisers or the Sub-Adviser will waive its
investment advisory fee with respect to assets of the Fund invested in any of
the money market funds of the Victory Portfolios, and, to the extent required by
the laws of any state in which the Fund's shares are sold, Key Advisers or the
Sub-Adviser will waive its investment advisory fee as to all assets invested in
other investment companies.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of a repurchase agreement, the Fund would acquire
securities from financial institutions or registered broker-dealers deemed
creditworthy by Key Advisers or the Sub-Adviser pursuant to guidelines adopted
by the Trustees, subject to the seller's agreement to repurchase such securities
at a mutually agreed upon date and price. The seller is required to maintain the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). If the seller were to default on
its repurchase obligation or become insolvent, the Fund would suffer a loss to
the extent that the proceeds from a sale of the underlying portfolio securities
were less than the repurchase price, or to the extent that the disposition of
such securities by the Fund is delayed pending court action.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to such agreements, the
Fund would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
place in a segregated custodial account assets (such as cash or other liquid
high-grade securities) consistent with the Fund's investment restrictions having
a value equal to the repurchase price (including accrued interest); the
collateral will be marked-to-market on a daily basis, and will be continuously
monitored to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the price at which the Fund is obligated to repurchase
the securities.
FUTURES CONTRACTS. The Fund may enter into futures contracts, options on futures
contracts and stock index futures contracts and options thereon for the purposes
of remaining fully invested and reducing transaction costs. Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security, class of securities, or an index at a
specified future time and at a specified price. A stock index futures contract
is a bilateral agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of trading of the
contracts and the price at which the futures contract is originally struck.
Futures contracts which are standardized as to maturity date and underlying
financial instrument are traded on national futures exchanges. Futures exchanges
and trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission (the "CFTC"), a U.S. Government agency.
Although futures contracts by their terms call for actual delivery and
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position (buying a
contract which has previously been "sold," or "selling" a contract previously
purchased) in an identical contract to terminate the position. A futures
contract
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<PAGE>
on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period. Brokerage commissions are incurred when a
futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with a broker or custodian to initiate and maintain open
positions in futures contracts. A margin deposit is intended to assure
completion of the contract (delivery or acceptance of the underlying security)
if it is not terminated prior to the specified delivery date. Minimal initial
margin requirements are established by the futures exchange and may be changed.
Brokers may establish deposit requirements which are higher than the exchange
minimums. Initial margin deposits on futures contracts are customarily set at
levels much lower than the prices at which the underlying securities are
purchased and sold, typically ranging upward from less than 5% of the value of
the contract being traded.
After a futures contract position is opened, the value of the contract is
marked-to-market daily. If the futures contract price changes to the extent that
the margin on deposit does not satisfy margin requirements, payment of
additional "variation" margin will be required. Conversely, change in the
contract value may reduce the required margin, resulting in a repayment of
excess margin to the contract holder. Variation margin payments are made to and
from the futures broker for as long as the contract remains open. The Fund
expects to earn interest income on its margin deposits.
When interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, the
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases.
The Fund will only sell futures contracts to protect securities it owns against
price declines or purchase contracts to protect against an increase in the price
of securities it intends to purchase.
The Fund's ability to effectively utilize futures trading depends on several
factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index.
Second, it is possible that a lack of liquidity for futures contracts could
exist in the secondary market, resulting in an inability to close a futures
position prior to its maturity date. Third, the purchase of a futures contract
involves the risk that the Fund could lose more than the original margin deposit
required to initiate a futures transaction.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS. The Fund will not enter into
futures contract transactions for purposes other than bona fide hedging purposes
to the extent that, immediately thereafter, the sum of its initial margin
deposits on open contracts exceeds 5% of the market value of the Fund's total
assets. In addition, the Fund will not enter into futures contracts to the
extent that the value of the futures contracts held would exceed 1/3 of the
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain the Fund's qualification as a regulated investment
company.
The Victory Portfolios have undertaken to restrict their futures contract
trading as follows: first, the Victory Portfolios will not engage in
transactions in futures contracts for speculative purposes; second, the Victory
Portfolios will not market its funds to the public as commodity pools or
otherwise as vehicles for trading in the commodities futures or commodity
options markets; third, the Victory Portfolios will disclose to all prospective
shareholders the purpose of and limitations on its funds' commodity futures
trading; fourth, the Victory Portfolios will submit to the CFTC special calls
for information. Accordingly, registration as a commodities pool operator with
the CFTC is
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<PAGE>
not required.
In addition to the margin restrictions discussed above, transactions in futures
contracts may involve the segregation of funds pursuant to requirements imposed
by the Commission. Under those requirements, where the Fund has a long position
in a futures contract, it may be required to establish a segregated account (not
with a futures commission merchant or broker) containing cash or certain liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For a short position in futures or forward contracts held by the Fund, those
requirements may mandate the establishment of a segregated account (not with a
futures commission merchant or broker) with cash or certain liquid assets that,
when added to the amounts deposited as margin, equal the market value of the
instruments underlying the futures contracts (but are not less than the price at
which the short positions were established). However, segregation of assets is
not required if the Fund "covers" a long position. For example, instead of
segregating assets, the Fund, when holding a long position in a futures
contract, could purchase a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund. In
addition, where the Fund takes short positions, or engages in sales of call
options, it need not segregate assets if it "covers" these positions. For
example, where the Fund holds a short position in a futures contract, it may
cover by owning the instruments underlying the contract. The Fund may also cover
such a position by holding a call option permitting it to purchase the same
futures contract at a price no higher than the price at which the short position
was established. Where the Fund sells a call option on a futures contract, it
may cover either by entering into a long position in the same contract at a
price no higher than the strike price of the call option or by owning the
instruments underlying the futures contract. The Fund could also cover this
position by holding a separate call option permitting it to purchase the same
futures contract at a price no higher than the strike price of the call option
sold by the Fund.
In addition, the extent to which the Fund may enter into transactions involving
futures contracts may be limited by the Internal Revenue Code's requirements for
qualification as a registered investment company and the Fund's intention to
qualify as such.
RISK FACTORS IN FUTURES TRANSACTIONS. Positions in futures contracts may be
closed out only on an exchange which provides a secondary market for such
futures. However, there can be no assurance that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain the required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund may be
required to make delivery of the instruments underlying futures contracts it
holds. The inability to close options and futures positions also could have an
adverse impact on the ability to effectively hedge them. The Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. Because the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities market, there may be increased participation by speculators in
the futures market which may also cause temporary price distortions. A
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit if the contract
were closed out. Thus, a purchaser or sale of a futures contract may result in
losses in excess of the amount invested in the contract. However, because the
futures strategies engaged in by the Fund are only for hedging purposes, Key
Advisers and the Sub-Adviser do
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<PAGE>
not believe that the Fund is subject to the risks of loss frequently associated
with futures transactions. The Fund would presumably have sustained comparable
losses if, instead of the futures contract, it had invested in the underlying
financial instrument and sold it after the decline.
Utilization of futures transactions by the Fund does involve the risk of
imperfect or no correlation where the securities underlying futures contract
have different maturities than the portfolio securities being hedged. It is also
possible that the Fund could both lose money on futures contracts and also
experience a decline in value of its portfolio securities. There is also the
risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option.
INVESTMENT LIMITATIONS AND RESTRICTIONS
The following investment restrictions are fundamental with respect to the Fund
and may be changed only by a vote of a majority of the outstanding shares of the
Fund as defined in "ADDITIONAL INFORMATION -Miscellaneous" of this Statement of
Additional Information.
THE FUND MAY NOT:
1. Participate on a joint or joint and several basis in any securities trading
account.
2. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
3. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by the Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
4. Issue any senior security (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")), except that (a) the Fund may engage in
transactions that may result in the issuance of senior securities to the extent
permitted under applicable regulations and interpretations of the 1940 Act or an
exemptive order; (b) the Fund may acquire other securities, the acquisition of
which may result in the issuance of a senior security, to the extent permitted
under applicable regulations or interpretations of the 1940 Act; (c) subject to
the restrictions set forth below, the Fund may borrow money as authorized by the
1940 Act.
5. Borrow money, except that (a) the Fund may enter into commitments to
purchase securities in accordance with its investment program, including
delayed-delivery and when-issued securities and reverse repurchase agreements,
provided that the total amount of any such borrowing does not exceed 33 1/3% of
the Fund's total assets; and (b) the Fund may borrow money for temporary or
emergency purposes in an amount not exceeding 5% of the value of its total
assets at the time when the loan is made. Any borrowings representing more than
5% of the Fund's total assets must be repaid before the Fund may make additional
investments.
6. Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.
7. Underwrite securities issued by others, except to the extent that the Fund
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.
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<PAGE>
8. With respect to 75% of the Fund's total assets, the Fund may not purchase
the securities of any issuer (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the Fund's total assets would be invested in the securities
of that issuer, or (b) the Fund would hold more than 10% of the outstanding
voting securities of that issuer.
9. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. In the utilities
category, the industry shall be determined according to the service provided.
For example, gas, electric, water and telephone will be considered as separate
industries.
The following restrictions are not fundamental and may be changed without
shareholder approval:
1. The Fund will not purchase or retain securities of any issuer if the
officers or Trustees of the Victory Portfolios or the officers or directors of
its investment adviser owning beneficially more than one-half of 1% of the
securities of such issuer together own beneficially more than 5% of such
securities.
2. The Fund will not invest more than 10% of its total assets in the
securities of issuers which together with any predecessors have a record of less
than three years of continuous operation.
3. The Fund will not invest more than 15% of its net assets in illiquid
securities. Illiquid securities are securities that are not readily marketable
or cannot be disposed of promptly within seven days and in the usual course of
business at approximately the price at which the Fund has valued them. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be resold
under Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the 1933 Act
("Restricted Securities") shall not be deemed illiquid solely by reason of being
unregistered. Key Advisers or the Sub-Adviser determine whether a particular
security is deemed to be liquid based on the trading markets for the specific
security and other factors. However, because state securities laws may limit the
Fund's investment in Restricted Securities (regardless of the liquidity of the
investment), investments in Restricted Securities resalable under Rule 144A will
continue to be subject to applicable state law requirements until such time, if
ever, that such limitations are changed.
4. The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for short-term
credits necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures contracts
and related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund.
5. The Fund may invest up to 5% of its total assets in the securities of any
one investment company, but may not own more than 3% of the securities of any
one investment company or invest more than 10% of its total assets in the
securities of other investment companies. Pursuant to an exemptive order
received by the Victory Portfolios from the Commission, the Fund may invest in
the other money market funds of the Victory Portfolios.
STATE REGULATIONS.
In addition, the Fund, so long as its shares are registered under the securities
laws of the State of Texas and such restrictions are required as a consequence
of such registration, is subject to the following non-fundamental policies,
which may be modified in the future by the Trustees without a vote of the Fund's
shareholders: (1) the Fund has represented to the Texas State Securities Board,
that it will not invest in oil, gas or mineral leases or purchase or sell real
property (including limited partnership interests, but excluding readily
marketable securities of companies
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which invest in real estate); and (2) the Fund has represented to the Texas
State Securities Board that it will not invest more than 5% of its net assets in
warrants valued at the lower of cost or market; provided that, included within
that amount, but not to exceed 2% of net assets, may be warrants which are not
listed on the New York or American Stock Exchanges. For purposes of this
restriction, warrants acquired in units or attached to securities are deemed to
be without value.
GENERAL.
The policies and limitations listed above supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset except in
the case of borrowing (or other activities that may be deemed to result in the
issuance of a "senior security" under the 1940 Act). Accordingly, any subsequent
change in values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment policies
and limitations. If the value of the Fund's holdings of illiquid securities at
any time exceeds the percentage limitation applicable at the time of acquisition
due to subsequent fluctuations in value or other reasons, the Trustees will
consider what actions, if any, are appropriate to maintain adequate liquidity.
The investment policies of the Fund may be changed without an affirmative vote
of the holders of a majority of the Fund's outstanding voting securities unless
(1) a policy is expressly deemed to be a fundamental policy of the Fund or (2) a
policy is expressly deemed to be changeable only by such majority vote.
VALUATION OF PORTFOLIO SECURITIES
Investment securities held by the Fund are valued on the basis of valuations
provided by an independent pricing service, approved by the Trustees, which uses
information with respect to transactions of a security, quotations from dealers,
market transactions in comparable securities, and various relationships between
securities, in determining value. Specific investment securities which are not
priced by the approved pricing service will be valued according to quotations
obtained from dealers who are market makers in those securities. Investment
securities with less than 60 days to maturity when purchased are valued at
amortized cost which approximates market value. Investment securities not having
readily available market quotations will be priced at fair value using a
methodology approved in good faith by the Trustees.
PERFORMANCE
From time to time the "standardized yield," "dividend yield," "distribution
return," "average annual total return," "total return," and "total return at net
asset value" of an investment in each class of Fund shares may be advertised. An
explanation of how yields and total returns are calculated for each class and
the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing the
Fund's performance. The Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for each
class of shares of the Fund for the 1, 5 and 10-year period (or the life of the
class, if less) as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of other funds for
the same periods. However, a number of factors should be considered before using
such information as a basis for comparison with other investments. An investment
in the Fund is not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an investor's
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shares may be worth more or less than their original cost. Yield and total
return for any given past period are not a prediction or representation by the
Victory Portfolios of future yields or rates of return on its shares. The yield
and total returns of the Class A and Class B shares of the Fund are affected by
portfolio quality, portfolio maturity, the type of investments the Fund holds
and operating expenses.
Performance - Class B Shares
Class B shares of the Fund were initially offered on March 1, 1996. The
performance figures for Class B shares for periods prior to such date represent
the performance for Class A shares of the Fund which has been restated to
reflect the applicable CDSC payable at redemption within 6 years from purchase.
Class B shares are subject to an asset-based sales charge of .75% of average
daily net assets per year and other class-specific expenses. Had these fees and
expenses been reflected, performance quoted would have been lower.
STANDARDIZED YIELD.
The Fund's "yield" (referred to as "standardized yield") for a given 30-day
period for a class of shares is calculated using the following formula set forth
in rules adopted by the Commission that apply to all funds that quote yields:
Standardized Yield = 2 [(a-b + 1)^6 - 1]
---
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ from
its yield for any other period. The Commission formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund classes of
shares will differ. The yield on Class A shares for the 30-day period ended
October 31, 1995 was 0.84% . The yield on Class B shares for the 30-day period
ended April 30, 1996 was -0.07% .
DIVIDEND YIELD AND DISTRIBUTION RETURNS.
From time to time the Fund may quote a "dividend yield" or a "distribution
return" for each class. Dividend yield is based on the Class A or Class B share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions for that class declared during
a stated period of one year or less (for example, 30 days) are added together,
and the sum is divided by the maximum offering price per share of that class )
on the last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield
of the Class = Dividends of the Class + Number of days (accrual period) x365
---------------------------
Max. Offering Price of the
Class (last day of period)
The maximum offering price for Class A shares includes the maximum front-end
sales charge. For Class B shares, the maximum offering price is the net asset
value per share, considering the effect of contingent deferred sales charges
("CDSC").
From time to time similar yield or distribution return calculations may also be
made using the Class A or Class B net asset value (instead of its respective
maximum offering price) at the end of the period. The dividend yields on Class A
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shares at maximum offering price and net asset value as of October 31, 1995 were
1.21% and 1.27%, respectively. The distribution return on Class A shares at
maximum offering price and net asset value as of October 31, 1995 were 1.61% and
1.69%, respectively. The dividend yields on Class B shares with and without the
CDSC for the 30-day period ended April 30, 1996, were 0.96% and 1.01%,
respectively. The distribution returns on Class B shares with and without the
CDSC as of April 30, 1996 were 3.35% and 3.52%, respectively.
TOTAL RETURNS.
The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of
return based on the change in value of a hypothetical initial investment of
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
( ERV )^1^n - 1 = Average Annual Total Return
-------
( P )
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
ERV - P = Total Return
-------
P
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
discussed below). For Class B shares, the payment of the applicable CDSC (5.0%
for the first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter) is
applied to the investment result for the time period shown (unless the total
return is shown at net asset value, as described below). Total returns also
assume that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The average annual total return
and cumulative total return on Class A shares at maximum offering price and on
Class B shares with the CDSC for the period December 3, 1993 (commencement of
operations) to October 31, 1995 (life of fund) were 9.54% and 19.04%,
respectively, for Class A shares and ____% and ____%, respectively, for Class B
shares. For the period ended October 31, 1995, annual total return for Class A
shares at maximum offering price and for Class B shares with the CDSC was 12.44%
for Class A shares and ____% for Class B shares.
From time to time the Fund may also quote an "average annual total return at net
asset value" or a cumulative "total return at net asset value" for Class A or
Class B shares. It is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales charges) and
takes into consideration the reinvestment of dividends and capital gains
distributions. The average annual total return and cumulative total return on
Class A shares at net asset value and on Class B shares without the CDSC for the
period December 3, 1993 (commencement of operations) to October 31, 1995 (life
of fund) was 12.37% and 24.99%, respectively. For the period ended October 31,
1995, average annual total return for Class A shares at net asset value and on
Class B shares without the CDSC was 18.01% for Class A shares and ____% for
Class B shares.
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<PAGE>
OTHER PERFORMANCE COMPARISONS.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks
the performance of the Fund's classes against (1) all other funds, excluding
money market funds, and (2) all other government bond funds. The Lipper
performance rankings are based on total return that includes the reinvestment of
capital gains distributions and income dividends but does not take sales charges
or taxes into consideration.
From time to time the Fund may publish the ranking of the performance of its
Class A or Class B shares by Morningstar, Inc., an independent mutual fund
monitoring service that ranks mutual funds, including the Fund, in broad
investment categories (equity, taxable bond, tax-exempt and other) monthly,
based upon each fund's three, five and ten-year average annual total returns
(when available) and a risk adjustment factor that reflects Fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
The total return on an investment made in Class A or Class B shares of the Fund
may be compared with the performance for the same period of one or more of the
following indices: the Consumer Price Index, the Salomon Brothers World
Government Bond Index, the Standard & Poor's 500 Index, the Shearson Lehman
Government/Corporate Bond Index, the Lehman Aggregate Bond Index, and the J.P.
Morgan Government Bond Index. Other indices may be used from time to time. The
Consumer Price Index is generally considered to be a measure of inflation. The
Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. The Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The S&P 500 Index is a composite index of
500 common stocks generally regarded as an index of U.S. stock market
performance. The foregoing bond indices are unmanaged indices of securities that
do not reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time, the yields and the total returns of Class A or Class B shares
of the Fund may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Fund may also include calculations in such
communications that describe hypothetical investment results. (Such performance
examples are based on an express set of assumptions and are not indicative of
the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Fund may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of the Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
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<PAGE>
contained in shareholder reports (including the investment composition of a
Fund, as well as the views of the investment adviser as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund.) The Fund may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, and Treasury bills, as compared to an investment in shares of the Fund,
as well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in the Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, the
Fund may reprint articles (or excerpts) written regarding the Fund and provide
them to prospective shareholders. Performance information with respect to the
Fund is generally available by calling 1-800-539-3863.
Investors may also judge, and the Fund may at times advertise, the performance
of Class A or Class B shares by comparing it to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc.,
Standard & Poor's Corporation, Lehman Brothers, Merrill Lynch, and Salomon
Brothers, and in publications issued by Lipper and in the following
publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, and U.S.A. Today. In addition to yield information,
general information about the Fund that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders.
Advertisements and sales literature may include discussions of specifics of the
portfolio manager's investment strategy and process, including, but not limited
to, descriptions of security selection and analysis.
Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management, and its
investment philosophy.
When comparing yield, total return and investment risk of an investment in Class
A or Class B shares of the Fund with other investments, investors should
understand that certain other investments have different risk characteristics
than an investment in shares of the Fund. For example, certificates of deposit
may have fixed rates of return and may be insured as to principal and interest
by the FDIC, while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. Money market accounts offered by banks also may be
insured by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith and
credit of the U.S. government. Money market mutual funds may seek to maintain a
fixed price per share.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The New York Stock Exchange ("NYSE") holiday closing schedule indicated in the
Prospectus under "Share Price" is subject to change.
When the NYSE is closed, or when trading is restricted for any reason other than
its customary weekend or holiday closings, or under emergency circumstances as
determined by the Commission to warrant such action, the Fund's Transfer Agent
will determine the Fund's net asset value at Valuation Time. A Fund's net asset
value may be affected to the extent that its securities are traded on days that
are not Business Days.
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<PAGE>
If, in the opinion of the Trustees, conditions exist which make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
net asset value of each class of the Fund. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes and
will incur any costs of sale as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, the Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Fund's exchange privilege. Under the Rule, the 60-day notification requirement
may be waived if (1) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee or deferred sales charge
ordinarily payable at the time of exchange or (2) the Fund temporarily suspends
the offering of shares as permitted under the 1940 Act or by the Commission or
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
The Fund reserves the right at any time without prior notice to shareholders to
refuse exchange purchases by any person or group if, in Key Advisers or the
Sub-Adviser's judgment, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
PURCHASING SHARES.
ALTERNATIVE SALES ARRANGEMENTS - CLASS A AND CLASS B SHARES. The alternative
sales arrangements permit an investor to choose the method of purchasing shares
that is more beneficial depending on the amount of the purchase, the length of
time the investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred sales
charge and asset-based sales charge with respect to Class B shares are the same
as those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling Fund
shares may receive different compensation with respect to one class of shares on
behalf of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same portfolio
investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B shares and the
dividends payable on Class B shares will be reduced by incremental expenses
borne solely by that class, including the asset-based sales charge to which
Class B shares are subject.
CLASS B CONVERSION FEATURE. Ninety-six months after an investor's purchase order
for Class B shares is accepted, such "Matured Class B Shares" automatically will
convert to Class A shares, on the basis of the relative net asset value of the
two classes, without the imposition of any sales load or other charge. Each time
any Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured Class
B shares that are still held will also convert to Class A shares, on the same
basis. The conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan after
such shares have been outstanding long enough that the Distributor may have been
compensated for distribution expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal Revenue
Service, or an opinion of counsel or tax adviser, to the effect that the
conversion of Matured Class B shares does not constitute a taxable event for the
holder under Federal income tax law. If such a revenue ruling or opinion is no
longer available, the automatic conversion feature may be suspended, in which
event no further conversion of Matured Class B shares would occur while such
suspension remained in effect. Although Matured Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer
than six years.
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<PAGE>
The methodology for calculating the net asset value, dividends and distributions
of the Fund's Class A and Class B shares recognizes two types of expenses.
General expenses that do not pertain specifically to either class are allocated
to the shares of each class, based upon the percentage that the net assets of
such class bears to the Fund's total net assets, and then pro rata to each
outstanding share within a given class. Such general expenses include (1)
management fees, (2) legal, bookkeeping and audit fees, (3) printing and mailing
costs of shareholder reports, prospectuses, statements of additional information
and other materials for current shareholders, (4) fees to the Trustees who are
not affiliated with Key Advisers, (5) custodian expenses, (6) share issuance
costs, (7) organization and start-up costs, (8) interest, taxes and brokerage
commissions, and (9) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (1) Rule 12b-1
distribution fees and shareholder servicing fees, (2) incremental transfer and
shareholder servicing agent fees and expenses, (3) registration fees and (4)
shareholder meeting expenses, to the extent that such expenses pertain to a
specific class rather than to the Fund as a whole.
REDUCED SALES CHARGE. Reduced sales charges are available for purchases of
$50,000 or more of Class A shares of the Fund alone or in combination with
purchases of shares of other Class A shares of funds of the Victory Portfolios.
To obtain the reduction of the sales charge, you or your Investment Professional
must notify the Transfer Agent at the time of purchase whenever a quantity
discount is applicable to your purchase.
In addition to investing at one time in any combination of Class A shares of the
Victory Portfolios in an amount entitling you to a reduced sales charge, you may
qualify for a reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest in Class A shares of the Victory Portfolios
for several accounts at the same time, you may combine these investments into a
single transaction if purchased through one Investment Professional, and if the
total is $50,000 or more. The following may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his, her, or
their own account; a trustee, administrator or other fiduciary purchasing for a
single trust estate or single fiduciary account or for a single or a
parent-subsidiary group of "employee benefit plans" (as defined in Section 3(3)
of ERISA); and tax-exempt organizations under Section 501(c)(3) of the Internal
Revenue Code.
RIGHTS OF ACCUMULATION. "Rights of Accumulation" permit reduced sales charges on
future purchases of Class A shares after you have reached a new breakpoint. You
can add the value of existing Victory Portfolios Class A shares held by you,
your spouse, and your children under age 21, determined at the previous day's
net asset value at the close of business, to the amount of your new purchase
valued at the current offering price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of shares of the
Fund alone or in combination with Class A shares of certain other Victory
Portfolios within a 13-month period, you may obtain shares of the portfolios at
the same reduced sales charge as though the total quantity were invested in one
lump sum, by filing a non-binding Letter of Intent (the "Letter") within 90 days
of the start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $60,000 Letter
would receive the same reduced sales charge as if the $60,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your Investment Professional must inform the transfer agent
that the Letter is in effect each time shares are purchased. Neither income
dividends nor capital gain distributions taken in additional shares will apply
toward the completion of the Letter.
You are not obligated to complete the additional purchases contemplated by a
Letter. If you do not complete your purchase under the Letter within the
13-month period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient
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<PAGE>
escrowed shares will be redeemed to pay such charge.
If you purchase more than the amount specified in the Letter and qualify for a
further sales charge reduction, the sales charge will be adjusted to reflect
your total purchase at the end of 13 months. Surplus funds will be applied to
the purchase of additional shares at the then current offering price applicable
to the total purchase.
EXCHANGING SHARES.
Shares of any Victory money market fund or Class A shares of any other fund of
the Victory Portfolios with a reduced sales charge may be exchanged for shares
of the Fund upon payment of the difference in the sales charge. Shares of any
Victory money market fund may be used to purchase Class B shares of the Fund.
Shares of the Fund may be exchanged for the same class of shares of any other
fund of the Victory Portfolios. When Class B shares are redeemed to effect an
exchange, the priorities described in "How to Invest, Exchange and Redeem -
Class B shares" in the Prospectus for the imposition of the Class B CDSC will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of both classes must
specify whether they intend to exchange Class A or Class B shares. If you do not
make a selection, your investment will be made in Class A shares.
REDEEMING SHARES.
REINSTATEMENT PRIVILEGE. Within 90 days of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (1) Class A shares, or (2)
Class B shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the other Victory Portfolios into which shares of
the Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order. No
service charge is currently made for reinvestment in shares of the Fund . The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were redeemed
is taxable, and reinvestment will not alter any capital gains tax payable on
that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code of 1986, as amended (the "IRS
Code"), if the redemption proceeds of Fund shares on which a sales charge was
paid are reinvested in shares of the Fund or another of the Victory Portfolios
within 90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the sales
charge paid. That would reduce the loss or increase the gain recognized from
redemption. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation. The reinstatement must be into an account bearing the
same registration.
DIVIDENDS AND DISTRIBUTIONS
The Fund ordinarily declares and pays dividends separately for Class A and Class
B shares from its net investment income quarterly. The Fund distributes
substantially all of its net investment income and net capital gains, if any, to
shareholders within each calendar year as well as on a fiscal year basis to the
extent required for the Fund to qualify for favorable federal tax treatment.
The amount of a class's distributions may vary from time to time depending on
market conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund or borne separately by the class, as described in "Alternative Sales
Arrangements Class A and Class B," above. Dividends are calculated in the same
manner, at the same time and on the same day for shares of each class. However,
dividends on Class B shares are expected
- 17 -
<PAGE>
to be lower as a result of the asset-based sales charge on Class B shares, and
Class B dividends will also differ in amount as a consequence of any difference
in net asset value between Class A and Class B shares.
For this purpose, the net income of the Fund, from the time of the immediately
preceding determination thereof, shall consist of all interest income accrued on
the portfolio assets of the Fund, dividend income, if any, income from
securities loans, if any, and realized capital gains and losses on the Fund's
assets, less all expenses and liabilities of the Fund chargeable against income.
Interest income shall include discount earned, including both original issue and
market discount, on discount paper accrued ratably to the date of maturity.
Expenses, including the compensation payable to Key Advisers or the Sub-Adviser,
are accrued each day. The expenses and liabilities of the Fund shall include
those appropriately allocable to the Fund as well as a share of the general
expenses and liabilities of the Victory Portfolios in proportion to the Fund's
share of the total net assets of the Victory Portfolios.
TAXES
It is the policy of the Fund to seek to qualify for the favorable tax treatment
accorded regulated investment companies ("RICs") under Subchapter M of the IRS
Code for so long as such qualification is in the best interest of its
shareholders. By following such policy and distributing its income and gains
currently with respect to each taxable year, the Fund expects to eliminate or
reduce to a nominal amount the federal income and excise taxes to which it may
otherwise be subject.
In order to qualify as a RIC, the Fund must, among other things, (1) derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies, (2) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures,
forward contracts, and certain foreign currencies (or options, futures, or
forward contracts on foreign currencies) held for less than three months, and
(3) diversify its holdings so that at the end of each quarter of its taxable
year (a) at least 50% of the market value of the fund's assets is represented by
cash or cash items, U.S. Government securities, securities of other RICs and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the fund's total assets and 10% of the outstanding
voting securities of such issuer, and (b) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities) or of two or more issuers that the Fund controls and that
are engaged in the same, similar, or related trades or businesses. These
requirements may restrict the degree to which the Fund may engage in short-term
trading and concentrate investments. If the Fund qualifies as a RIC, it will not
be subject to federal income tax on the part of its net investment income and
net realized capital gains, if any, that it distributes to shareholders with
respect to each taxable year within the time limits specified in the Code.
A non-deductible excise tax is imposed on regulated investment companies that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the year plus 98% of their capital gain net income for the 1-year
period ending on October 31 of such calendar year. The balance of such income
must be distributed during the following calendar year. If distributions during
a calendar year are less than the required amount, the fund is subject to a
non-deductible excise tax equal to 4% of the deficiency.
Certain investment and hedging activities of the Fund, including transactions in
options, futures contracts, hedging transactions, forward contracts, straddles,
foreign currencies, and foreign securities, are subject to special tax rules. In
a given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's securities, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing and character of distributions to shareholders. The Victory Portfolios
will endeavor to make any available elections pertaining to
- 18 -
<PAGE>
such transactions in a manner believed to be in the best interest of the Fund
and its shareholders.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of taxable dividends paid to any shareholder who has failed to
provide a (or has provided an incorrect) tax identification number, or is
subject to withholding pursuant to a notice from the Internal Revenue Service
for failure to properly include on his or her income tax return payments of
interest or dividends. This "backup withholding" is not an additional tax, and
any amounts withheld may be credited against the shareholder's ultimate U.S. tax
liability.
Information set forth in the Prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
No attempt has been made to present a complete explanation of the federal tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential purchasers of
shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances. In addition, the tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative, judicial
or administrative action, sometimes with retroactive effect.
TRUSTEES AND OFFICERS
BOARD OF TRUSTEES.
Overall responsibility for management of the Victory Portfolios rests with the
Trustees, who are elected by the shareholders of the Victory Portfolios. The
Victory Portfolios are managed by the Trustees in accordance with the laws of
the State of Delaware governing business trusts. There are currently seven
Trustees, six of whom are not "interested persons" of the Victory Portfolios
within the meaning of that term under the 1940 Act ("Independent Trustees"). The
Trustees, in turn, elect the officers of the Victory Portfolios to actively
supervise its day-to-day operations.
The Trustees of the Victory Portfolios, their addresses, ages and their
principal occupations during the past five years are as follows:
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Leigh A. Wilson*, 51 Trustee and From 1989 to present,
Glenleigh International Ltd. President Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas North
America and Paribas
Corporation; President
and Trustee, The Victory
Funds and the Key Mutual
Funds.
- ------------
* Mr. Wilson is deemed to be an "interested person" of the Victory Portfolios
under the 1940 Act solely by reason of his position as President.
- 19 -
<PAGE>
Position(s) Held
With the Victory Principal Occupation
Name, Address and Age Portfolios During Past 5 Years
- --------------------- ---------- -------------------
Robert G. Brown, 73 Trustee Retired; from October
5460 N. Ocean Drive 1983 to November 1990,
Singer Island President, Cleveland
Riviera Beach, FL 33404 Advanced Manufacturing
Program (non-profit
corporation engaged in
regional economic
development).
Edward P. Campbell, 46 Trustee From March 1994 to
Nordson Corporation present, Executive Vice
28601 Clemens Road President and Chief
Westlake, OH 44145 Operating Officer of
Nordson Corporation
(manufacturer of
application equipment);
from May 1988 to March
1994, Vice President of
Nordson Corporation; from
1987 to December 1994,
member of the Supervisory
Committee of Society's
Collective Investment
Retirement Fund; from May
1991 to August 1994,
Trustee, Financial
Reserves Fund and from
May 1993 to August 1994,
Trustee, Ohio Municipal
Money Market Fund;
Trustee, The Victory
Funds and the Key Mutual
Funds.
Dr. Harry Gazelle, 68 Trustee Retired radiologist, Drs.
17822 Lake Road Hill and Thomas Corp.;
Lakewood, Ohio 44107 Trustee, The Victory
Funds.
Stanley I. Landgraf, 71 Trustee Retired; currently,
41 Traditional Lane Trustee, Rensselaer
Loudonville, NY 12211 Polytechnic Institute;
Director, Elenel
Corporation and
Mechanical Technology,
Inc.; Member, Board of
Overseers, School of
Management, Rensselaer
Polytechnic Institute;
Member, The Fifty Group
(a Capital Region
business organization);
Trustee, The Victory
Funds.
Dr. Thomas F. Morrisey, 62 Trustee 1995 Visiting Scholar,
Weatherhead School of Management Bond University,
Case Western Reserve University Queensland, Australia;
10900 Euclid Avenue Professor, Weatherhead
Cleveland, OH 44106-7235 School of Management,
Case Western Reserve
University; for 1989 to
1995, Associate Dean to
Weatherhead School of
Management; from 1987 to
December 1994, Member of
the Supervisory Committee
of Society's Collective
Investment Retiremnet
Fund; from May 1991 to
August 1994, Trustee,
Financial Reserves Fund
and from May 1993 to
August 1, 1994, Trustee,
Ohio Muncipal Money
Market Fund; Trustee, The
Victory Funds.
Dr. H. Patrick Swygert, 53 Trustee President, Howard
Howard University University; formerly
2400 6th Street, N.W. President, State
Suite 320 University of New York at
Washington, D.C. 20059 Albany; formerly,
Executive Vice President,
Temple University;
Trustee, the Victory
Funds.
- 20 -
<PAGE>
The Board presently has an Investment Policy Committee and a Business, Legal,
and Audit Committee. The members of the Investment Policy Committee are Messrs.
Landgraf (Chairman), Morrissey and Brown, who will serve until August 1997. The
function of the Investment Policy Committee is to review the existing investment
policies of the Victory Portfolios, including the levels of risk and types of
funds available to shareholders, and make recommendations to the Trustees
regarding the revision of such policies or, if necessary, the submission of such
revisions to the Victory Portfolios' shareholders for their consideration. The
members of the Business, Legal and Audit Committee are Messrs. Swygert
(Chairman), Campbell and Gazelle who will serve until August 1997. The function
of the Business, Legal and Audit Committee is to recommend independent auditors
and monitor accounting and financial matters; to nominate persons to serve as
Independent Trustees and Trustees to serve on committees of the Board; and to
review compliance and contract matters.
The Investment Policy Committee met four times during the 12 months ended
October 31, 1995. The Business, Legal and Audit Committee was constituted on May
24, 1995 (and has met twice since then) and replaced the Audit Committee, the
Legal Committee and the Nominating Committee, which met three times, one time
and one time, respectively, during the 12 month period ended October 31, 1995.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS.
Effective June 1, 1995, each Trustee (other than Leigh A. Wilson) receives an
annual fee of $27,000 for serving as Trustee of all the Funds of the Victory
Portfolios, and an additional per meeting fee ($2,400 in person and $1,200 per
telephonic meeting).
Effective June 1, 1995, Leigh A. Wilson receives an annual fee of $33,000 for
serving as President and Trustee for all of the funds of the Victory Portfolios,
and an additional per meeting fee ($3,000 in person and $1,500 per telephonic
meeting).
The following table indicates the compensation received by each Trustee from the
Victory "Fund Complex"(1) for the 12 month period ended October 31, 1995.
<TABLE>
<CAPTION>
Estimated Annual Total Total Compensation
Pension or Retirement Benefits Compensation from Victory
Accrued as Portfolio Expenses Upon Retirement from Fund "Fund Complex" ^(1)
----------------------------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C>
Leigh A. Wilson, Trustee..... -0- -0- $1,036.09 $46,716.97
Robert G. Brown, Trustee..... -0- -0- 1,091.75 39,815.98
John D. Buckingham, Trustee(2) -0- -0- 489.58 18,841.89
Edward P. Campbell,Trustee.... -0- -0- 942.58 33,799.68
Harry Gazelle, Trustee....... -0- -0- 904.37 35,916.98
John W. Kemper, Trustee(2)... -0- -0- 489.58 22,567.31
Stanley I. Landgraf, Trustee.. -0- -0- 942.58 34,615.98
Thomas F. Morrissey, Trustee.. -0- -0- 942.58 40,366.98
H. Patrick Swygert, Trustee.. -0- -0- 942.58 37,116.98
John R. Young, Trustee(2).... -0- -0- 523.93 21,963.81
</TABLE>
(1) For certain Trustees, these amounts include compensation received from The
Victory Funds (which were reorganized into the Victory Portfolios as of
June 5, 1995), the Key Funds, formerly the SBSF Funds (the investment
adviser of which was acquired by KeyCorp effective April, 1995) and
Society's Collective Investment Retirement Funds, which were reorganized
into the Victory Balanced Fund and Victory Government Mortgage Fund as of
December 19, 1994. There are presently 24 mutual funds from which the
above-named Trustees are compensated in the Victory "Fund Complex," but not
all of the above-named Trustees serve on the board of each fund in the
"Fund Complex."
(2) Resigned
- 21 -
<PAGE>
OFFICERS.
The officers of the Victory Portfolios, their ages, addresses and principal
occupations during the past five years, are as follows:
POSITION(S) WITH THE PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS VICTORY PORTFOLIOS DURING PAST 5 YEARS
- ---------------------------- ---------------------- ---------------------
Leigh A. Wilson, 51 President and Trustee From 1989 to present,
Glenleigh International Ltd. Chairman and Chief
53 Sylvan Road North Executive Officer,
Westport, CT 06880 Glenleigh
International
Limited; from 1984 to
1989, Chief Executive
Officer, Paribas
North America and
Paribas Corporation;
President and Trustee
to The Victory Funds
the SBSF Funds Inc.,
dba Key Mutual Funds.
William B. Blundin, 57 Vice President Senior Vice President
BISYS Fund Services of BISYS Fund
125 West 55th Street Services ("BISYS");
New York, New York 10019 Officer of other
investment companies
administered by BISYS
; President and Chief
Executive Officer of
Vista Broker-Dealer
Services, Inc.,
Emerald Asset
Management, Inc. and
BNY Hamilton
Distributors, Inc.,
registered
broker/dealers.
J. David Huber, 50 Vice President Executive Vice
BISYS Fund Services President, BISYS .
3435 Stelzer Road
Columbus, OH 43219-3035
Scott A. Englehart, 33 Secretary From October 1990 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS .
Columbus, OH 43219-3035
George O. Martinez, 37 Assistant Secretary From March 1995 to
BISYS Fund Services present, Senior Vice
3435 Stelzer Road President and
Columbus, OH 43219-3035 Director of Legal and
Compliance Services,
BISYS ; from June
1989 to March 1995,
Vice President and
Associate General
Counsel, Alliance
Capital Management.
Kevin L. Martin , 35 Treasurer From February 1996 to
BISYS Fund Services present, employee of
3435 Stelzer Road BISYS ; From 1984 to
Columbus, OH 43219-3035 February 1996, Senior
Manager, Ernst &
Young
- 22 -
<PAGE>
The mailing address of each of the officers of the Victory Portfolios is 3435
Stelzer Road, Columbus, Ohio 43219-3035.
The officers of the Victory Portfolios (other than Leigh Wilson) receive no
compensation directly from the Victory Portfolios for performing the duties of
their offices. BISYS receives fees from the Victory Portfolios as Administrator.
As of July 1, 1996, the Trustees and officers as a group owned beneficially less
than 1% of the Fund.
ADVISORY AND OTHER CONTRACTS
INVESTMENT ADVISER AND SUB-ADVISER.
Key Advisers was organized as an Ohio corporation on July 27, 1995 and is
registered as an investment adviser under the Investment Advisers Act of 1940.
It is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc.,
which is a wholly-owned subsidiary of KeyBank National Association ("KeyBank"),
a wholly-owned subsidiary of KeyCorp. Affiliates of Key Advisers manage
approximately $48 billion for numerous clients including large corporate and
public retirement plans, Taft-Hartley plans, foundations and endowments, high
net worth individuals and mutual funds.
KeyCorp, a financial services holding company, is headquartered at 127 Public
Square, Cleveland, Ohio 44114. As of March 31, 1996, KeyCorp had an asset base
of $65 billion, with banking offices in 26 states from Maine to Alaska, and
trust and investment offices in 16 states. KeyCorp is the resulting entity of a
merger in 1994 of Society Corporation, the bank holding company of which
KeyBank, formerly Society National Bank was a wholly-owned subsidiary, and
KeyCorp, the former bank holding company. KeyCorp's major business activities
include providing traditional banking and associated financial services to
consumer, business and commercial markets. Its non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing, and leasing companies. Key Bank is the lead affiliate bank of
KeyCorp.
The following schedule lists the advisory fees for each mutual fund that is
advised by Key Advisers.
.25 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Institutional Money Market Fund
.35 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Prime Obligations Fund
Victory U.S. Government Obligations Fund
Victory Tax-Free Money Market Fund
.50 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Money Market Fund
Victory Limited Term Income Fund
Victory Government Mortgage Fund
Victory Financial Reserves Fund
Victory Fund for Income
.55 OF 1% OF AVERAGE DAILY NET ASSETS
Victory National Municipal Bond Fund
Victory Government Bond Fund
Victory New York Tax-Free Fund
- 23 -
<PAGE>
.60 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Ohio Municipal Bond Fund
Victory Stock Index Fund
.65 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Diversified Stock Fund
.75 OF 1% OF AVERAGE DAILY NET ASSETS
Victory Intermediate Income Fund
Victory Investment Quality Bond Fund
Victory Ohio Regional Stock Fund
1% OF AVERAGE DAILY NET ASSETS
Victory Balanced Fund
Victory Value Fund
Victory Growth Fund
Victory Special Value Fund
Victory Special Growth Fund
1.10% OF AVERAGE DAILY NET ASSETS
Victory International Growth Fund
Society Asset Management, Inc. serves as sub-adviser to each of these funds. For
its services under the Investment Sub-Advisory Agreement, Key Advisers pays the
Sub-Adviser sub-advisory fees at rates (based on an annual percentage of average
daily net assets) which vary according to the table set forth below.
The Investment Sub-advisory fees payable by Key Advisers to the Sub-Adviser are
as follows:
For the Victory Balanced Fund, For theVictory International Growth
Diversified Stock Fund, Growth Fund, Ohio Regional Stock Fund and
Fund, Stock Index Fund and Value Special Value Fund:
Fund:
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.65% Up to $10,000,000 0.90%
Next $15,000,000 0.50% Next $15,000,000 0.70%
Next $25,000,000 0.40% Next $25,000,000 0.55%
Above $50,000,000 0.35% Above $50,000,000 0.45%
For the Victory Intermediate Income For the Victory Prime Obligations
Fund, Investment Quality Bond Fund, Fund, Tax-Free Money Market Fund,
Limited Term Income Fund, Ohio U.S. Government Obligations
Municipal Bond Fund, Government Financial Reserves Fund,
Bond Fund, Fund, Government Institutional Money Market Fund and
Mortgage Fund, National Municipal Ohio Municipal Money Market Fund:
Bond Fund and New York Tax-Free
Fund:
- 24 -
<PAGE>
Rate of Rate of
Net Assets Sub-Advisory Fee^(1) Net Assets Sub-Advisory Fee^(1)
---------- -------------------- ---------- --------------------
Up to $10,000,000 0.40% Up to $10,000,000 0.25%
Next $15,000,000 0.30% Next $15,000,000 0.20%
Next $25,000,000 0.25% Next $25,000,000 0.15%
Above $50,000,000 0.20% Above $50,000,000 0.125%
- --------------------
(1) As a percentage of average daily net assets. Note, however, that the
Sub-Adviser shall have the right, but not the obligation, to voluntarily
waive any portion of the sub-advisory fee from time to time. Any such
voluntary waiver will be irrevocable and determined in advance of rendering
sub-investment advisory services by the Sub-Adviser, and will be in
writing.
THE INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
Unless sooner terminated, the Investment Advisory Agreement between Key Advisers
and the Victory Portfolios on behalf of the Fund (the "Investment Advisory
Agreement") provides that it will continue in effect as to the Fund for an
initial two-year term and for consecutive one-year terms thereafter, provided
that such continuance is approved at least annually by the Trustees or by vote
of a majority of the outstanding shares of the Fund (as defined under
"Additional Information Miscellaneous"), and, in either case, by a majority of
the Trustees who are not parties to the Investment Advisory Agreement or
interested persons (as defined in the 1940 Act) of any party to the Investment
Advisory Agreement, by votes cast in person at a meeting called for such
purpose.
The Investment Advisory Agreement is terminable as to the Fund at any time on 60
days' written notice without penalty by the Trustees, by vote of a majority of
the outstanding shares of the Fund, or by Key Advisers. The Investment Advisory
Agreement also terminates automatically in the event of any assignment, as
defined in the 1940 Act.
The Investment Advisory Agreement provides that Key Advisers shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the performance of services pursuant to the Investment
Advisory Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of Key Advisers
in the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Prior to January, 1993, Society served as investment adviser to the Fund. From
January, 1993 until December 31, 1995, Society Asset Management, Inc. served as
investment adviser to the Fund. For the fiscal years ended October 31, 1994 and
1995 the Adviser earned investment advisory fees of $588,378 and $1,140,267,
respectively, after fee reductions of $242,661 and $405,752, respectively.
Under the Investment Advisory Agreement, Key Advisers may delegate a portion of
its responsibilities to a sub-adviser. In addition, the Investment Advisory
Agreement provides that Key Advisers may render services through its own
employees or the employees of one or more affiliated companies that are
qualified to act as an investment adviser of the Fund and are under the common
control of KeyCorp as long as all such persons are functioning as part of an
organized group of persons, managed by authorized officers of Key Advisers
Key Advisers has entered into an investment sub-advisory agreement with its
affiliate, Society Asset Management, Inc. on behalf of the Fund. The Sub-Adviser
is a wholly-owned subsidiary of KeyCorp Asset Management Holdings, Inc. With
respect to the day to day management of the Fund, under the sub-advisory
agreement, the Sub-Adviser makes decisions concerning, and places all orders
for, purchases and sales of securities and helps maintain the records relating
to such purchases and sales. The Sub-Adviser may, in its discretion, provide
such services through its own employees or the employees of one or more
affiliated companies that are qualified to act as an investment adviser to the
Company
- 25 -
<PAGE>
under applicable laws and are under the common control of KeyCorp; provided that
(i) all persons, when providing services under the sub-advisory agreement, are
functioning as part of an organized group of persons, and (ii) such organized
group of persons is managed at all times by authorized officers of the
Sub-Adviser. The sub-advisory arrangement does not result in the payment of
additional fees by the Fund.
GLASS-STEAGALL ACT.
In 1971 the United States Supreme Court held in Investment Company Institute v.
Camp that the federal statute commonly referred to as the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act") or any non-bank affiliate thereof from sponsoring,
organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment adviser, transfer
agent, and custodian to such an investment company. In 1981 the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisers to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
From time to time, advertisements, supplemental sales literature and information
furnished to present or prospective shareholders of the Fund may include
descriptions of Key Trust Company of Ohio, N.A., Key Advisers and the
Sub-Adviser including, but not limited to, (1) descriptions of the operations of
Key Trust Company of Ohio, N.A., Key Advisers and the Sub-Adviser; (2)
descriptions of certain personnel and their functions; and (3) statistics and
rankings related to the operations of Key Trust Company of Ohio, N.A., Key
Advisers and the Sub-Adviser.
PORTFOLIO TRANSACTIONS.
Pursuant to the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, Key Advisers and the Sub-Adviser determine, subject to the general
supervision of the Trustees of the Victory Portfolios, and in accordance with
each Fund's investment objective and restrictions, which securities are to be
purchased and sold by the Fund, and which brokers are to be eligible to execute
its portfolio transactions. Purchases from underwriters and/or broker-dealers of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and/or broker-dealer and purchases from dealers serving as
market makers may include the spread between the bid and asked price. While Key
Advisers and the Sub-Adviser generally seek competitive spreads or commissions,
the Fund may not necessarily pay the lowest spread or commission available on
each transaction, for reasons discussed below.
Allocation of transactions to dealers is determined by Key Advisers or the
Sub-Adviser in their best judgment and in a manner deemed fair and reasonable to
shareholders. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price. Subject to this consideration,
dealers who provide supplemental investment research to Key Advisers or the
Sub-Adviser may receive orders for transactions by the Victory Portfolios.
Information so received is in addition to and not in lieu of services required
to be performed by Key Advisers or the Sub-Adviser and does not reduce the
investment advisory fees payable to Key Advisers by the Fund. Such information
may be useful to Key Advisers or the Sub-Adviser in serving both the Victory
Portfolios and other clients and, conversely, such supplemental research
information obtained by the placement of orders on behalf of other clients may
be useful to Key Advisers or the Sub-Adviser in carrying out its obligations to
the Victory Portfolios. In the future, the Trustees may also authorize the
allocation of brokerage to affiliated broker-dealers on an agency basis to
effect portfolio transactions. In such event, the Trustees will adopt procedures
incorporating the standards of Rule 17e-1 of the 1940 Act, which require that
the commission paid to affiliated broker-dealers must be reasonable and fair
compared to the commission, fee or other remuneration received, or to be
received, by other brokers in connection with comparable transactions
- 26 -
<PAGE>
involving similar securities during a comparable period of time. At times, the
Fund may also purchase portfolio securities directly from dealers acting as
principals, underwriters or market makers. As these transactions are usually
conducted on a net basis, no brokerage commissions are paid by the Fund.
The Victory Portfolios will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with Key Advisers, the Sub-Adviser,
Key Trust Company of Ohio, N.A. ("Key Trust") or their affiliates, or BISYS or
its affiliates, and will not give preference to Key Trust's correspondent banks
or affiliates, or BISYS with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
Investment decisions for the Fund are made independently from those made for the
other funds of the Victory Portfolios or any other investment company or account
managed by Key Advisers or the Sub-Adviser. Such other funds, investment
companies or accounts may also invest in the securities in which the Fund
invests. When a purchase or sale of the same security is made at substantially
the same time on behalf of the Fund and another fund, investment company or
account, the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Key Advisers or the Sub-Adviser
believes to be equitable to the Fund and such other fund, investment company or
account. In some instances, this investment procedure may affect the price paid
or received by the Fund or the size of the position obtained by the Fund in an
adverse manner relative to the result that would have been obtained if only the
Fund had participated in or been allocated such trades. To the extent permitted
by law, Key Advisers or the Sub-Adviser may aggregate the securities to be sold
or purchased for the Fund with those to be sold or purchased for the other funds
of the Victory Portfolios or for other investment companies or accounts in order
to obtain best execution. In making investment recommendations for the Victory
Portfolios, Key Advisers and the Sub-Adviser will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale by
the Fund is a customer of Key Advisers or the Sub-Adviser, their parents or
subsidiaries or affiliates and, in dealing with their commercial customers, Key
Advisers or the Sub-Adviser, their parents, subsidiaries, and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Victory Portfolios.
In the fiscal years ended October 31, 1994 and 1995, the Fund paid $118,986 and
$224,350, respectively, in brokerage commissions.
PORTFOLIO TURNOVER. The turnover rate stated in the Prospectus for the Fund's
investment portfolio is calculated by dividing the lesser of the Fund's
purchases or sales of portfolio securities for the year by the monthly average
value of the portfolio securities. The calculation excludes all securities whose
maturities, at the time of acquisition, were one year or less. In the fiscal
years ended October 31, 1995 and the period from December 3, 1993 through
October 31, 1994, the Fund's portfolio turnover rates were 38.57% and 17.90%,
respectively.
ADMINISTRATOR.
As of July 1, 1996, BISYS Fund Services ("BISYS") serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the Fund (other than those performed by Key Advisers or the
Sub-Adviser under the Investment Advisory Agreement and Sub-Investment Advisory
Agreement). The Winsbury Company ("Winsbury") served as the Fund's administrator
prior to June 5, 1995 Winsbury was succeeded by Concord Holding Corporation on
that date. Both entities are affiliated with BISYS.
BISYS receives a fee from the Fund for its services as Administrator and
expenses assumed pursuant to the Administration Agreements, calculated daily and
paid monthly, at the annual rate of fifteen one hundredths of one percent (.15%)
of the Fund's average daily net assets. BISYS may periodically waive all or a
portion of its fee with respect to the Fund.
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Fund for a period of two years, and for consecutive one-year terms
thereafter, provided that such continuance is ratified at least annually by the
Trustees or by vote of a majority of the outstanding shares of the Fund, and in
either case by a majority of the Trustees who are not parties to the
Administration Agreement or interested persons (as defined in the 1940 Act) of
any party to the
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Administration Agreement, by votes cast in person at a meeting called for such
purpose.
The Administration Agreement provides that BISYS shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Victory
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or from the reckless disregard by
it of its obligations and duties thereunder.
Under the Administration Agreement, BISYS assists in the Fund's administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
arranging for the maintenance of books and records and providing the office
facilities necessary to carry out the duties thereunder. Under the
Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
In the period from December 31, 1993 through October 31, 1994 and the fiscal
year ended October 31, 1995, the Administrator earned aggregate administration
fees of $115,967, and $231,340, respectively, after fee reductions of $8,689 and
$1,000, respectively.
DISTRIBUTOR.
BISYS Fund Services, Inc. serves as distributor (the "Distributor") for the
continuous offering of the shares of the Fund pursuant to a Distribution
Agreement between the Distributor and the Victory Portfolios. Prior to May 31,
1995, Winsbury served as distributor of the Fund. Unless otherwise terminated,
the Distribution Agreement will remain in effect with respect to the Fund for
two years, and thereafter for consecutive one-year terms, provided that it is
approved at least annually (1) by the Trustees or by the vote of a majority of
the outstanding shares of the Fund, and (2) by the vote of a majority of the
Trustees of the Victory Portfolios who are not parties to the Distribution
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement
will terminate in the event of its assignment, as defined under the 1940 Act.
For the Victory Portfolios' fiscal year ended October 31, 1994 Winsbury earned
$212,021 in underwriting commissions, and retained $15; for the fiscal year
ended October 31, 1995, the Distributor earned $721,000 in underwriting
commissions, and retained $107,000.
TRANSFER AGENT.
State Street Bank and Trust Company ("State Street") serves as transfer agent
for the Fund. Boston Financial Data Services, Inc. ("BFDS") serves as the
dividend disbursing agent and shareholder servicing agent for the Fund, pursuant
to a Transfer Agency and Service Agreement. Under its agreement with the Victory
Portfolios, State Street has agreed (1) to issue and redeem shares of the
Victory Portfolios; (2) to address and mail all communications by the Victory
Portfolios to its shareholders, including reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of shareholders; (3)
to respond to correspondence or inquiries by shareholders and others relating to
its duties; (4) to maintain shareholder accounts and certain sub-accounts; and
(5) to make periodic reports to the Trustees concerning the Victory Portfolios'
operations.
SHAREHOLDER SERVICING PLAN.
Payments made under the Shareholder Servicing Plan to Shareholder Servicing
Agents (which may include affiliates of the Adviser and Sub- Adviser) are for
administrative support services to customers who may from time to time
beneficially own shares, which services may include: (1) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (2) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(3) processing dividend and distribution payments on behalf of customers; (4)
providing information periodically to customers showing their positions in
shares; (5) arranging for bank wires; (6) responding to customer inquiries; (7)
providing subaccounting with respect to shares beneficially owned by customers
or providing
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the information to the Fund as necessary for subaccounting; (8) if required by
law, forwarding shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (9) forwarding to customers proxy statements and
proxies containing any proposals regarding this Plan; and (10) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules or regulations.
CLASS B SHARES DISTRIBUTION PLAN.
The Victory Portfolios has adopted a Distribution Plan for Class B shares of the
Fund under Rule 12b-1 of the 1940 Act. The Distribution Plan adopted by the
Trustees with respect to the Class B shares of the Fund provides that the Fund
will pay the Distributor a distribution fee under the Plan at the annual rate of
0.75% of the average daily net assets of the Fund attributable to the Class B
shares. The distribution fees may be used by the Distributor for: (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs involved
in preparing, printing and distributing sales literature pertaining to the Fund;
(c) an allocation of overhead and other branch office distribution-related
expenses of the Distributor; (d) payments to persons who provide support
services in connection with the distribution of the Fund's Class B shares,
including but not limited to, office space and equipment, telephone facilities,
answering routine inquiries regarding the Fund, processing shareholder
transactions and providing any other shareholder services not otherwise provided
by the Victory Portfolios' transfer agent; (e) accruals for interest on the
amount of the foregoing expenses that exceed the distribution fee and the CDSCs
received by the Distributor; and (f) any other expense primarily intended to
result in the sale of the Fund's Class B shares, including, without limitation,
payments to salesmen and selling dealers at the time of the sale of Class B
shares, if applicable, and continuing fees to each such salesmen and selling
dealers, which fee shall begin to accrue immediately after the sale of such
shares.
The amount of the Distribution Fees payable by any Fund under the Distribution
Plan is not related directly to expenses incurred by the Distributor and the
Distribution Plan does not obligate the Fund to reimburse the Distributor for
such expenses. The Distribution Fees set forth in the Distribution Plan will be
paid by the Fund to the Distributor unless and until the Plan is terminated or
not renewed with respect to the Fund; any distribution or service expenses
incurred by the Distributor on behalf of the Fund in excess of payments of the
Distribution Fees specified above which the Distributor has accrued through the
termination date are the sole responsibility and liability of the Distributor
and not an obligation of the Fund.
The Distribution Plan for the Class B shares specifically recognizes that either
Key Advisers, the Sub-Adviser or the Distributor, directly or through an
affiliate, may use its fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection with
the offer and sale of shares of the Fund. In addition, the Plan provides that
Key Advisers, the Sub-Adviser and the Distributor may use their respective
resources, including fee revenues, to make payments to third parties that
provide assistance in selling the Fund's Class B shares, or to third parties,
including banks, that render shareholder support services.
The Distribution Plan was approved by the Trustees, including the Independent
Trustees, at a meeting called for that purpose. As required by Rule 12b-1, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that there
is a reasonable likelihood that the Plan will benefit the Fund and its Class B
shareholders. To the extent that the Plan gives Key Advisers, the Sub-Adviser or
the Distributor greater flexibility in connection with the distribution of Class
B shares of the Fund, additional sales of the Fund's Class B shares may result.
Additionally, certain Class B shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have other
relationships.
FUND ACCOUNTANT.
BISYS Fund Services Ohio, Inc. ("BISYS, Inc.") serves as fund accountant for the
Fund pursuant to a fund accounting agreement with the Victory Portfolios dated
June 5, 1995 (the "Fund Accounting Agreement"). As fund accountant for the
Victory Portfolios, BISYS, Inc. calculates the Fund's net asset value, the
dividend and capital gain distribution, if any, and the yield. BISYS, Inc. also
provides a current security position report, a summary report of transactions
and pending maturities, a current cash position report, and maintains the
general
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<PAGE>
ledger accounting records for the Fund. Under the Fund Accounting Agreement,
BISYS, Inc. is entitled to receive annual fees of .03% of the first $100 million
of the Fund's daily average net assets, .02% of the next $100 million of the
Fund's daily average net assets, and .01% of the Fund's remaining daily average
net assets. These annual fees are subject to a minimum monthly assets charge of
$2,500 per taxable fund, and does not include out-of-pocket expenses or multiple
class charges of $833 per month assessed for each class of shares after the
first class. For the fiscal years ended October 31, 1994 and October 31, 1995,
the fund accountant earned fund accounting fees of $52,627 and $75,514,
respectively.
CUSTODIAN.
Cash and securities owned by the Fund are held by Key Trust as custodian. Key
Trust serves as custodian to the Fund pursuant to a Custodian Agreement dated
May 24, 1995. Under this Agreement, Key Trust (1) maintains a separate account
or accounts in the name of the Fund; (2) makes receipts and disbursements of
money on behalf of the Fund; (3) collects and receives all income and other
payments and distributions on account of portfolio securities; (4) responds to
correspondence from security brokers and others relating to its duties; and (5)
makes periodic reports to the Trustees concerning the Victory Portfolios'
operations. Key Trust may, with the approval of the Victory Portfolios and at
the custodian's own expense, open and maintain a sub-custody account or accounts
on behalf of the Fund, provided that Key Trust shall remain liable for the
performance of all of its duties under the Custodian Agreement.
INDEPENDENT ACCOUNTANTS.
The unaudited financial statements for the period ended April 30, 1996 and the
audited financial statements for the fiscal year ended October 31, 1995 are
incorporated by reference herein. The audited financial statements for the
fiscal year ended October 31, 1995 have been audited by Coopers & Lybrand L.L.P.
as set forth in their report incorporated by reference herein, and are included
in reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P. serves as the Victory
Portfolios' auditors. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
LEGAL COUNSEL.
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022 is
the counsel to the Victory Portfolios.
EXPENSES.
The Fund bears the following expenses relating to its operations: taxes,
interest, brokerage fees and commissions, fees of the Trustees, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to current
shareholders, outside auditing and legal expenses, advisory and administration
fees, fees and out-of-pocket expenses of the custodian and transfer agent,
certain insurance premiums, costs of maintenance of the fund's existence, costs
of shareholders' reports and meetings, and any extraordinary expenses incurred
in the Fund's operation.
If total expenses borne by the Fund in any fiscal year exceeds expense
limitations imposed by applicable state securities regulations, Key Advisers or
the Administrator will waive their fees to the extent such excess expenses
exceed such expense limitation in proportion to their respective fees. As of the
date of this Statement of Additional Information, the most restrictive expense
limitation applicable to the Fund limits its aggregate annual expenses,
including management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2.5% of the first $30 million of its
average net assets, 2.0% of the next $70 million of its average net assets, and
1.5% of its remaining average net assets. Any expenses to be borne by Key
Advisers or the Administrator will be estimated daily and reconciled and paid on
a monthly basis. Fees imposed upon customer accounts by Key Advisers, the
Sub-Adviser, Key Trust Company of Ohio, N.A. or its correspondents, affiliated
banks and other non-bank affiliates for cash management services are not fund
expenses for purposes of any such expense limitation.
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<PAGE>
ADDITIONAL INFORMATION
DESCRIPTION OF SHARES.
The Victory Portfolios (sometimes referred to as the "Trust") is a Delaware
business trust. The Delaware Trust Instrument authorizes the Trustees to issue
an unlimited number of shares, which are units of beneficial interest, without
par value. The Victory Portfolios presently has twenty-four series of shares,
which represent interests in the U.S. Government Obligations Fund, the Prime
Obligations Fund, the Tax-Free Money Market Fund, the Balanced Fund, the Stock
Index Fund, the Value Fund, the Diversified Stock Fund, the Growth Fund, the
Special Value Fund, the Special Growth Fund, the Ohio Regional Stock Fund, the
International Growth Fund, the Limited Term Income Fund, the Government Mortgage
Fund, the Ohio Municipal Bond Fund, the Intermediate Income Fund, the Investment
Quality Bond Fund, the Government Bond Fund, the Fund for Income, the National
Municipal Bond Fund, the New York Tax-Free Fund, the Institutional Money Market
Fund, the Financial Reserves Fund and the Ohio Municipal Money Market Fund,
respectively. The Victory Portfolios' Declaration of Trust authorizes the
Trustees to divide or redivide any unissued shares of the Victory Portfolios
into one or more additional series by setting or changing in any one or more
aspects their respective preferences, conversion or other rights, voting power,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption.
Shares have no subscription or preemptive rights and only such conversion or
exchange rights as the Trustees may grant in their discretion. When issued for
payment as described in the Prospectus and this Statement of Additional
Information, the Victory Portfolios' shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Victory
Portfolios, shares of a fund are entitled to receive the assets available for
distribution belonging to the fund, and a proportionate distribution, based upon
the relative asset values of the respective funds, of any general assets not
belonging to any particular fund which are available for distribution.
As of July 1, 1996, the Fund believes that SNBOC and Company was shareholder of
record of 95.83%, of the outstanding Class A shares of the Fund, but did not
hold such shares beneficially. The following shareholders beneficially owned 5%
or more of the outstanding shares of the Fund as of July 1, 1996:
Number of Shares % of Shares
Outstanding Outstanding
----------- -----------
Class A
- -------
KeyCorp Cash Balance Plan 2,520,377.98 33.56%
Human Resources
127 Public Square
Cleveland, OH 44114
Class B
- -------
KeyBank C/F 3,079.71 23.45%
IRA of Jeffrey L. Ufford
22315 Berry Drive
Rody River, Ohio 44116
KeyBank C/F 1,832.44 13.95%
Sep IRA of Jack K.
Rockh___
1487 Glenking Lane
Alliance, Ohio 44601
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<PAGE>
Lawrence J. Dupont 1,464.03 11.15%
Eleanor H. Dupont
Jt Tenant
6 James Street
Farmingdale, ME 04344
First Assembly of God 1,241.93 9.46%
Daniel Wood, President
1370 Richmond Road
Lyndhurst, Ohio 44124
Keith M. Civil 1,128.78 8.60%
7 Baker Road
Marcellus, NY 13108
Walter W. Byam 935.08 7.12%
Adam Byam JTWROS
164 Stafford Avenue
Syracuse, NY 13206
Joseph Rey 665.22 5.07%
222 Lynnhaven Drive
Syracuse, NY 13212
Shares of the Victory Portfolios are entitled to one vote per share (with
proportional voting for fractional shares) on such matters as shareholders are
entitled to vote. Shareholders vote as a single class on all matters except (1)
when required by the 1940 Act, shares shall be voted by individual series, and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series, then only shareholders of such series shall be entitled
to vote thereon. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees have been elected by the shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
Trustees. A meeting shall be held for such purpose upon the written request of
the holders of not less than 10% of the outstanding shares. Upon written request
by ten or more shareholders meeting the qualifications of Section 16(c) of the
1940 Act, (i.e., persons who have been shareholders for at least six months, and
who hold shares having a net asset value of at least $25,000 or constituting 1%
of the outstanding shares) stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Victory
Portfolios will provide a list of shareholders or disseminate appropriate
materials (at the expense of the requesting shareholders). Except as set forth
above, the Trustees shall continue to hold office and may appoint their
successors.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of an investment company
such as the Victory Portfolios shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each fund of the Victory Portfolios affected by the matter. For
purposes of determining whether the approval of a majority of the outstanding
shares of a fund will be required in connection with a matter, a fund will be
deemed to be affected by a matter unless it is clear that the interests of each
fund in the matter are identical, or that the matter does not affect any
interest of the fund. Under Rule 18f-2, the approval of an investment advisory
agreement or any change in investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
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<PAGE>
of such fund. However, Rule 18f-2 also provides that the ratification of
independent accountants, the approval of principal underwriting contracts, and
the election of Trustees may be effectively acted upon by shareholders of the
Victory Portfolios voting without regard to series.
SHAREHOLDER AND TRUSTEE LIABILITY .
The Victory Portfolios converted to a Delaware business trust from a
Massachusetts business trust on February 29, 1996. The Delaware Business Trust
Act provides that a shareholder of a Delaware business trust shall be entitled
to the same limitation of personal liability extended to shareholders of
Delaware corporations, and the Delaware Trust Instrument provides that
shareholders of the Victory Portfolios shall not be liable for the obligations
of the Victory Portfolios. The Delaware Trust Instrument also provides for
indemnification out of the trust property of any shareholder held personally
liable solely by reason of his or her being or having been a shareholder. The
Delaware Trust Instrument also provides that the Victory Portfolios shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Victory Portfolios, and shall satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is considered to be extremely remote.
The Delaware Trust Instrument states further that no Trustee, officer, or agent
of the Victory Portfolios shall be personally liable in connection with the
administration or preservation of the assets of the Funds or the conduct of the
Victory Portfolios' business; nor shall any Trustee, officer, or agent be
personally liable to any person for any action or failure to act except for his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. The Declaration of Trust also provides that all persons having any
claim against the Trustees or the Victory Portfolios shall look solely to the
assets of the Victory Portfolios for payment.
MISCELLANEOUS.
As used in the Prospectus and in this Statement of Additional Information,
"assets belonging to a fund" (or "assets belonging to the Fund") means the
consideration received by the Victory Portfolios upon the issuance or sale of
shares of a fund (or the Fund), together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds and any general assets of the
Victory Portfolios, which general liabilities and expenses are not readily
identified as belonging to a particular fund (or the Fund) that are allocated to
that fund (or the Fund) by the Trustees. The Trustees may allocate such general
assets in any manner they deem fair and equitable. It is anticipated that the
factor that will be used by the Trustees in making allocations of general assets
to a particular fund of the Victory Portfolios will be the relative net asset
value of each respective fund at the time of allocation. Assets belonging to a
particular fund are charged with the direct liabilities and expenses in respect
of that fund, and with a share of the general liabilities and expenses of each
of the funds not readily identified as belonging to a particular fund, which are
allocated to each fund in accordance with its proportionate share of the net
asset values of the Victory Portfolios at the time of allocation. The timing of
allocations of general assets and general liabilities and expenses of the
Victory Portfolios to a particular fund will be determined by the Trustees and
will be in accordance with generally accepted accounting principles.
Determinations by the Trustees as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular fund are conclusive.
As used in the Prospectus and in this Statement of Additional Information, a
"vote of a majority of the outstanding shares" of the Fund means the affirmative
vote of the lesser of (a) 67% or more of the shares of the Fund present at a
meeting at which the holders of more than 50% of the outstanding shares of the
Fund are represented in person or by proxy, or (b) more than 50% of the
outstanding shares of the Fund.
The Victory Portfolios is registered with the Commission as an open-end
management investment company. Such registration does not involve supervision by
the Commission of the management or policies of the Victory Portfolios.
The Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the Commission.
Copies of such information may be obtained from the Commission upon payment of
the prescribed fee.
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THE PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION ARE NOT AN OFFERING
OF THE SECURITIES HEREIN DESCRIBED IN ANY STATE IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO SALESMAN, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THE
PROSPECTUS AND THIS STATEMENT OF ADDITIONAL INFORMATION.
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APPENDIX
DESCRIPTION OF SECURITY RATINGS.
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by Key Advisers or the Sub-Adviser with regard to
portfolio investments for the Funds include Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), Duff & Phelps, Inc.
("Duff"), Fitch Investors Service, Inc. ("Fitch"), IBCA Limited and its
affiliate, IBCA Inc. (collectively, "IBCA"), and Thomson BankWatch, Inc.
("Thomson"). Set forth below is a description of the relevant ratings of each
such NRSRO. The NRSROs that may be utilized by Key Advisers or the Sub-Adviser
and the description of each NRSRO's ratings is as of the date of this Statement
of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds).
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (e.g., 1, 2, and 3) in each rating category to
indicate the security's ranking within the category):
Aaa. Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements - their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Description of the five highest long-term debt ratings by S&P (S&P may apply a
plus (+) or minus (-) to a particular rating classification to show relative
standing within that classification):
AAA. Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
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<PAGE>
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB. Debt rated BB is regarded, on balance, as predominately speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposure to adverse conditions.
Description of the three highest long-term debt ratings by Duff:
AAA. Highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury debt.
AA+.High credit quality Protection factors are strong.
AA.Risk is modest but may vary slightly from time to time
AA-.because of economic conditions.
A+.Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Description of the three highest long-term debt ratings by Fitch (plus or minus
signs are used with a rating symbol to indicate the relative position of the
credit within the rating category):
AAA. Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issues is generally rated "[-]+."
A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
IBCA's description of its three highest long-term debt ratings:
AAA. Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
significantly.
AA. Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly.
A. Obligations for which there is a low expectation of investment risk. Capacity
for timely repayment of principal and interest is strong, although adverse
changes in business, economic or financial conditions may lead to increased
investment risk.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit).
- 36 -
<PAGE>
Moody's description of its three highest short-term debt ratings:
Prime-1. Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2. Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3. Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1. This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to have extremely strong safety
characteristics are denoted with a plus sign (+).
A-2. Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3. Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
Duff's description of its five highest short-term debt ratings (Duff
incorporates gradations of "1+" (one plus) and "1-" (one minus) to assist
investors in recognizing quality differences within the highest rating
category):
Duff 1+. Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
Duff 1. Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1-. High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2. Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Duff 3. Satisfactory liquidity and other protection factors qualify issue as to
investment grade.
- 37 -
<PAGE>
Risk factors are larger and subject to more variation. Nevertheless, timely
payment is expected.
Fitch's description of its four highest short-term debt ratings:
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ or F-1 ratings.
F-3. Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
IBCA's description of its three highest short-term debt ratings:
A+. Obligations supported by the highest capacity for timely
repayment.
A1. Obligations supported by a very strong capacity for timely repayment.
A2. Obligations supported by a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
SHORT-TERM LOAN/MUNICIPAL NOTE RATINGS
Moody's description of its two highest short-term loan/municipal note ratings:
MIG-1/VMIG-1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2/VMIG-2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
S&P's description of its two highest municipal note ratings: SP-1. Very strong
or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+)
designation.
SP-2. Satisfactory capacity to pay principal and interest.
SHORT-TERM DEBT RATINGS
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative and
quantitative analysis of all segments of the organization including, where
applicable, holding company and operating subsidiaries.
BankWatch Ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior short-term
obligations and deposit obligations of the entities to which the rating has been
assigned.
The TBW Short-Term Ratings apply only to unsecured instruments that have a
maturity of one year or less.
- 38 -
<PAGE>
The TBW Short-Term Ratings specifically assess the likelihood of an untimely
payment of principal or interest.
TBW-1. The highest category; indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2. The second highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3. The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest in a
timely fashion is considered adequate.
TBW-4. The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as
to payment of principal and interest by the full faith and credit
of the U.S. Government. These obligations may include Treasury
bills, notes and bonds, and issues of agencies and
instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest
by the full faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations issued by agencies and instrumentalities of the U.S. Government
include such agencies and instrumentalities as the Government National Mortgage
Association, the Export-Import Bank of the United States, the Tennessee Valley
Authority, the Farmers Home Administration, the Federal Home Loan Banks, the
Federal Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal
Land Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Export-Import Bank of
the United States, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Student Loan
Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. A Fund will invest in the obligations of such instrumentalities
only when the investment adviser believes that the credit risk with respect to
the instrumentality is minimal.
- 39 -
<PAGE>
THE VICTORY PORTFOLIOS
Registration Statement
of
THE VICTORY PORTFOLIOS
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
-- Condensed Financial Information.
Included in Part B:
-- Unaudited financial reports for the period ended April 30, 1996.
(b) Exhibits:
EX-99.B1 (a) Delaware Trust Instrument dated December 6, 1995 is incorporated
herein by reference to as Exhibit 99B.1(a) to Post-Effective
Amendment No. 26 to the Registrant's Registration Statement on
Form N-1A filed on December 28, 1995.
EX-99.B2 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 on December
28, 1995.
EX-99.B3 None.
EX-99.B4 None.
EX-99.B5 (a) Investment Advisory Agreement dated as of January 1, 1996,
between the Registrant and KeyCorp Mutual Fund Advisers, Inc. is
incorporated herein by reference to Exhibit 99.B5(a) to
Post-Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A filed on January 31, 1996.
(b) Investment Sub-Advisory Agreement between KeyCorp Mutual Fund
Advisers, Inc. and Society Asset Management, Inc. dated as of
January 1, 1996, is incorporated herein by reference to Exhibit
99.B5(b) to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A filed on January 31, 1996.
<PAGE>
THE VICTORY PORTFOLIOS
EX-99.B6 (a) Distribution Agreement dated June 1, 1996 between the Registrant
and BISYS Fund Services Limited Partnership is filed herewith.
(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 on
January 31, 1996.
EX-99.B7 None.
EX-99.B8 (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.
(b) Institutional Custody and Clearance Agreement dated October 30,
1995 by and between The Bank of New York and Key Services
Corporation is incorporated herein by reference to Exhibit
99.B8(b) to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A filed on January 31, 1996.
(c) Custody Agreement dated May 31, 1996 between Morgan Stanley Trust
Company and Key Trust Company of Ohio is filed herewith.
EX-99.B9 (a) Administration Agreement dated June 1, 1996 between the
Registrant and BISYS Fund Services Limited Partnership is filed
herewith.
(b) Transfer Agency and Service Agreement dated July 12, 1996 between
the Registrant and State Street Bank and Trust Company is filed
herewith.
(c) Fund Accounting Agreement dated May 31, 1995 between the
Registrant and BISYS Fund Services Ohio, Inc., and Schedule A
thereto, are incorporated herein by reference to Exhibit 9(d) to
Post-Effective Amendment No. 22 to the Registrant's Registration
Statement on Form N-1A filed on August 28, 1995.
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<PAGE>
THE VICTORY PORTFOLIOS
(d) Shareholder Servicing Plan dated June 5, 1995 with an amended
Schedule I dated February 1, 1996 is incorporated herein by
reference to Exhibit 99.B8(d) to Post-Effective Amendment No. 27
to the Registrant's Registration Statement on Form N-1A filed on
January 31, 1996.
(e) Form of Shareholder Servicing Agreement is incorporated herein by
reference to Exhibit 99.B8(e) to Post-Effective Amendment No. 26
to the Registrant's Registration Statement on Form N-1A filed on
December 28, 1995.
(f) Business Management Agreement dated January 1, 1996 between
KeyCorp Mutual Fund Advisers, Inc. and Society Asset Management,
Inc. is filed herewith.
EX-99.B10 (a) Opinion of Counsel was filed with Registrant's Rule 24f-2 Notice
in respect of the period ending October 31, 1995, submitted on
December 28, 1995.
EX-99.B11 (a) Consent of Kramer, Levin, Naftalis & Frankel is filed herewith.
(b) Consent of Coopers & Lybrand L.L.P. is filed herewith.
EX-99.B12 (a) Audited financial report for the period ended October 31, 1995 is
incorporated herein by reference to Exhibit 99.B12 to
Post-Effective Amendment No. 25 to the Registrant's Registration
Statement on Form N-1A filed on December 28, 1995.
(b) Unaudited financial statements for the period ended April 30,
1996 are filed herewith.
EX-99.B13 (a) Purchase Agreement dated November 12, 1986 between Registrant and
Physicians Insurance Company of Ohio is incorporated herein by
reference to Exhibit 13 to Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A filed on
November 13, 1986.
(b) Purchase Agreement dated October 15, 1989 is incorporated herein
by reference to Exhibit 13(b) to Post-Effective Amendment No. 7
to the Registrant's Registration Statement on Form N-1A filed on
December 1, 1989.
(c) Purchase Agreement is incorporated herein by reference to Exhibit
13(c) to Post-Effective Amendment No. 7 to the Registrant's
Registration Statement on Form N-1A filed on December 1, 1989.
EX-99.B14 None.
EX-99.B15 (a) Distribution and Service Plan dated June 5, 1995 for The Victory
Portfolios Class A Shares of Government Bond Fund, National
Municipal Bond Fund, New York Tax-Free Fund, Fund for Income,
Financial Reserves Fund, Institutional Money Market Fund and Ohio
Municipal Money Market Fund is
C-3
<PAGE>
THE VICTORY PORTFOLIOS
incorporated by reference to Exhibit 15(a) to Post-Effective
Amendment No. 22 to the Registrant's Registration Statement on
Form N-1A filed on August 28, 1995.
(b) Distribution Plan dated June 5, 1995 for Class B Shares of
National Municipal Bond Fund, Government Bond Fund and New York
Tax-Free Fund and adopted December 6, 1995 for Class B Shares of
Balanced Fund, Diversified Stock Fund, International Growth Fund,
Ohio Regional Stock Fund, Special Value Fund, Institutional Money
Market Fund and U.S. Government Obligations Fund is incorporated
by reference to Exhibit 99.B15(b) to Post-Effective Amendment No.
22 to the Registrant's Registration Statement on Form N-1A filed
on August 28, 1995, and the updated schedule thereto dated
December 6, 1995 is incorporated by reference to Exhibit 99B(b)
to Post-Effective Amendment No. 27 to the Registrant's
Registration Statement on Form N-1A filed on January 31, 1996.
EX-99.B16 (a) Forms of computation of performance quotation are incorporated
herein by reference to Exhibit 16 to Post-Effective Amendment No.
19 to the Registrant's Registration Statement on Form N-1A filed
on December 23, 1994.
(b) Forms of computation of performance quotation for the Balanced
Fund, Diversified Stock Fund, International Growth Fund, Ohio
Regional Stock Fund and Special Value Fund are filed herewith.
99.B17 (a) Financial Data Schedules for the period ended October 31, 1995
are incorporated herein by reference to Exhibit 99.B(17) to
Post-Effective Amendment No. 27 to the Registration Statement on
Form N-1A filed on January 31, 1996.
(b) Financial Data Schedules for the period ended April 30, 1996 are
filed herewith as Exhibit 27.
99.B18 (a) Rule 18f-3 Multi-Class Plan adopted effective June 5, 1995 is
incorporated by reference to Exhibit 17 to Post-Effective
Amendment No. 22 to the Registrant's Registration Statement on
Form N-1A filed on August 28, 1995.
(b) Amended and Restated Rule 18f-3 Multi-Class Plan effective as of
December 6, 1995 is incorporated herein by reference to Exhibit
99.B18(b) to Post-Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A filed on December 28, 1995.
(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 February 28, 1996.
C-4
<PAGE>
THE VICTORY PORTFOLIOS
99.B19 (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 on January 31, 1996 and
December 28, 1995, respectively.
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of July 15, 1996 the number of record holders of each Fund of the
Registrant were as follows:
Number of
Title of Fund Record Holders
------------- --------------
U.S. Government Obligations Fund
Select Class Shares 221
Investor Class Shares 3
Prime Obligations Fund 1,024
Tax Free Money Market Fund 71
Balanced Fund
Class A Shares 1,072
Class B Shares 89
Key Shares 0
Stock Index Fund 126
Value Fund 76
Diversified Stock Fund
Class A Shares 5,817
Class B Shares 337
Growth Fund 312
Special Value Fund
Class A Shares 1,270
Class B Shares 22
C-5
<PAGE>
THE VICTORY PORTFOLIOS
Special Growth Fund 105
Ohio Regional Stock Fund
Class A Shares 1,071
Class B Shares 53
International Growth Fund
Class A Shares 1,161
Class B Shares 27
Limited Term Income Fund 292
Government Mortgage Fund 264
Ohio Municipal Bond Fund 255
Intermediate Income Fund 69
Investment Quality Bond Fund 354
Florida Tax-Free Bond Fund 0
Municipal Bond Fund 0
Convertible Securities Fund 0
Short-Term U.S. Government 0
Financial Reserves Fund 95
Fund For Income 1,329
Government Bond Fund
Class A Shares 144
Class B Shares 69
Institutional Money Market Fund
Investor Class Shares 19
Select Class Shares 13
National Municipal Bond Fund
Class A Shares 774
Class B Shares 42
C-6
<PAGE>
THE VICTORY PORTFOLIOS
New York Tax-Free Fund
Class A Shares 460
Class B Shares 89
Ohio Municipal Money Market Fund 119
Item 27. Indemnification
Article X, Section 10.02 of the Registrant's Delaware Trust
Instrument, incorporated herein as Exhibit 99.B1(a) 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-7
<PAGE>
THE VICTORY PORTFOLIOS
(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 Fund'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 6(a) hereto, Section 28 of the Custody Agreement incorporated
by reference as Exhibit 8(a) hereto, Section 5 of the Fund Accounting
Agreement incorporated by reference as Exhibit 9(c) hereto, and
Section 7 of the Transfer Agency Agreement incorporated by reference
as Exhibit 9(b) hereto. Registrant has obtained from a major insurance
carrier a trustees' and officers' 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 or 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
C-8
<PAGE>
THE VICTORY PORTFOLIOS
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 Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
KeyCorp Mutual Fund Advisers, Inc. ("Key Advisers") is the investment
adviser to each fund of the Victory Portfolios. Key Advisers is a
wholly-owned indirect subsidiary of KeyCorp, a bank holding company
which had total assets of approximately $65 billion as of March 31,
1996. KeyCorp is a leading financial institution doing business in 26
states from Maine to Alaska, providing a full array of trust,
commercial, and retail banking services. Its non-bank subsidiaries
include investment advisory, securities brokerage, insurance, bank
credit card processing, mortgage and leasing companies. Society Asset
Management, Inc. ("Society"), an affiliate of Key Advisers, is the
sub-adviser of each of the funds (other than Special Growth Fund and
Fund for Income). Key Advisers, Society and their affiliates have over
$48 billion in assets under management, and provide a full range of
investment management services to personal and corporate clients.
To the knowledge of Registrant, none of the directors or officers of
Key Advisers or Society, except those set forth below, is or has been
at any time during the past two calendar years engaged in any other
business, profession, vocation or employment of a substantial nature,
except that certain directors and officers of Key Advisers and Society
also hold positions with KeyCorp or its subsidiaries.
The principal executive officers and directors of Key Advisers are as
follows:
W. Christopher Maxwell, Director, Chairman and Chief Executive
Officer. Also Executive Vice President of KeyCorp Management Company
("KMC").
Kathleen A. Dennis, Director and President. Also Senior Vice President
of KMC.
Martin J. Walker, Director. Also Chairman, President and Chief
Executive Officer of Society and Executive Vice President of KeyCorp.
James W. Wert, Director. Also Senior Executive Vice President and
Chief Investment Officer of KeyCorp.
William G. Spears, Director. Also Chairman, Chief Executive Officer
and Managing Director of Spears, Benzak, Salomon and Farrell, Inc.
("SBSF")
C-9
<PAGE>
THE VICTORY PORTFOLIOS
Linda A. Grandstaff, Director. Also Executive Vice President,
Commercial and International Services Group of KeyCorp.
Richard B. Ainsworth, Jr., Director. Also Executive Vice President of
Key Trust Company of Ohio, National Association.
Robert G. Jones, Director. Also Executive Vice President, Community
Banking, of KeyCorp.
Jack L. Kopnisky, Director. Also President, Key Investments, Inc.
John M. Keane, Vice President and Treasurer. Also Vice President, KMC.
Ann Kowal Smith, Secretary. Also Vice President and Senior Counsel of
KMC.
Charles G. Crane, Senior Vice President and Senior Managing Director.
Also Senior Vice President and Managing Director of SBSF.
Dennis M. Grapo, Senior Vice President and Senior Managing Director.
Also Senior Vice President and Senior Managing Director of Society.
Frank J. Riccardi, Senior Vice President and Senior Managing Director.
Also Senior Vice President and Senior Managing Director of Society.
Anthony Aveni, Senior Vice President and Senior Managing Director.
Also Senior Vice President and Senior Managing Director of Society.
The business address of each of the foregoing individuals is 127 Public
Square, Cleveland, Ohio 44114.
The principal executive officers and directors of Society are as
follows:
Directors:
Martin J. Walker, also Chairman, President and Chief Executive Officer
of Society and Executive Vice President of KeyCorp.
James W. Wert, also Senior Executive Vice President and Chief
Investment Officer of KeyCorp.
Richard B. Ainsworth, Jr., also Executive Vice President of Key Trust
Company of Ohio, National Association.
Dennis M. Grapo, also Senior Vice President and Senior Managing
Director of Society.
Frank J. Riccardi, also Senior Vice President and Senior Managing
Director of Society.
C-10
<PAGE>
THE VICTORY PORTFOLIOS
Kenneth W. Ostrowski, also Senior Vice President and Senior Managing
Director of Society.
Anthony Aveni, also Senior Vice President and Senior Managing Director
of Society.
James S. Bingay, also Executive Vice President of KeyCorp.
John E. Kohl, also Executive Vice President of KMC.
Other Officers:
James D. Kacic, Vice President and Treasurer of Society.
The business address of each of the foregoing individuals is 127 Public
Square, Cleveland, Ohio 44114.
C-11
<PAGE>
THE VICTORY PORTFOLIOS
C. Lee Liscom is a Managing Director of First Albany and a Vice
President of First Albany Corporation. Mr. Liscom was previously an
Executive Vice President of Key Trust Corporation.
David J. Cunningham is Treasurer of First Albany and a Senior Vice
President and Chief Financial Officer of First Albany Corporation and
of First Albany Companies, Inc.
Item 29. Principal Underwriter
(a) BISYS Fund Services acts as distributor and serves as administrator
for the Registrant.
(b) Directors, officers and partners of BISYS Fund Services as of December
31, 1995 were as follows:
Name and Principal Positions and Officers with Positions and Offices
Business Addresses BISYS Fund Services with the Registrant
- ------------------ --------------------------- ---------------------
Lynn J. Mangum Chairman None
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43215
Richard E. Stierwalt
BISYS Fund Services, Inc.
3435 Stelzer Road President/CEO None
Columbus, Ohio 43215
Robert J. McMullan
BISYS Fund Services, Inc.
3435 Stelzer Road Executive Vice President None
Columbus, Ohio 43215
Catherine T. Dwyer
BISYS Fund Services, Inc.
3435 Stelzer Road Vice President/Secretary None
Columbus, Ohio 43215
C-12
<PAGE>
THE VICTORY PORTFOLIOS
Michael D. Burns
BISYS Fund Services, Inc.
3435 Stelzer Road Vice President-Compliance None
Columbus, Ohio 43215
Annamaria Porcaro
BISYS Fund Services, Inc.
3435 Stelzer Road Assistant Secretary None
Columbus, Ohio 43215
Robert Tuch
BISYS Fund Services, Inc.
3435 Stelzer Road Assistant Secretary None
Columbus, Ohio 43215
Stephen Mintos
BISYS Fund Services, Inc.
3435 Stelzer Road Executive Vice President/ None
Columbus, Ohio 43215 COO
George O. Martinez
BISYS Fund Services, Inc.
3435 Stelzer Road Senior Vice President Assistant
Columbus, Ohio 43215 Secretary
Dale Smith
BISYS Fund Services, Inc.
3435 Stelzer Road Vice President/CFO None
Columbus, Ohio 43215
Mark J. Rybarczyk
BISYS Fund Services, Inc.
3435 Stelzer Road Senior Vice President None
Columbus, Ohio 43215
J. David Huber
BISYS Fund Services, Inc.
3435 Stelzer Road Executive Vice President None
Columbus, Ohio 43215
C-13
<PAGE>
THE VICTORY PORTFOLIOS
Mary Anne Houlahan
BISYS Fund Services, Inc.
3435 Stelzer Road Senior Vice President None
Columbus, Ohio 43215
Walter Grimm
BISYS Fund Services, Inc.
3435 Stelzer Road Vice President None
Columbus, Ohio 43215
William J. Tomko
BISYS Fund Services, Inc.
3435 Stelzer Road Vice President None
Columbus, Ohio 43215
Paul H. Bourke
BISYS Fund Services, Inc.
3435 Stelzer Road Vice Chairman None
Columbus, Ohio 43215
Item 30. Location of Accounts and Records
(1) KeyCorp Mutual Fund Advisers, Inc., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as investment adviser).
(2) Society Asset Management, Inc., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as investment
sub-adviser).
(3) Society National Bank, 127 Public Square, Cleveland, Ohio 44114-1306
(records relating to its functions as shareholder servicing agent).
(4) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as administrator and distributor).
(5) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, 02110- 3875 (records relating to its functions as
transfer agent).
(6) Boston Financial Data Services, Inc. Two Heritage Drive, Quincy,
Massachusetts, 02171 (records relating to its functions as dividend
disbursing agent and shareholder servicing agent).
(7) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as custodian).
C-14
<PAGE>
THE VICTORY PORTFOLIOS
(8) Morgan Stanley Trust Company, 1585 Broadway, New York, New York 10036
(records relating to its functions as sub-custodian of Balanced Fund
and International Growth Fund).
Item 31. Management Services
None.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting of shareholders, at the
request of holders of 10% of the Registrant's outstanding shares, for
the purpose of voting upon the question of removal of a trustee or
trustees and undertakes to assist in communications with other
shareholders as required by Section 16(c) of the Investment Company
Act of 1940.
(b) Registrant undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest Annual Report to
Shareholders upon request and without charge.
NOTICE
A copy of the Delaware Trust Instrument of The Victory Portfolios is on file
with the Secretary of State of Delaware and notice is hereby given that this
Post-Effective Amendment to the Registrant's Registration Statement has been
executed on behalf of the Registrant by officers of, and Trustees of, the
Registrant as officers and as Trustees, respectively, and not individually, and
that the obligations of or arising out of this instrument are not binding upon
any of the Trustees, officers or shareholders of The Victory Portfolios
individually but are binding only upon the assets and property of the
Registrant.
C-15
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Post-Effective Amendment No. 30 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York, on the 30th day
of July, 1996.
THE VICTORY PORTFOLIOS
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 30th day of
July, 1996.
/s/ Leigh A. Wilson President and Trustee
- ------------------------
Leigh A. Wilson
/s/ Kevin L. Martin Treasurer
- ------------------------
Kevin L. Martin
* Trustee
- ------------------------
Robert G. Brown
* Trustee
- ------------------------
Edward P. Campbell
* Trustee
- ------------------------
Harry Gazelle
* Trustee
- ------------------------
Stanley I. Landgraf
* Trustee
- ------------------------
Thomas F. Morrissey
* Trustee
- ------------------------
H. Patrick Swygert
*By: /s/ Carl Frischling
--------------------
Carl Frischling
Attorney-in-Fact
Attorney-in-Fact pursuant to powers of attorney, dated December 18, 1995
filed with Post-Effective Amendments 27 and 26 to Registrant's Registration
Statement on January 31, 1996 and December 28, 1995, respectively.
C-16
<PAGE>
THE VICTORY PORTFOLIO
THE VICTORY PORTFOLIOS
INDEX TO EXHIBITS
Exhibit Number
EX-99.B6 Distribution Agreement between the Registrant and BISYS Fund
Services.
EX-99.B8(c) Custody Agreement between Morgan Stanley Trust Company and Key
Trust Company of Ohio.
EX-99.B9(a) Administration Agreement between the Registrant and BISYS Fund
Services.
EX-99.B9(b) Transfer Agency and Service Agreement between the Registrant and
State Street Bank and Trust Company
EX-99.B9(f) Business Management Agreement between KeyCorp Mutual Fund
Advisers, Inc. and Society Asset Management, Inc.
EX-99.B11(a) Consent of Kramer, Levin, Naftalis & Frankel.
EX-99.B11(b) Consent of Coopers & Lybrand L.L.P.
EX-99.B12(b) Unaudited financial statements for the period ended April 30,
1996.
EX-99.B16(b) Forms of computation of performance quotation.
EX-27 Financial Data Schedules
C-17
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this 1st day of June , 1996
between THE VICTORY PORTFOLIOS, a Delaware business trust (herein called the
"Trust"), and BISYS Fund Services Limited Partnership, a Delaware corporation
(herein called the "Distributor").
WHEREAS, the Trust is an open-end management investment company and is
so registered under the Investment Company Act of 1940; and
WHEREAS, the Trust desires to retain the Distributor as Distributor for
each of the Trust's separate portfolios set forth on Schedule I hereto, as such
Schedule may be revised from time to time (individually known as a "Fund" and
collectively as the "Funds") to provide for the sale and distribution of shares
of beneficial interest without par value of the Funds (herein collectively
called "Shares"), and the Distributor is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual convenants
set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to the Distributor copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) The Trust's Certificate of Trust and all amendments
thereto (such Certificate of Trust, as presently in effect and as it
shall from time to time be amended, herein called the "Trust's
Certificate");
(b) The By-Laws of the Trust (such By-Laws, as presently in
effect and as they shall from time to time be amended, herein called
the "By-Laws");
(c) Resolutions of the Board of Trustees of the Trust
authorizing the execution and delivery of this Agreement;
(d) The Trust's most recent Post-Effective Amendment to its
Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), and under the Investment Company Act of 1940, as
amended (the "1940 Act"), on Form N-1A as filed with the Securities and
Exchange Commission (the "Commission") and all subsequent amendments
thereto (said Registration Statement, as presently in effect and as
amended or supplemented from time to time, is herein called the
"Registration Statement");
<PAGE>
(e) Notification of Registration of the Trust under the 1940
Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of
the Funds (such prospectuses and statements of additional information,
as presently filed with the Securities and Exchange Commission and as
they shall from time to time be amended and supplemented, herein called
individually the "Prospectus" and collectively the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints the
Distributor as Principal Distributor of the Fund's Shares and the Distributor
hereby accepts such appointment and agrees to render the services and duties set
forth in this Section II.
2. SERVICES AND DUTIES.
(a) The Trust agrees to sell through the Distributor, as
agent, from time to time during the term of this Agreement, Shares of
the Funds (whether authorized but unissued or treasury shares, in the
Trust's sole discretion) upon the terms and at the current offering
price as described in the applicable Prospectus. The Distributor will
act only in its own behalf as principal in making agreements with
selected dealers or others for the sale and redemption of Shares, and
shall sell Shares only at the offering price thereof as set forth in
the applicable Prospectus. The Distributor shall devote its best
efforts to effect sales of Shares of each of the Funds, but shall not
be obligated to sell any certain number of Shares. Each Fund reserves
the right to issue Shares in connection with any merger or
consolidation of the Trust or any Fund with any other investment
company or personal holding company or in connection with offers of
exchange exempted from Section 11(a) of the 1940 Act.
(b) In all matters relating to the sale and redemption of
Shares, the Distributor will act in conformity with the Trust's
Certificate, By-Laws, and Prospectuses and with the instructions and
directions of the Board of Trustees of the Trust and will conform to
and comply with the requirements of the 1933 Act, the 1940 Act, the
regulations of the National Association of Securities Dealers, Inc. and
all other applicable federal or state laws and regulations. In
connection with such sales, the Distributor acknowledges and agrees
that it is not authorized to provide any information or make any
representations other than as contained in the Trust's Registration
Statement and Prospectuses and any sales literature specifically
approved by the Trust. The Trust shall not be responsible in any way
for any information, statements or representations given or made by
2
<PAGE>
the Distributor or its representatives or agents other than such
information, statements or representations contained in the
Prospectuses or other financial statements of the Trust or in any sales
literature or advertisements specifically approved by the Trust.
(c) The Distributor will bear the cost of (i) printing and
distributing any Prospectus (including any supplement thereto) to
persons who are not either shareholders or counsel, independent
accountants or other persons providing similar services to the Trust,
and (ii) preparing, printing and distributing any literature,
advertisement or material which is primarily intended to result in the
sale of the Shares; provided, however, that the Distributor shall not
be obligated to bear the expenses incurred by the Trust in connection
with the preparation and printing of any amendment to any Registration
Statement or Prospectus necessary for the continued effective
registration of the Shares under the 1933 Act; and provided further,
that each Fund will bear the expenses incurred and other payments made
in accordance with the provisions of this Agreement and any plan now in
existence or hereafter adopted with respect to such Fund, or any class
or classes of shares of such Fund, pursuant to Rule 12b-1 under the
1940 Act (collectively, the "Plans").
(d) The Distributor agrees to be responsible for implementing
and/or operating the Plans in accordance with the terms thereof.
(e) All Shares of the Funds offered for sale by the
Distributor shall be offered for sale to the public at a price per
Share (the "offering price") equal to (i) their net asset value
(determined in the manner set forth in the Trust's Certificate and then
current Prospectuses) plus (ii) a sales charge (if any) which shall be
the percentage of the offering price of such Shares as set forth in the
Trust's then current Prospectuses. The offering price, if not an exact
multiple of one cent, shall be adjusted to the nearest cent. If a sales
charge is in effect, the Distributor shall have the right to pay a
portion of the sales charge to broker-dealers and other persons who
have sold Shares of the Funds. Concessions by the Distributor to
broker-dealers and other persons shall be set forth in either the
selling agreements between the Distributor and such broker-dealers and
persons or, if such concessions are described in the then current
Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling agreement with the Distributor shall
be authorized to act as agent for the Trust in connection with the
offering or sale of its Shares to the public or otherwise.
(f) If any Shares sold by the Distributor under the terms of
this Agreement are redeemed or repurchased by the
3
<PAGE>
Trust or by the Distributor as agent or are tendered for redemption
within seven business days after the date of confirmation of the
original purchase of said Shares, the Distributor shall forfeit the
amount (if any) of the net asset value received by it in respect of
such Shares, provided that the portion, if any, of such amount (if any)
re-allowed by the Distributor to broker-dealers or other persons shall
be repayable to the Trust only to the extent recovered by the
Distributor from the broker-dealer or other person concerned. The
Distributor shall include in the forms of agreement with such
broker-dealers and other persons a corresponding provision for the
forfeiture by them of their concession with respect to Shares sold by
them or their principals and redeemed or repurchased by the Trust or by
the Distributor as agent (or tendered for redemption) within seven
business days after the date of confirmation of such initial purchases.
3. SALES AND REDEMPTIONS.
(a) The Trust shall pay all costs and expenses in connection
with the registration of the Shares under the 1933 Act, and all
expenses in connection with maintaining facilities for the issue and
transfer of the Shares and for supplying information, prices and other
data to be furnished by the Trust hereunder, and all expenses in
connection with preparing, printing and distributing the Prospectus
except as set forth in subsection 2(c) of Section II hereof.
(b) The Trust shall execute all documents, furnish all
information and otherwise take all actions which may be reasonably
necessary in the discretion of the Trust's officers in connection with
the qualification of the Shares for sale in such states as the
Distributor may designate to the Trust and the Trust may approve, and
the Trust shall pay all filing fees which may be incurred in connection
with such qualification. The Distributor shall pay all expenses
connected with its qualification as a dealer under state or federal
laws and, except as otherwise specifically provided in this Agreement,
all other expenses incurred by the Distributor in connection with the
sale of the Shares as contemplated in this Agreement. It is understood
that certain advertising, marketing, shareholder servicing,
administration and/or distribution expenses to be incurred in
connection with the Shares will be paid by the Funds as provided in
this Agreement and in the Plans relating thereto.
(c) The Trust shall have the right to suspend the sale of
Shares of any Fund at any time in response to conditions in the
securities markets or otherwise, and to suspend the redemption of
Shares of any Fund at any time permitted by the 1940 Act or the rules
of the Commission ("Rules").
4
<PAGE>
(d) The Trust reserves the right to reject any order for
Shares.
III. LIMITATION OF LIABILITY
The Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust or any Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
this Agreement.
IV. CONFIDENTIALITY
The Distributor will treat confidentially and as proprietary
information of the Trust all records and other information relative to the
Trust, to the Trust's prior or present shareholders and to those persons or
entities who respond to the Distributor's inquiries concerning investment in the
Trust, and except as provided below, will not use such records and information
for any purpose other than the performance of its responsibilities and duties
hereunder or the performance of its responsibilities and duties with regard to
sales of the shares of any Fund which may be added to the Trust in the future.
Any other use by the Distributor of the information and records referred to
above may be made only after prior notification to and approval in writing by
the Trust. Such approval shall not be unreasonably withheld and may not be
withheld where (i) the Distributor may be exposed to civil or criminal contempt
proceedings for failure to divulge such information; (ii) the Distributor is
requested to divulge such information by duly constituted authorities; or (iii)
the Distributor is so requested by the Trust.
V. INDEMNIFICATION
1. TRUST REPRESENTATIONS. The Trust represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the Rules and will not include 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, in light of the circumstances under which they were
made, not misleading, except that no representation or warranty in this
subsection shall apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Trust by or on behalf of
and with respect to the Distributor expressly for use in the Registration
Statement or Prospectuses.
2. DISTRIBUTOR REPRESENTATIONS. The Distributor represents and warrants
to the Trust that it is duly organized as a Delaware corporation and is and at
all times will remain duly authorized and licensed to carry out its services as
contemplated herein.
5
<PAGE>
3. TRUST INDEMNIFICATION. The Trust will indemnify, defend and hold
harmless the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, from
and against any losses, claims, damages or liabilities, joint or several, to
which any of them may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectuses or in any application or other document executed by
or on behalf of the Trust, or arise out of, or are based upon, information
furnished by or on behalf of the Trust filed in any state in order to qualify
the Shares under the securities or blue sky laws thereof ("Blue Sky
Application"), or arise out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Distributor, its several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, for any legal or
other expenses reasonably incurred by any of them in investigating, defending,
or preparing to defend any such action, proceeding or claim; provided, however,
that the Trust shall not be liable in any case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, any untrue
statement, alleged untrue statement, or omission or alleged omission made in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Trust in reliance
upon and in conformity with written information furnished to the Trust by or on
behalf of and with respect to the Distributor specifically for inclusion
therein.
The Trust shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or negligence in the performance of
his duties, or his reckless disregard of obligations and duties, under this
Agreement ("disabling conduct") or, in the absence of such a decision, a
reasonable determination (based upon a review of the facts) that such person was
not liable by reason of disabling conduct has been made by the vote of a
majority of a quorum of trustees of the Trust who are neither "interested
persons" of the Trust (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
Each Fund shall advance attorney's fees and other expenses incurred by
any person in defending any claim, demand, action or suit which is the subject
of a claim for indemnification pursuant to this subsection 3, so long as: (i)
such person shall undertake to repay all such advances unless it is ultimately
determined
6
<PAGE>
that he is entitled to indemnification hereunder; and (ii) such person shall
provide security for such undertaking, or the Fund shall be insured against
losses arising by reason of any lawful advances, or a majority of a quorum of
the disinterested, nonparty trustees of the Trust (or an independent legal
counsel in a written opinion) shall determine based on a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such person ultimately will be found entitled to indemnification
hereunder.
4. DISTRIBUTOR INDEMNIFICATION. The Distributor will indemnify, defend
and hold harmless the Trust, the Trust's several officers and trustees and any
person who controls the Trust within the meaning of Section 15 of the 1933 Act,
from and against any losses, claims, damages or liabilities, joint or several,
to which any of them may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect hereof) arise out of, or are based upon, any breach of its
representations and warranties in subsection 2 hereof or its agreements in
subsection 2 of Section II hereof, or which arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Trust, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission or alleged statement or alleged omission was made in
reliance upon or in conformity with information furnished in writing to the
Trust or any of its several officers and trustees by or on behalf of and with
respect to the Distributor specifically for inclusion therein, and will
reimburse the Trust, the Trust's several officers and trustees, and any person
who controls the Trust within the meaning of Section 15 of the 1933 Act, for any
legal or other expenses reasonably incurred by any of them in investigating,
defending or preparing to defend any such action, proceeding or claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects
7
<PAGE>
to assume the defense, such defense shall be conducted by counsel chosen by it
and reasonably satisfactory to the indemnified party. In the event the
indemnifying party elects to assume the defense of any such suit and retain such
counsel, the indemnified party shall bear the fees and expenses of any
additional counsel retained by the indemnified party.
VI. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above
written, and, unless sooner terminated as provided herein, shall continue until
May 31, 1998. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a majority of those members of
the Board of Trustees of the Trust who are not parties to this Agreement or
"interested persons" of any such party (the "Disinterested Trustees"), pursuant
to a vote cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Trustees of the Trust or by vote of a
"majority of the outstanding voting securities" of the Trust. Notwithstanding
anything to the contrary contained in this Section VI, this Agreement may be
terminated by the Trust at any time with respect to any Fund, without the
payment of any penalty, by vote of a majority of the Disinterested Trustees or
by vote of a "majority of the outstanding voting securities" of such Fund on 60
days' written notice to the Distributor, or by the Distributor at any time,
without the payment of any penalty, on 60 days' written notice to the Trust.
This Agreement will automatically terminate in the event of its "assignment."
(As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the 1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VIII. NOTICES
Notices of any kind to be given to the Trust hereunder by the
Distributor shall be in writing and shall be duly given if mailed or delivered
to the Trust c/o Mutual Fund Products, KeyCorp Management Company, 127 Public
Square, Cleveland, Ohio 44114, with a copy to Kramer, Levin, Naftalis & Frankel,
919 Third Avenue, New York, New, York 10022, Attention: Carl Frischling,
Esquire, or at such other address or to such individual as shall be so specified
by the Trust to the Distributor. Notices of any kind to be given to the
Distributor hereunder by the Trust shall be in writing and shall be duly given
if mailed or delivered to the Distributor at 3534 Stelzer
8
<PAGE>
Road, Columbus, Ohio 43219, Attention: Stephen G. Mintos, Chief Executive
Officer, or at such other address or to such individual as shall be so specified
by the Distributor to the Trust.
IX. COMPENSATION
The Distributor shall not receive compensation with respect to the
provision of distribution services under this Agreement; provided, however, that
the Distributor shall be entitled to receive payments, if any, under the Plans
in accordance with the terms thereof and payments, if any, of sales charges as
set forth in the Trust's Prospectuses. The Trust is entering into this Agreement
on behalf of the Funds listed on Schedule I severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Fund severally and not jointly. No individual Fund shall have any responsibility
for any obligation, if any, with respect to any other Fund arising out of this
Agreement.
X. MISCELLANEOUS
1. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section VI hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the Investment Company Act of 1940 or any rule or regulation of the Commission
thereunder.
2. NAMES. The names "The Victory Portfolios" and "Trustees of The
Victory Portfolios" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Certificate of Trust filed December 21, 1995,at the office of the Secretary of
State of the State of Delaware which is hereby referred to and is also on file
at the principal office of the Trust. The obligations of The Victory Portfolios
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the Trust property, and all persons dealing with
any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE VICTORY PORTFOLIOS
By:/s/J. David Huber
-----------------
Vice President
Attest:/s/Scott A. Englehart
---------------------
Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP, d/b/a
BISYS FUND SERVICES
By:/s/J. David Huber
-----------------
Executive Vice President
Attest:/s/George O. Martinez
---------------------
Senior Vice President
10
<PAGE>
SCHEDULE I
As Amended as of June 1, 1996
Name of Fund Class
- ------------ -----
1. The Victory Balanced Fund A/B/Key Share
2. The Victory Diversified Stock Fund A/B
3. The Victory Government Mortgage Fund A
4. The Victory Growth Fund A
5. The Victory Intermediate Income Fund A
6. The Victory International Growth Fund A/B
7. The Victory Investment Quality Bond Fund A
8. The Victory Limited Term Income Fund A
9. The Victory Ohio Municipal Bond Fund A
10. The Victory Ohio Regional Stock Fund A/B
11. The Victory Prime Obligations Fund A
12. The Victory Special Growth Fund A
13. The Victory Special Value Fund A/B
14. The Victory Stock Index Fund A
15. The Victory Tax-Free Money Market Fund A
16. The Victory U.S. Government Obligations Fund Investor/Shares
17. The Victory Value Fund A
18. The Victory Financial Reserves Fund A
19. The Victory Fund for Income A
20. The Victory Government Bond Fund A/B
21. The Victory Institutional Money Market Fund Investor/Select
22. The Victory National Municipal Bond Fund A/B
23. The Victory New York Tax-Free Fund A/B
24. The Victory Ohio Municipal Money Market Fund A
11
CUSTODY AGREEMENT
This Custody Agreement is dated May 31, 1996 between MORGAN STANLEY TRUST
COMPANY, a New York State chartered trust company (the "Custodian"), and KEY
TRUST COMPANY OF OHIO, a national bank organized under the laws of the United
States (the "Client").
WHEREAS, the Client is the custodian of the assets of various accounts,
including U.S. registered investment companies;
WHEREAS, the Client desires to appoint the Custodian as subcustodian of
certain such assets that are located outside the United States;
NOW THEREFORE, it is agreed:
1. Appointment and Acceptance; Accounts. (a) The Client hereby appoints the
Custodian as a custodian of Property (as defined below) owned or under the
control of the Client or its Affiliates (as defined hereafter) that are
delivered to the Custodian, or any Subcustodian as appointed below, from time to
time to be held in custody for the benefit of the Client. For purposes of this
Agreement, Affiliate means an entity of which KeyCorp owns directly or
indirectly more than 50% of such entity's voting stock.
(b) Prior to the delivery of any Property by the Client to the Custodian,
the Client shall deliver to the Custodian each document and other item listed in
Appendix 1. In addition, the Client shall deliver to the Custodian any
additional documents or items as the Custodian may reasonably deem necessary for
the performance of its duties under this Agreement.
(c) The Client instructs the Custodian to establish on the books and
records of the Custodian the accounts listed in Appendix 2 (the "Accounts") in
the name of the Client or its designated Affiliate. Upon receipt of Authorized
Instructions (as defined below) and appropriate documentation, the Custodian
shall open additional Accounts for the Client. Upon the Custodian's confirmation
to the Client of the opening of such additional Accounts, or of the closing of
Accounts, Appendix 2 shall be deemed automatically amended or supplemented
accordingly. The Custodian shall record in the Accounts and shall have general
responsibility for the safekeeping of all securities ("Securities"), cash, cash
equivalents and other property (all such Securities, cash, cash equivalents and
other property being collectively the "Property") of the Client that are
delivered to the Custodian for custody.
(d) The procedures the Custodian and the Client will use in performing
activities in connection with this Agreement are set forth in a client services
guide provided to the Client by the Custodian, as such guide may be amended from
time to time by the Custodian by written notice to the Client (the "Client
Services Guide").
2. Subcustodians. The Property may be held in custody and deposit accounts
that have been established by the Custodian with one or more domestic or foreign
banks or other institutions as listed on Exhibit A (the "Subcustodians"), as
such Exhibit may be amended from time to time by the Custodian by at least 60
days prior written notice to the Client, or through the facilities of one or
more securities depositories or clearing agencies. The Custodian shall hold
1
<PAGE>
Property through a Subcustodian, securities depository or clearing agency only
if (a) such Subcustodian and any securities depository or clearing agency in
which such Subcustodian or the Custodian holds Property, or any of their
creditors, may not assert any right, charge, security interest, lien,
encumbrance or other claim of any kind to such Property except a claim of
payment for its safe custody or administration and (b) beneficial ownership of
such Property may be freely transferred without the payment of money or value
other than for safe custody or administration. Any Subcustodian may hold
Property in a securities depository and may utilize a clearing agency. Except as
expressly noted on Exhibit A, each Subcustodian is an "eligible foreign
custodian" as defined in Rule 17f-5 of the Investment Company Act of 1940.
3. Records. With respect to Property held by a Subcustodian:
(a) The Custodian may hold Property for all of its customers with a
Subcustodian in a single account identified as belonging to the Custodian
for the benefit of its customers;
(b) The Custodian shall identify on its books as belonging to the
Client or its Affiliate any Property held by a Subcustodian for the
Custodian's account;
(c) The Custodian shall require that Property held by the Subcustodian
for the Custodian's account be identified on the Subcustodian's books as
separate from any other property held by the Subcustodian other than
property of the Custodian's customers held solely for the benefit of
customers of the Custodian; and
(d) In the event the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian shall be required by its
agreement with the Custodian to identify on its books such Property as
being held for the account of the Custodian as custodian for its customers
or in such other manner as is required by local law or market practice.
4. Access to Records. The Custodian shall allow the Client's accountants
reasonable access to the Custodian's records relating to the Property held by
the Custodian as such accountants may reasonably require in connection with
their examination of the Client's affairs. The Custodian shall also obtain from
any Subcustodian (and shall require each Subcustodian to use reasonable efforts
to obtain from any securities depository or clearing agency in which it deposits
Property) an undertaking, to the extent consistent with local practice and the
laws of the jurisdiction or jurisdictions to which such Subcustodian, securities
depository or clearing agency is subject, to permit independent public
accountants such reasonable access to the records of such Subcustodian,
securities depository or clearing agency as may be reasonably required in
connection with the examination of the Client's affairs or to take such other
action as the Custodian in its judgment may deem sufficient to ensure such
reasonable access.
5. Reports. The Custodian shall provide such reports and other information
to the Client and to such persons as the Client directs as the Custodian and the
Client may agree from time to time.
6. Payment of Monies. The Custodian shall make, or cause any Subcustodian
to make, payments from monies being held in the Accounts only in accordance with
Authorized Instructions or as provided in Sections 9, 13 and 17.
2
<PAGE>
The Custodian may act as the Client's agent or act as a principal in
foreign exchange transactions at such rates as are agreed from time to time
between the Client and the Custodian.
7. Transfer of Securities. The Custodian shall make, or cause any
Subcustodian to make, transfers, exchanges or deliveries of Securities only in
accordance with Authorized Instructions or as provided in Sections 9, 13 and 17.
8. Corporate Action. (a) The Custodian shall notify the Client of details
of all corporate actions affecting the Client's Securities promptly upon its
receipt of such information.
(b) The Custodian shall take, or cause any Subcustodian to take, such
corporate action only in accordance with Authorized Instructions or as provided
in this Section 8 or Section 9.
(c) In the event the Client does not provide timely Authorized Instructions
to the Custodian, the Custodian shall act in accordance with the default option
provided by local market practice and/or the issuer of the Securities.
(d) Fractional shares resulting from corporate action activity shall be
treated in accordance with local market practices.
9. General Authority. In the absence of Authorized Instructions to the
contrary, the Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling
Property or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the
Client;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange of
warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for redemption
upon receiving payment therefor;
(e) execute in the Client's name such ownership and other certificates
as may be required to obtain the payment of income from Securities;
(f) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental
authority in connection with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Client, checks, drafts
and other negotiable instruments;
3
<PAGE>
(h) take non-discretionary action on mandatory corporate actions; and
(i) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings with the
Property.
10. Authorized Instructions; Authorized Persons. (a) Except as otherwise
provided in Sections 6 through 9, 13 and 17, all payments of monies, all
transfers, exchanges or deliveries of Property and all responses to corporate
actions shall be made or taken only upon receipt by the Custodian of Authorized
Instructions; provided that such Authorized Instructions are timely received by
the Custodian. "Authorized Instructions" of the Client means instructions from
an Authorized Person received by telecopy, tested telex, electronic link or
other electronic means or by such other means as may be agreed in writing
between the Client and the Custodian.
(b) "Authorized Person" means each of the persons or entities identified on
Appendix 3 as amended from time to time by written notice from the Client to the
Custodian. The Client represents and warrants to the Custodian that each
Authorized Person listed in Appendix 3, as amended from time to time, is
authorized to issue Authorized Instructions on behalf of the Client. Prior to
the delivery of the Property to the Custodian, the Custodian shall provide a
list of designated system user ID numbers and passwords that the Client shall be
responsible for assigning to Authorized Persons. The Custodian shall assume that
an electronic transmission received and identified by a system user ID number
and password was sent by an Authorized Person. The Custodian agrees to provide
additional designated system user ID numbers and passwords as needed by the
Client. The Client authorizes the Custodian to issue new system user ID numbers
upon the request of a currently existing Authorized Person. Upon the issuance of
additional system user ID numbers by the Custodian to the Client, Appendix 3
shall be deemed automatically amended accordingly. The Client authorizes the
Custodian to receive, act and rely upon any Authorized Instructions received by
the Custodian which have been issued, or reasonably believed to have been
issued, by an Authorized Person.
(c) Any Authorized Person may cancel/correct or otherwise amend any
Authorized Instruction received by the Custodian, but the Client agrees to
indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a direct result of their having relied upon
or acted on any prior Authorized Instruction. An amendment or cancellation of an
Authorized Instruction to deliver or receive any security or funds in connection
with a trade will not be processed once the trade has settled.
11. Registration of Securities. (a) In the absence of Authorized
Instructions to the contrary, Securities which must be held in registered form
shall be registered in the name of the Custodian or the Custodian's nominee or,
in the case of Securities in the custody of an entity other than the Custodian,
in the name of the Custodian, its Subcustodian or any such entity's nominee. The
Custodian may, without notice to the Client, cause any Securities to be
registered or reregistered in the name of the Client or an Affiliate of the
Client.
(b) Where the Custodian has been instructed by the Client to hold any
Securities in the name of any person or entity other than the Custodian, its
Subcustodian or any such entity's nominee, the Custodian shall not be
responsible for any failure to collect such dividends or other income or
participate in any such corporate action with respect to such Securities.
4
<PAGE>
12. Deposit Accounts. All cash received by the Custodian for the Accounts
shall be held by the Custodian as a short-term credit balance in favor of the
Client and, if the Custodian and the Client have agreed in writing in advance
that such credit balances shall bear interest, the Client shall earn interest at
the rates and times as agreed between the Custodian and the Client. The Client
acknowledges that any such credit balances shall not be accompanied by the
benefit of any governmental insurance.
13. Short-term Credit Extensions. (a) From time to time, the Custodian may
extend or arrange short-term credit for the Client which is (i) necessary in
connection with payment and clearance of securities and foreign exchange
transactions or (ii) pursuant to an agreed schedule, as and if set forth in the
Client Services Guide, of credits for dividends and interest payments on
Securities. All such extensions of credit shall be repayable by the Client on
demand.
(b) The Custodian shall be entitled to charge the Client interest for any
such credit extension at rates to be agreed upon from time to time or, if such
credit is arranged by the Custodian with a third party on behalf of the Client,
the Client shall reimburse the Custodian for any interest charge. In addition to
any other remedies available, the Custodian shall be entitled to a right of
set-off against the Property to satisfy the repayment of such credit extensions
and the payment of, or reimbursement for, accrued interest thereon.
14. Representations and Warranties. (a) The Client represents and warrants
that (i) the execution, delivery and performance of this Agreement (including,
without limitation, the ability to obtain the short-term extensions of credit in
accordance with Section 13) are within the Client's power and authority and have
been duly authorized by all requisite action (corporate or otherwise) of the
Client and of the beneficial owner of the Property, if other than the Client,
and (ii) this Agreement and each extension of short-term credit extended to or
arranged for the benefit of the Client in accordance with Section 13 shall at
all times constitute a legal, valid and binding obligation of the Client
enforceable against the Client in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
(b) The Custodian represents and warrants that (i) the execution, delivery
and performance of this Agreement are within the Custodian's power and authority
and have been duly authorized by all requisite action (corporate or otherwise)
of the Custodian and (ii) this Agreement constitutes the legal, valid and
binding obligation of the Custodian enforceable against the Custodian in
accordance with its terms, except as may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general and
subject to the effect of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
15. Standard of Care; Indemnification. (a) The Custodian shall be
responsible for the performance of only such duties as are set forth in this
Agreement or contained in Authorized Instructions given to the Custodian which
are not contrary to the provisions of any relevant law or regulation. The
Custodian shall indemnify the Client for, and hold it harmless from, any loss,
liability or expense (including attorneys' fees and disbursements) incurred by
the Client in connection with this Agreement to the extent that any such loss,
liability or expense results from the negligence or willful misconduct of the
Custodian or any Subcustodian; provided, however that neither the Custodian nor
any Subcustodian shall be liable to the Client for any indirect, special or
consequential damages.
5
<PAGE>
(b) The Client acknowledges that the Property may be physically held
outside the United States. The Custodian shall not be liable for any loss,
liability or expense resulting from events beyond the reasonable control of the
Custodian, including, but not limited to, force majeure.
(c) In addition, the Client shall indemnify the Custodian and Subcustodians
and any nominee for, and hold each of them harmless from, any liability, loss or
expense (including reasonable attorneys' fees and disbursements) incurred in
connection with this Agreement, including without limitation, (i) as a direct
result of the Custodian having acted or relied upon any Authorized Instructions
or (ii) arising out of any such person acting as a nominee or holder of record
of Securities. Notwithstanding anything to the contrary in this Agreement, the
Client shall not be liable for any indirect, special or consequential damages
incurred by the Custodian, any Subcustodian or any of their nominees.
16. Fees; Liens. The Client shall pay to the Custodian from time to time
such compensation, as indicated in Schedule A, for its services pursuant to this
Agreement as may be mutually agreed upon as well as the Custodian's
out-of-pocket expenses. The Client shall hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expenses related thereto, which may be imposed or assessed with respect to
the Accounts or any Property held therein. The Custodian is, and any
Subcustodians are, authorized to charge the Accounts for such items and the
Custodian shall have a lien, charge and security interest on the Property to the
extent of any amount owing to the Custodian from time to time under this
Agreement.
17. Termination. This Agreement may be terminated by the Client or the
Custodian by 60 days written notice to the other, sent by registered mail. If
notice of termination is given, the Client shall, within 30 days following the
giving of such notice, deliver to the Custodian a statement in writing
specifying the successor custodian or other person to whom the Custodian shall
transfer the Property at such time as mutually agreed upon between the Custodian
and the Client. In either event, the Custodian, subject to the satisfaction of
any lien it may have, shall transfer the Property to the person so specified. If
the Custodian does not receive such statement the Custodian, at its election,
may transfer the Property to a bank or trust company established under the laws
of the United States or any state thereof to be held and disposed of pursuant to
the provisions of this Agreement or may continue to hold the Property until such
a statement is delivered to the Custodian. In such event the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian remains in possession of any Property and the provisions of this
Agreement relating to the duties and obligations of the Custodian shall remain
in full force and effect; provided, however, that the Custodian shall have no
obligation to settle any purchase transactions in Securities for the Accounts.
The provisions of Sections 15 and 16 shall survive termination of this
Agreement.
18. Investment Advice. The Custodian shall not supervise, recommend or
advise the Client relative to the investment, purchase, sale, retention or other
disposition of any Property held under this Agreement.
19. Proprietary Information. (a) Each party hereto acknowledges that (i)
the identities of the other party's customers, (ii) information maintained by
such other party regarding those customers, and (iii) all computer programs and
procedures developed by such other party or such other party's affiliates or
agents in connection with such other party's performance of its duties hereunder
constitute the valuable proprietary information and property of such other
party. Each party agrees to use its best efforts to hold all such proprietary
information and property in confidence
6
<PAGE>
and refrain from: (A) disclosing or distributing any of such proprietary
information or property, except (1) with the other party's prior written
consent, or (2) as required by law or judicial process or (B) using any such
proprietary information in any competition, solicitation or marketing efforts
concerning the other party's customers.
(b) Each party acknowledges that any breach of the provisions of this
Sections 15 would result in immediate and irreparable harm to the non-breaching
party for which there would be no adequate remedy at law and agrees that, in the
event of such a breach, the non-breaching party will be entitled to equitable
relief by way of temporary and permanent injunctions, as well as such other
relief as any court of competent jurisdiction deems appropriate.
20. Notices. Any notice or other communication from the Client to the
Custodian, unless otherwise provided by this Agreement or the Client Services
Guide, shall be sent by certified or registered mail to Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, New York, 11201, Attention: President,
and any notice from the Custodian to the Client is to be mailed postage prepaid,
addressed to the Client at the address appearing below, or as it may hereafter
be changed on the Custodian's records in accordance with written notice from the
Client.
21. Assignment. The Custodian shall not assign, transfer, or subcontract
this Agreement or any of its obligations hereunder without the prior written
consent of the Client. The Client shall not assign this agreement without prior
written consent of the Custodian, except pursuant to merger or acquisition of
substantially all of the Client's business, in which case the Client may assign
its rights and obligations hereunder to the acquiring or surviving company upon
60 days written notice to the Custodian.
22. Miscellaneous. (a) This Agreement shall bind the successors and assigns
of the Client and the Custodian.
(b) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York without regard to its conflicts of
law rules and to the extent not preempted by federal law. The Custodian and the
Client hereby irrevocably submit to the exclusive jurisdiction of any New York
State court or any United States District Court located in the State of New York
in any action or proceeding arising out of this Agreement and hereby irrevocably
waive any objection to the venue of any such action or proceeding brought in any
such court or any defense of an inconvenient forum.
7
<PAGE>
In witness whereof, the parties hereto have set their hands as of the date
first above written.
KEY TRUST COMPANY OF OHIO, NA
By /s/Thomas E. McGahey
---------------------
Name: Thomas E. McGahey
Title: Senior Vice President
Address for record: 4900 Tiedman Road
Mailcode OH-01-0301
Brooklyn, OH 44144-2302
Accepted:
MORGAN STANLEY TRUST COMPANY
By/s/ Frederick R. Walsh, Jr. /s/ Michael P. Morrison
--------------------------- -----------------------
Authorized Signature Frederick R. Walsh, Jr. Vice President
Trust Securities Services
8
<PAGE>
APPENDIX 1
Account Documentation
REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING
-------------------------------------------------------------
TAX RECLAIMS):
-------------
CUSTODY AGREEMENT
CLIENT SERVICES GUIDE (INCLUDING APPENDICES)
FEE SCHEDULE / BILLING GUIDE
GENERAL ACCOUNT INFORMATION
US TAX AUTHORITY DOCUMENTATION
LOCAL TAX OFFICE LETTER / APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FORM 6166 / REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL
RESIDENCY, TAX STATUS AND TAX IDS
TAX RECLAIM POWER OF ATTORNEY
PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)
UK TAX AUTHORITY DOCUMENTATION
SOPHISTICATED INVESTOR (ACCREDITED INVESTOR) LETTER
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
9
<PAGE>
DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS
-----------------------------------------------------------
TAX-EXEMPT BY ITS LOCAL TAX AUTHORITY:
-------------------------------------
UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)
UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FOREIGN EXEMPTION LETTERS / APPLICATION FOR AUSTRALIAN
EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL USE THE PROXY
-------------------------------------------------------------
VOTING SERVICE:
--------------
VOTING POWER OF ATTORNEY
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN
---------------------------------------------------------------
SECURITIES:
----------
JGB INDEMNIFICATION LETTER
KOREAN SECURITIES POWER OF ATTORNEY
NEW ZEALAND 'APPROVED ISSUER LEVY' LETTER
SPANISH POWER OF ATTORNEY WITH APOSTILE
10
<PAGE>
APPENDIX 2
Client Accounts
Account Name Account Number Account Mnemonic
- ------------ -------------- ----------------
1. Victory Balanced Fund 42616 VBSA
2. Victory International Growth Fund 42617 VISA
3.
4.
5.
6.
7.
8.
9.
10.
11
<PAGE>
APPENDIX 3
Part I - Authorized Signatures
The Custodian is directed to accept and act upon Authorized Instructions
received from any of the following persons or entities:
<TABLE>
<CAPTION>
=========================================================================================================================
Name Organization Title Telephone/Fax Authorized Signature
=========================================================================================================================
<S> <C> <C> <C> <C>
Samuel Visnick Key Services Vice President 216-813-4094 /s/ Samuel Visnick
Corporation /216-813-4851
- ------------------------------------------------------------------------------------------------------------------------
Michael P. Morrison Key Services Vice President 216-813-4116 /s/ Michael P. Morrison
Corporation /216-813-4022
- ------------------------------------------------------------------------------------------------------------------------
Lawrence R. Mick Key Services Vice President 216-813-4167 /s/ Lawrence R. Mick
Corporation /216-813-4128
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Warmouth Key Services Assistant Vice 216-813-4041 /s/ Mark D. Warmouth
Corporation President /216-813-4103
- ------------------------------------------------------------------------------------------------------------------------
Brian Kingsley Key Services Analyst II 216-813-4095 /s/ Brian Kingsley
Corporation /216-813-4103
- ------------------------------------------------------------------------------------------------------------------------
Susan Lindow Key Services Analyst II 216-813-4860 /s/ Susan Lindow
Corporation /216-813-4103
- ------------------------------------------------------------------------------------------------------------------------
Kathleen DiVincenzo Key Services Analyst II 216-813-4118 /s/ Kathleen DiVincenzo
Corporation /216-813-4103
- ------------------------------------------------------------------------------------------------------------------------
Dana Ewing Key Services Analyst II 216-813-4122 /s/ Dana Ewing
Corporation /216-813-4103
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Authorized by: /s/ Thomas E. McGahey
----------------------
12
<PAGE>
Part II - System User ID numbers
The Custodian is directed to accept and act upon Authorized Instructions
transmitted electronically and identified with the following mnemonics and
system user ID numbers for the following activities:
<TABLE>
<CAPTION>
Work Station Account Work Stations
User ID Number Mnemonic TE TCC SL FE CM MA TD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A EKY 1530 Mark Warmouth All All Access to all
A EKY 1531 Brian Kingsley All All Access to all
A EKY 1532 Sue Lindow All All Access to all
A EKY 1533 Kathy Di Vincenzo All All Access to all
A EKY 1534 Dana Ewing All All Access to all
A EKY 1570 Dennis Billitier All All Access to all
A EKY 1571 Terrance Koch All All Access to all
B EKY 1513 Michael Morrison All All Inquiry/Reports access only
B EKY 1514 Sam Visnick All All Inquiry/Reports access only
B EKY 1515 Janet Frehmeyer All All Inquiry/Reports access only
B EKY 1516 Stacey Bernot All All Inquiry/Reports access only
B EKY 1517 Button Hotz All All Inquiry/Reports access only
B EKY 1518 Brian Mihalik All All Inquiry/Reports access only
B EKY 1519 Zoher Sillabkhan All All Inquiry/Reports access only
B EKY 1520 Brenda Frazier All All Inquiry/Reports access only
B EKY 1521 Suzanne Sadd All All Inquiry/Reports access only
B EKY 1522 Halle Pales-Staskey All All Inquiry/Reports access only
B EKY 1523 Wanda Tolliver All All Inquiry/Reports access only
B EKY 1524 Team Lead All All Inquiry/Reports access only
B EKY 1525 Eric McDonald All All Inquiry/Reports access only
B EKY 1526 Tracey Reed All All Inquiry/Reports access only
B EKY 1527 Scott MacDonald All All Inquiry/Reports access only
B EKY 1528 Leslie Chi All All Inquiry/Reports access only
B EKY 1529 Ron Ulle All All Inquiry/Reports access only
B EKY 1572 Brad Grosky All All Inquiry/Reports access only
C EKY 1535 Marion McNeil 42602 PTIF Inquiry/Reports access only
C EKY 1536 Matt Carandang 42602 PTIF Inquiry/Reports access only
D EKY 1561 Dawn Edwards 42602 PTIF Inquiry/Reports access only
D EKY 1562 Conrad Metz 42614 PFSM Inquiry/Reports access only
42615 KCSA Inquiry/Reports access only
42616 VBSA Inquiry/Reports access only
42617 VISA Inquiry/Reports access only
E EKY 1561 Rusty Adkins 42610 PFCG Inquiry/Reports access only
E EKY 1569 Charles Baroni 42612 PFLO Inquiry/Reports access only
42613 PFSC Inquiry/Reports access only
42614 PFSM Inquiry/Reports access only
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Work Station Account Work Stations
User ID Number Mnemonic TE TCC SL FE CM MA TD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
F EKY 1560 Christine Kendall 42616 VBSA Inquiry/Reports access only
42617 VISA Inquiry/Reports access only
MGTCGB22 JP Morgan 42611 TIJP Trade Transmissions
LOCYGB2L Lombard Odier 42612 PFLO Trade Transmissions
</TABLE>
A MTKY1TPF / MTKY1RPF
B MTKY2TPF / MTKY2RPF
C MTKY3TPF / MTKY3RPF
D MTKY4TPF / MTKY4RPF
E MTKY5TPF / MTKY5RPF
F
Workstation Session Codes
- -------------------------
TE Trade Entry
TCC Trade Cancel/Correct
SL Securities Lending
FE Foreign Exchange
CM Cash Movement
MA Mass Authorization
TD Time Deposit
* All above ids have access inquiry and Reports
Key Services Corporation
By: /s/ Michael P. Morrison
------------------------
Name: Michael P. Morrison
Title: Vice President
Trust Securities Services
14
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Subcustodians
===============================================================================================================
COUNTRY Agent Bank Country Agent Bank
===============================================================================================================
<S> <C> <C> <C>
Argentina Citibank N.A. Malaysia OCBC Bank (Malyasia) Berhad.
- ---------------------------------------------------------------------------------------------------------------
Australia Australia and New Zealand Mauritius Hong Kong & Shanghai Banking Corp.
Banking Group, Ltd.
- ---------------------------------------------------------------------------------------------------------------
Austria Creditanstalt Bankverein Mexico Citibank Mexico S.A.
- ---------------------------------------------------------------------------------------------------------------
Bangladesh Standard Chartered Bank Morocco Banque Commerciale du Maroc
- ---------------------------------------------------------------------------------------------------------------
Belgium Banque Bruxelles Lambert S.A. Netherlands ABN - Amro Bank N.V.
- ---------------------------------------------------------------------------------------------------------------
Botswana Barclays Bank of Botswana New Zealand Australia and New Zealand Banking
Group (New Zealand) Ltd
- ---------------------------------------------------------------------------------------------------------------
Brazil Banco de Boston Norway Den Norske Bank
- ---------------------------------------------------------------------------------------------------------------
Canada The Toronto Dominion Bank Pakistan Standard Chartered Bank
- ---------------------------------------------------------------------------------------------------------------
Chile Citibank N.A. Papua New Australia and New Zealand Banking
Guinea Group, Ltd.
- ---------------------------------------------------------------------------------------------------------------
China Hongkong & Shanghai Banking Peru Citibank, N.A.
Corp. Ltd.
- ---------------------------------------------------------------------------------------------------------------
Colombia Cititrust S.A. Philippines Hongkong & Shanghai Banking Corp.
Ltd.
- ---------------------------------------------------------------------------------------------------------------
Cyprus Barclays Bank PLC Poland Citibank (Poland) S.A.
- ---------------------------------------------------------------------------------------------------------------
Czech Republic ING Bank (Prague) Portugal Banco Comercial Portugues
- ---------------------------------------------------------------------------------------------------------------
Denmark Den Danske Bank Russia Credit Suisse (with Credit Suisse
(Moscow) Ltd)
- ---------------------------------------------------------------------------------------------------------------
Ecuador Citibank, N.A. Singapore Oversea-Chinese Banking Corp. Ltd.
- ---------------------------------------------------------------------------------------------------------------
Egypt Citibank, N.A. Slovak Republic ING Bank
- ---------------------------------------------------------------------------------------------------------------
Finland Merita Bank South Africa First Natl. Bank of Southern Africa
Ltd.
- ---------------------------------------------------------------------------------------------------------------
France Banque Indosuez South Korea Standard Chartered Bank
- ---------------------------------------------------------------------------------------------------------------
Germany Dresdner Bank AG Spain Banco Santander
- ---------------------------------------------------------------------------------------------------------------
Ghana Barclays Bank of Ghana Ltd. Sri Lanka Hongkong & Shanghai Banking Corp.
Ltd.
- ---------------------------------------------------------------------------------------------------------------
Greece Citibank, N.A. Swaziland Barclays Bank of Swaziland Ltd
- ---------------------------------------------------------------------------------------------------------------
Hong Kong Hongkong & Shanghai Banking Sweden Svenska Handelsbanken
Corp. Ltd.
- ---------------------------------------------------------------------------------------------------------------
Hungary Citibank Budapest Switzerland Bank Leu
- ---------------------------------------------------------------------------------------------------------------
India Morgan Stanley Trust Company Taiwan Hongkong & Shanghai Banking Corp.
(Bombay)
- ---------------------------------------------------------------------------------------------------------------
Indonesia Hongkong & Shanghai Banking Thailand Standard Chartered Bank
Corp. Ltd.
- ---------------------------------------------------------------------------------------------------------------
Ireland Allied Irish Bank **Tunisia** Banque Internationale Arabe de
Tunisie
- ---------------------------------------------------------------------------------------------------------------
Israel Bank Leumi Turkey Citibank, N.A.
- ---------------------------------------------------------------------------------------------------------------
Italy Barclays Bank plc United Kingdom Barclays Bank PLC
- ---------------------------------------------------------------------------------------------------------------
Japan The Bank of Tokyo-Mitsubishi Uruguay Citibank, N.A.
Ltd
- ---------------------------------------------------------------------------------------------------------------
Jordan Arab Bank plc. Venezuela Citibank, N.A.
- ---------------------------------------------------------------------------------------------------------------
Kenya Barclays Bank of Kenya Ltd Zambia Barclays Bank of Zambia Ltd
- ---------------------------------------------------------------------------------------------------------------
Luxembourg Banque Bruxelles Lambert S.A. Zimbabwe Barclays Bank of Zimbabwe Ltd.
===============================================================================================================
</TABLE>
** Not an "eligible foreign custodian" as such term is defined in Rule 17f-5
of the Investment Company Act of 1940
15
<PAGE>
KEY TRUST COMPANY OF OHIO,
NATIONAL ASSOCIATION
CERTIFICATION
I, Edward J. Tognetti, hereby certify that I am the duly elected Secretary
of Key Trust Company of Ohio, National Association (the "Bank"), a national
banking association duly organized and existing under the laws of the United
States of America, that I have in my possession the corporate records regarding
the Bank, that the following is a true and correct copy of a portion of the
signature authorities, duly adopted by the Bank according to the laws of the
United States of America, and that the signature authorities have not been
amended or rescinded and are in full force and effect:
"RESOLUTION
A. Any Vice President or officer of higher rank of the Bank is authorized to:
(1) Execute, with the manual countersignature of any other officer of the
Bank, any agreement, document, or other instrument related to the
conduct of the Bank in a fiduciary capacity not set forth under B.
(2) Execute, without a countersignature, any of the documents set forth
under B.
(3) Execute, by facsimile signature, without countersignature, official
checks drawn on trust funds in the Bank, dividend checks issued by the
Bank as dividend disbursing agent for various corporations and the
Bank, pension checks issued by the Bank as trustee for various
corporations and the Bank, and checks issued in payment of principal
or interest on bonds for which the Bank acts as trustee.
B. Any officer of the Bank is authorized without further designation,
attestation, or countersignature to:
(1) Sign official checks drawn on trust funds in the Bank.
(2) Sign instruments pleading or releasing collateralized trust funds.
(3) Sign all accounts, affidavits, bonds, certificates, declarations,
discharges, financing statements, petitions, proxies, receipts,
releases, satisfactions, schedules, securities, settlements, and
undertakings executed and delivered for an on behalf and in the name
of the Bank in any fiduciary capacity.
<PAGE>
(4) Sign powers of attorney, assignments, or other documents to effect the
sale, conveyance, assignment, transfer and delivery of stocks, bonds,
scrip, real estate, mortgages, security agreements, deeds, promissory
notes, life insurance policies and other securities standing in the
name of the Bank in any fiduciary capacity.
(5) Authenticate registered and bearer bonds for which the Bank is
trustee.
(6) Guarantee signatures on stocks, bonds, and other negotiable
instruments.
(7) Witness assignments on U.S. government securities.
(8) Sign checks or withdrawal receipts on, or give notice of intention to
withdraw partial or whole balances from, any deposit account
controlled by the Bank in any fiduciary capacity.
(9) Endorse certificates of deposit or savings certificates for
withdrawal.
(10) Sign stock certificates and scrip certificates of any corporation for
which the Bank has been appointed Transfer Agent or Registrar, sign
voting trust certificates and scrip certificates issued under a voting
trust of which this Bank is voting trustee or depository, sign
interest and dividend checks, sign dividend warrants' and authenticate
bonds, debentures, notes or other certificates of indebtedness issued
under indentures, security agreements, trust deeds, mortgages or all
similar instruments of which the Bank is the trustee or has assumed
fiduciary powers and duties.
(11) Sign agreements, indentures, receipts, cross-receipts, certificates,
applications, and other documents in the exercise of fiduciary powers
relating to the issuance, defeasance, or redemption of bonds,
debentures, and other debt instruments.
C. Any officer or employee of the Bank, KeyCorp, or any Subsidiary of KeyCorp
may be designated in writing by any Senior Vice President or officer of
higher rank of the Bank to have all or part of any authority granted to any
signer.
***
RESOLUTION
***
The Secretary and any Assistant Secretary are authorized to certify copies
of, and excerpts from, the Articles of Association and Bylaws of the Bank,
certificates of signing authorities and certificates of incumbency of
signers and their specimen signatures or facsimile signatures or other
documents issued by the Comptroller of the Currency approving or confirming
the merger of any financial institution with or into the Bank."
<PAGE>
I further certify that those individuals listed below are duly elected and
acting officers of the Bank or are designated signers and that a specimen
signature is set forth on the line opposite their name immediately below:
NAME SIGNATURE
---- ---------
Thomas E. McGahey /s/Thomas E. McGahey
--------------------
Executed at Cleveland, Ohio this 11th day of June, 1996.
/s/Edward J. Tognetti
---------------------
Edward J. Tognetti,
Secretary
Key Trust Company of Ohio, National
Association
<PAGE>
KEY TRUST COMPANY OF OHIO,
NATIONAL ASSOCIATION
SECRETARY'S CERTIFICATE
-----------------------
As Secretary of Key Trust Company of Ohio, National Association, a national
banking association duly organized and validly existing under the laws of the
United States of America, with its principal office in Cleveland, Ohio, I hereby
certify that the Officer whose name, title, and facsimile signature appears
below, is fully empowered to execute any and all documents on behalf of Key
Trust Company of Ohio, National Association.
Name Title Signature
Thomas E. McGahey Senior Vice President /s/Thomas E. McGahey
--------------------
IN WITNESS WHEREOF, I have signed and sealed this Certificate this 11th day of
June, 1996.
/s/Edward J. Tognetti
---------------------
Edward J. Tognetti
Secretary
[SEAL]
<PAGE>
KEY TRUST COMPANY OF OHIO,
NATIONAL ASSOCIATION
CERTIFICATION
-------------
I, Edward J. Tognetti, hereby certify that I am the duly elected Secretary
of Key Trust Company of Ohio, National Association (the "Bank"), a national
banking association duly organized and existing under the laws of the United
States of America, that I have in my possession the corporate records regarding
the Bank, that the following is a true and correct copy of a portion of the
signature authorities, duly adopted by the Bank according to the laws of the
United States of America, and that the signature authorities have not been
amended or rescinded and are in full force and effect:
"RESOLUTION
A. Any Vice President or officer of higher rank of the Bank is authorized to:
(1) Execute, with the manual countersignature of any other officer of the
Bank, any agreement, document, or other instrument related to the
conduct of the Bank in a fiduciary capacity not set forth under B.
(2) Execute, without a countersignature, any of the documents set forth
under B.
(3) Execute, by facsimile signature, without countersignature, official
checks drawn on trust funds in the Bank, dividend checks issued by the
Bank as dividend disbursing agent for various corporations and the
Bank, pension checks issued by the Bank as trustee for various
corporations and the Bank, and checks issued in payment of principal
or interest on bonds for which the Bank acts as trustee.
B. Any officer of the Bank is authorized without further designation,
attestation, or countersignature to:
(1) Sign official checks drawn on trust funds in the Bank.
(2) Sign instruments pleading or releasing collateralized trust funds.
(3) Sign all accounts, affidavits, bonds, certificates, declarations,
discharges, financing statements, petitions, proxies, receipts,
releases, satisfactions, schedules, securities, settlements, and
undertakings executed and delivered for an on behalf and in the name
of the Bank in any fiduciary capacity.
<PAGE>
(4) Sign powers of attorney, assignments, or other documents to effect the
sale, conveyance, assignment, transfer and delivery of stocks, bonds,
scrip, real estate, mortgages, security agreements, deeds, promissory
notes, life insurance policies and other securities standing in the
name of the Bank in any fiduciary capacity.
(5) Authenticate registered and bearer bonds for which the Bank is
trustee.
(6) Guarantee signatures on stocks, bonds, and other negotiable
instruments.
(7) Witness assignments on U.S. government securities.
(8) Sign checks or withdrawal receipts on, or give notice of intention to
withdraw partial or whole balances from, any deposit account
controlled by the Bank in any fiduciary capacity.
(9) Endorse certificates of deposit or savings certificates for
withdrawal.
(10) Sign stock certificates and scrip certificates of any corporation for
which the Bank has been appointed Transfer Agent or Registrar, sign
voting trust certificates and scrip certificates issued under a voting
trust of which this Bank is voting trustee or depository, sign
interest and dividend checks, sign dividend warrants' and authenticate
bonds, debentures, notes or other certificates of indebtedness issued
under indentures, security agreements, trust deeds, mortgages or all
similar instruments of which the Bank is the trustee or has assumed
fiduciary powers and duties.
(11) Sign agreements, indentures, receipts, cross-receipts, certificates,
applications, and other documents in the exercise of fiduciary powers
relating to the issuance, defeasance, or redemption of bonds,
debentures, and other debt instruments.
C. Any officer or employee of the Bank, KeyCorp, or any Subsidiary of KeyCorp
may be designated in writing by any Senior Vice President or officer of
higher rank of the Bank to have all or part of any authority granted to any
signer.
***
RESOLUTION
***
The Secretary and any Assistant Secretary are authorized to certify copies
of, and excerpts from, the Articles of Association and Bylaws of the Bank,
certificates of signing authorities and certificates of incumbency of
signers and their specimen signatures or facsimile signatures or other
documents issued by the Comptroller of the Currency approving or confirming
the merger of any financial institution with or into the Bank."
<PAGE>
I further certify that those individuals listed below are duly elected and
acting officers of the Bank or are designated signers and that a specimen
signature is set forth on the line opposite their name immediately below:
NAME SIGNATURE
Michael P. Morrison /s/Michael P. Morrison
----------------------
Executed at Cleveland, Ohio this 11th day of June, 1996.
/s/Edward J. Tognetti
---------------------
Edward J. Tognetti,
Secretary
Key Trust Company of Ohio, National
Association
<PAGE>
KEY TRUST COMPANY OF OHIO,
NATIONAL ASSOCIATION
SECRETARY'S CERTIFICATE
-----------------------
As Secretary of Key Trust Company of Ohio, National Association, a national
banking association duly organized and validly existing under the laws of the
United States of America, with its principal office in Cleveland, Ohio, I hereby
certify that the Officer whose name, title, and facsimile signature appears
below, is fully empowered to execute any and all documents on behalf of Key
Trust Company of Ohio, National Association.
Name Title Signature
- ---- ----- ---------
Michael P. Morrison Vice President /s/Michael P. Morrison
IN WITNESS WHEREOF, I have signed and sealed this Certificate this 11th day of
June, 1996.
/s/Edward J. Tognetti
---------------------
Edward J. Tognetti
Secretary
[SEAL]
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 1st day of June, 1996
between THE VICTORY PORTFOLIOS, a Delaware business trust (herein called the
"Trust"), and BISYS Fund Services Limited Partnership, a Delaware corporation
(herein called "BISYS").
WHEREAS, the Trust is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended, and consisting
of the investment portfolios set forth on Schedule I hereto, as such Schedule
may be revised from time to time (individually, a "Fund" and collectively, the
"Funds"); and
WHEREAS, the Trust offers for sale shares of beneficial interest
without par value of the Funds (herein collectively called "Shares"); and
WHEREAS, pursuant to a Distribution Agreement of even date herewith
(the "Distribution Agreement") between the Trust and BISYS Fund Services Limited
Partnership ("BISYS"), the Trust has retained BISYS as its Distributor to
provide for the sale and distribution of the Shares; and
WHEREAS, the Trust desires to retain BISYS as its Administrator to
provide it with certain administrative services with respect to each of the
Funds and their respective Shares, and BISYS is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual convenants
set forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Trust has delivered to BISYS copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
(a) The Trust's Certificate of Trust and all amendments
thereto (such Certificate of Trust, as presently in effect and as it
shall from time to time be amended, herein called the "Trust's
Certificate");
(b) The By-Laws of the Trust (such By-Laws as presently in
effect and as they shall from time to time be amended, herein called
the "By-Laws");
(c) Resolutions of the Board of Trustees of the Trust
authorizing the execution and delivery of this Agreement;
(d) The Trust's most recent Post-Effective Amendment to its
Registration Statement(s) under the Securities Act of 1933, as amended
(the "1933 Act"), and under the Investment Company Act of 1940, as
amended (the "1940 Act"), on
<PAGE>
Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") relating to the Shares and any further amendment thereto;
(e) Notification of registration of the Trust under the
1940 Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of
the Trust with respect to the Funds (such prospectuses and statements
of additional information, as presently in effect and as they shall
from time to time be amended and supplemented, herein called
individually the "Prospectus" and collectively the "Prospectuses").
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Trust hereby appoints BISYS as its
Administrator for each of the Funds on the terms and for the period set forth in
this Agreement and BISYS hereby accepts such appointment and agrees to perform
the services and duties set forth in this Section II for the compensation
provided in this Section II. The Trust understands that BISYS now acts and will
continue to act as administrator of various investment companies and fiduciary
of other managed accounts, and the Trust has no objection to BISYS' so acting.
In addition, it is understood that the persons employed by BISYS to assist in
the performance of its duties hereunder, will not devote their full time to such
services and nothing herein contained shall be deemed to limit or restrict the
right of BISYS or any affiliate of BISYS to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature.
2. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and
control of the Trust's Board of Trustees, BISYS will provide
facilities, equipment, statistical and research data, clerical
services, internal compliance services relating to legal matters, and
personnel to carry out all administrative services required for
operation of the business and affairs of the Trust, other than those
investment advisory functions which are to be performed by the Trust's
investment advisers, the services of BISYS as Distributor pursuant to
the Distribution Agreement, those services to be performed by the
Trust's custodian, transfer agent and fund accounting agent, and those
services normally performed by the Trust's counsel and auditors. BISYS'
responsibilities include without limitation the following services:
(1) Providing a facility to receive purchase and
redemption orders via toll-free IN-WATTS telephone lines or
via electronic transmission;
2
<PAGE>
(2) Providing for the preparing, supervising and
mailing of confirmations for wire, telephone and electronic
purchase and redemption orders;
(3) Providing and supervising the operation of an
automated data processing system to process purchase and
redemption orders received by BISYS (BISYS assumes
responsibility for the accuracy of the data transmitted for
processing or storage);
(4) Overseeing the performance of the Trust's
custodian and transfer agent;
(5) Making available information concerning each Fund
to its shareholders; distributing written communications to
each Fund's shareholders of record such as periodic listings
of each Fund's securities, annual and semi-annual reports, and
Prospectuses and supplements thereto; and handling shareholder
problems and calls relating to administrative matters; and
(6) Providing and supervising the services of
employees whose principal responsibility and function shall be
to preserve and strengthen each Fund's relationships with its
shareholders.
(b) BISYS shall assure that persons are available to transmit
wire, telephone or electronic redemption requests to the Trust's
transfer agent as promptly as practicable.
(c) BISYS shall assure that persons are available to transmit
wire, telephone or electronic orders accepted for the purchase of
Shares to the Trust's transfer agent as promptly as practicable.
(d) BISYS shall participate in the periodic updating of the
Prospectuses and shall coordinate (i) the filing, printing and
dissemination of reports to each Fund's shareholders and the
Commission, including but not limited to annual reports and semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2, (ii) the
preparation, filing, printing and dissemination of proxy materials, and
(iii) the preparation and filing of post-effective amendments to the
Trust's Registration Statement on Form N-1A relating to the updating of
financial information and other routine matters.
(e) BISYS shall pay all costs and expenses of maintaining the
offices of the Trust, wherever located, and shall arrange for payment
by the Trust of all expenses payable by the Trust.
(f) BISYS, after consultation with legal counsel for the
Trust, shall determine the jurisdictions in which the
3
<PAGE>
Shares shall be registered or qualified for sale and, in connection
therewith, shall be responsible for the maintenance of the registration
or qualification of the Shares for sale under the securities laws of
any state. Payment of share registration fees and any fees for
qualifying or continuing the qualification of the Funds shall be made
by the Funds.
(g) BISYS shall provide the services of certain persons who
may be appointed as officers of the Trust by the Trust's Board of
Trustees.
(h) BISYS shall oversee the maintenance by the Trust's
custodian and transfer agent of the books and records required under
the 1940 Act in connection with the performance of the Trust's
agreements with such entities, and shall maintain, or provide for the
maintenance of, such other books and records (other than those required
to be maintained by the Trust's investment advisers and fund accounting
agent) as may be required by law or may be required for the proper
operation of the business and affairs of the Fund. In compliance with
the requirements of Rule 31a-3 under the 1940 Act, BISYS agrees that
all such books and records which it maintains, or is responsible for
maintaining, for the Funds are the property of the Trust and further
agrees to surrender promptly to the Trust any of such books and records
upon the Trust's request. BISYS further agrees to preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act said books and
records required to be maintained by Rule 31a-1 under said Act.
(i) BISYS shall coordinate the preparation of the Funds'
federal, state and local income tax returns.
(j) BISYS shall prepare such other reports relating to the
business and affairs of the Trust and each Fund (not otherwise
appropriately prepared by the Trust's investment adviser, fund
accounting agent, BISYS or the Trust's counsel or auditors) as the
officers and Trustees of the Trust may from time to time reasonably
request in connection with the performance of their duties.
(k) In performing its duties as Administrator of the Trust,
BISYS will act in conformity with the Trust's Certificate, By-Laws and
Prospectuses and with the instructions and directions of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal or state
laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons as BISYS may believe to
be particularly fitted to assist in the performance of this Agreement; provided,
however, that the
4
<PAGE>
compensation of such persons shall be paid by BISYS and that BISYS shall be as
fully responsible to the Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
this subsection 4, BISYS shall pay all expenses incurred by it in performing its
services and duties as Administrator, including the cost of providing office
facilities, equipment and personnel related to such services and duties. Other
expenses incurred in the operation of the Trust (other than those borne by the
Trust's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of trustees who are not officers, directors, partners,
employees or holders of 5 percent or more of the outstanding voting securities
of the Trust's investment advisers or BISYS or any of their affiliates,
Securities and Exchange Commission fees and state blue sky registration or
qualification fees, advisory fees, charges of custodians, transfer and dividend
disbursing agents' fees, fund accounting agents' fees, fidelity bond and
trustees' and officers' errors and omissions insurance premiums, outside
auditing and legal expenses, costs of maintaining corporate existence, costs
attributable to shareholder services, including without limitation telephone and
personnel expenses, costs of preparing and printing Prospectuses for regulatory
purposes and for distribution to existing shareholders, costs of shareholders'
reports and Trust meetings and any extraordinary expenses will be borne by the
Trust.
5. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to Section II of this Agreement, the Trust will pay BISYS
a fee, computed daily and payable monthly, at the annual rate of .15 percent of
each Fund's average daily net assets. Such fee as is attributable to each Fund
shall be a separate (and not joint or joint and several) obligation of each such
Fund. No individual Fund shall have any responsibility for any obligation, if
any, with respect to any other Fund arising out of this Agreement.
III. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and the Funds and
their prior or present shareholders or those persons or entities who respond to
B inquiries concerning investment in the Trust, and except as provided below,
will not use such records and information for any purpose other than performance
of its responsibilities and duties hereunder, or the performance of its
responsibilities and duties with regard to any other investment portfolio which
may be added to the Trust in the future. Any other use by BISYS of the
information and records referred to above may be made only after prior
notification to and approval in writing by the Trust. Such approval shall not be
unreasonably withheld and may not be
5
<PAGE>
withheld where (i) BISYS may be exposed to civil or criminal contempt
proceedings for failure to divulge such information; (ii) BISYS is requested to
divulge such information by duly constituted authorities; or (iii) BISYS is so
requested by the Trust.
IV. LIMITATION OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Trust in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence on its part in the performance of its duties or from its
reckless disregard of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of
BISYS, who may be or become an officer, trustee, employee or agent of the Trust,
shall be deemed, when rendering services to the Trust, or acting on any business
of the Trust (other than services or business in connection with BISYS' duties
hereunder) to be rendering such services to or acting solely for the Trust and
not as an officer, director, partner, employee or agent or one under the control
or direction of BISYS even though paid by BISYS.
V. DURATION AND TERMINATION
This Agreement shall become effective as of the date first above
written, and, unless sooner terminated as provided herein, shall continue until
May 31, 1998. Thereafter, if not terminated, this Agreement shall continue
automatically as to a particular Fund for successive terms of one year, provided
that such continuance is specifically approved (a) by a vote of a majority of
those members of the Board of Trustees of the Trust who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Trustees of the Trust or by vote of a "majority of the outstanding voting
securities" of such Fund. Notwithstanding anything to the contrary contained in
this Section V, this Agreement may be terminated by the Trust with respect to
any Fund at any time, without the payment of any penalty, by vote of a majority
of the entire Board of Trustees of the Trust or by a vote of a "majority of the
outstanding voting securities" or such Fund on 60 days' written notice to BISYS
or by BISYS at any time, without the payment of any penalty, on 60 days' written
notice to the Trust. This Agreement will automatically and immediately terminate
in the event of its "assignment." (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested person" and
"assignment" shall have the same meaning as such terms have in the 1940 Act.)
6
<PAGE>
VI. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Trust hereunder by BISYS shall
be in writing and shall be duly given if mailed or delivered to the Trust c/o
Mutual Fund Products, KeyCorp Management Company, 127 Public Square, Cleveland,
Ohio 44114, with a copy to Kramer, Levin, Naftalis & Frankel, 919 Third Avenue,
New York, New York 10019, Attention: Carl Frischling, Esquire, or at such other
address or to such individual as shall be so specified by the Trust to BISYS.
Notices of any kind to be given to BISYS hereunder by the Trust shall be in
writing and shall be duly given if mailed or delivered to BISYS at 3435 Stelzer
Road, Columbus, Ohio 43219, Attention: Stephen G. Mintos, Chief Executive
Officer, or at such other address or to such individual as BISYS shall specify
to the Trust.
VIII. MISCELLANEOUS
1. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Article V hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; provided,
however, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Commission thereunder.
2. NAMES. The names "The Victory Portfolios" and "Trustees of The
Victory Portfolios" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Certificate of Trust filed on December 21, 1995 at the office of the Secretary
of State of the State of Delaware which is hereby referred to and is also on
file at the principal office of the Trust. The obligations of The Victory
Portfolios entered into in the name or on behalf thereof by any of its trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the trustees, shareholders, or representatives of
the Trust personally, but bind only the Trust property, and all persons dealing
with any class of shares of the Trust must look solely to the Trust property
belonging to such class for the enforcement of any claims against the Trust.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
THE VICTORY PORTFOLIOS
By:/s/J. David Huber
---------------------
Vice President
Attest: /s/Scott A. Englehart
----------------------
Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP, d/b/a
BISYS FUND SERVICES
By:/s/J. David Huber
------------------------
Executive Vice President
Attest:/s/George O. Martinez
---------------------
Senior Vice President
10
<PAGE>
SCHEDULE I
As Amended as of June 1, 1996
Name of Fund Class
- ------------ -----
1. The Victory Balanced Fund A/B/Key Share
2. The Victory Diversified Stock Fund A/B
3. The Victory Government Mortgage Fund A
4. The Victory Growth Fund A
5. The Victory Intermediate Income Fund A
6. The Victory International Growth Fund A/B
7. The Victory Investment Quality Bond Fund A
8. The Victory Limited Term Income Fund A
9. The Victory Ohio Municipal Bond Fund A
10. The Victory Ohio Regional Stock Fund A/B
11. The Victory Prime Obligations Fund A
12. The Victory Special Growth Fund A
13. The Victory Special Value Fund A/B
14. The Victory Stock Index Fund A
15. The Victory Tax-Free Money Market Fund A
16. The Victory U.S. Government Obligations Fund Investor/Shares
17. The Victory Value Fund A
18. The Victory Financial Reserves Fund A
19. The Victory Fund for Income A
20. The Victory Government Bond Fund A/B
21. The Victory Institutional Money Market Fund Investor/Select
22. The Victory National Municipal Bond Fund A/B
23. The Victory New York Tax-Free Fund A/B
24. The Victory Ohio Municipal Money Market Fund A
11
TRANSFER AGENCY AND SERVICE AGREEMENT
between
The Victory Portfolios
on Behalf of Various Funds
Listed on Schedule A
Individually and Not Jointly
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of the Bank......................
Article 2 Fees and Expenses.............................................
Article 3 Representations and Warranties of the Bank....................
Article 4 Representations and Warranties of the Company.................
Article 5 Data Access and Proprietary Information.......................
Article 6 Indemnification...............................................
Article 7 Standard of Care..............................................
Article 8 Covenants of the Company and the Bank.........................
Article 9 Termination of Agreement......................................
Article 10 Assignment....................................................
Article 11 Amendment.....................................................
Article 12 Massachusetts Law to Apply....................................
Article 13 Force Majeure.................................................
Article 14 Consequential Damages.........................................
Article 15 Merger of Agreement...........................................
Article 16 Counterparts..................................................
Article 17 Multiple Funds................................................
Article 18 Limitation of Liability.......................................
Article 19 Arbitration...................................................
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the 12th day of July, 1996 by and between THE VICTORY
PORTFOLIOS, a Delaware business trust, having its principal office and place of
business at 3435 Stelzer Road, Columbus, Ohio (the "Company"), on behalf of the
individual Funds listed on Schedule A, individually and not jointly, (each a
"Fund" and collectively, the "Funds"), and STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company having its principal office and place of business
at 225 Franklin Street, Boston, Massachusetts 02110 ("the Bank").
WHEREAS, the Company is a series Fund registered as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement,
the Company, on behalf of each Fund, individually
- 1 -
<PAGE>
and not jointly, hereby employs and appoints the Bank to act as, and the Bank
agrees to act as its transfer agent for the Fund's authorized and issued shares
of beneficial interest, (the "Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each Fund (the
"Shareholders") and set out in the currently effective prospectus and statement
of additional information ("prospectus") of each Fund, including without
limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Company and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of each Fund authorized pursuant to
the Trust Instrument of the Company (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
- 2 -
<PAGE>
(iii) Receive for acceptance redemption requests and redemp tion
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by each Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and
distributions declared by each Fund;
(viii) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt
by the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Funds, and the Bank at its
option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and
without such indemnity;
(ix) Maintain records of account for and advise each Fund and its
shareholders as to the foregoing; and
- 3 -
<PAGE>
(x) Record the issuance of shares of each Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Funds that are authorized, based upon data
provided to it by the Funds, and issued and outstanding. The
Bank shall also provide each Fund on a regular basis with
the total number of shares which are authorized and issued
and outstanding and shall have no obligation, when recording
the issuance of shares, to monitor the issuance of such
shares or to take cognizance of any laws relating to the
issue or sale of such shares, which functions shall be the
sole responsibility of the Funds.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, openaccount or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing
- 4 -
<PAGE>
confirmation forms and statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Funds shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Company
and the Bank per the attached service responsibility schedule, established and
amended from time to time by written agreement between the Company, on behalf of
each affected Fund, and the Bank. By agreement, the Bank may at times perform
only a portion of these services and the Funds or their agent may perform these
services on the Funds' behalf.
(e) The Bank shall provide additional services on behalf of each Fund
(i.e., escheatment services) that may be agreed upon in writing between the
Company and the Bank.
(f) The Bank will not accept third-party checks in payment of the
Shares.
- 5 -
<PAGE>
Article 2 Fees and Expenses
-----------------
2.01 For the performance by the Bank pursuant to this Agreement, each
Fund agrees to pay the Bank an annual maintenance fee for each shareholder
account as set out in the initial fee schedule attached hereto. Such fees and
out-of-pocket expenses and advances identified under Section 2.02 below may be
changed from time to time subject to mutual written agreement between the
Company and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, each Fund
agrees to reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulation proxies, records storage, or advances incurred by the
Bank for the items set out in the fee schedule attached hereto. In addition, any
other expenses incurred by the Bank at the request or with the consent of the
Company will be reimbursed by the affected Fund. The parties agree that the
initial fee schedule attached hereto will remain in effect for at least two
years from the effective date of this Agreement.
2.03 Each Fund agrees to pay all fees and reimbursable expenses within
30 days following the receipt of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund at least seven
(7) days prior to the mailing date of such materials.
- 6 -
<PAGE>
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth
of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement.
3.05 It and any sub-transfer agent has and will continue to have access
to the necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
3.06 It and any sub-transfer agent has and will continue to be
registered as a transfer agent with the appropriate regulatory agency and to the
extent necessary with any appropriate state regulator.
- 7 -
<PAGE>
Article 4 Representations and Warranties of the Company
---------------------------------------------
The Company represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
4.02 It is empowered under applicable laws and by its Trust Instrument
and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by the Trust Instrument and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end, management investment company registered under
the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of each Fund being offered for sale.
Article 5 Data Access and Proprietary Information
---------------------------------------
5.01 Each Fund acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and documentation
manuals furnished to each Fund by the
- 8 -
<PAGE>
Bank as part of the Funds' ability to access certain Fund-related data
("Customer Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively,"Proprietary Information") of substantial value to the Bank or
other third party. In no event shall Proprietary Information be deemed Customer
Data. Each Fund agrees to treat all Proprietary Information as proprietary to
the Bank and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, each Fund agrees for itself and its employees
and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to inform
in a timely manner of such fact and dispose of such information in accordance
with the Bank's instructions;
(d) to refrain from causing or allowing third-party
- 9 -
<PAGE>
data acquired hereunder from being retransmitted to any other computer facility
or other location, except with the prior written consent of the Bank;
(e) that each Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary Information
at common law, under federal copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02 If the Company notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain certain
data included in the Data Access Services are solely responsible for the
contents of such data and each Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not limited
to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND
SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
- 10 -
<PAGE>
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Funds include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI"), then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
Article 6 Indemnification
---------------
6.01 The Bank shall not be responsible for, and each Fund, individually
and not jointly, shall indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
- 11 -
<PAGE>
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are received by the
Bank or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or regulations
of any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the Company for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be
- 12 -
<PAGE>
indemnified by each Fund, individually and not jointly, for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of a
Fund, reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Company, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which a Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which a Fund
- 13 -
<PAGE>
may be required to indemnify the Bank except with the Fund's prior written
consent.
Article 7 Standard of Care
----------------
7.01 The Bank shall at all times act in good faith and agrees to use
its best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees.
Article 8 Covenants of the Company and the Bank
-------------------------------------
8.01 The Company shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Company authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
(b) A copy of the Trust Instrument and By-Laws of the Fund and all
amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile
- 14 -
<PAGE>
signature imprinting devices, if any; and for the preparation or use, and for
keeping account of, such certificates, forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 17A of the Securities Exchange Act of 1934, as
amended, Section 31 of the 1940 Act, and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the property of each Fund and
will be preserved, maintained and made available in accordance with such
Sections and Rules, and will be surrendered promptly to the Funds on and in
accordance with their request.
8.04 The Bank and the Company agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of a Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Company as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to
- 15 -
<PAGE>
any person whenever it is advised by its counsel that it may be held liable for
the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
------------------------
9.01 During the initial two year term of this Agreement, this Agreement
may be terminated by either party only for "cause" upon one hundred twenty (120)
days written notice to the other.
9.02 After the initial two year term of this Agreement, either party
may terminate this Agreement upon 120 days notice for any reason or for no
reason.
9.03 Should the Company exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material with
respect to each Fund will be borne by each Fund individually and not jointly.
Additionally, the Bank reserves the right to charge for any other reasonable
expenses associated with such termination and/or a charge equivalent to the
average of three (3) months' fees, provided that the Agreement has not been
terminated by the Company for "cause" (as defined in section 9.04 below).
9.04 For purposes of this Agreement, "cause" shall mean (a) a material
breach of the terms of this Agreement; (b) the failure of the Bank to meet the
performance standards set forth on the attached schedule; (c) the material
breach of a warranty,
- 16 -
<PAGE>
representation or covenant contained in this Agreement; (d) the failure to meet
the standard of care set forth in Article 7 of this Agreement; (e) an
"assignment" (as defined in the 1940 Act) of this Agreement by the Bank. For
purposes of this Section 9.04 and Section 10.01 below, an "assignment" of the
Sub-Transfer Agent Agreement (as defined below) will considered an assignment of
this Agreement.
Article 10 Assignment
----------
10.01 Neither this Agreement nor any rights or obligations hereunder
may be "assigned" (as defined in the 1940 Act) or delegated by either party
without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
10.03 The Bank will, without further consent on the part of the
Company, enter into an agreement for the performance of the some or all of the
Bank's obligations set forth in this Agreement (the "Sub-Transfer Agent
Agreement") with Boston Financial Data Services, Inc. ("BFDS"), a Massachusetts
Corporation Agreement"), which is duly registered as a transfer agent pursuant
to Section 17A(c)(2) of the Securities Exchange Act of 1934, as amended
("Section 17A(c)(2)"); provided, however, that the Bank will
- 17 -
<PAGE>
be as fully responsible to the Company for the acts and omissions of BFDS as it
is for its own acts and omissions.
Article 11 Amendment
---------
11.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Trustees of the Company.
Article 12 Massachusetts Law to Apply
--------------------------
12.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
Article 13 Force Majeure
-------------
13.01 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes. The Bank warrants and represents that it has disaster recovery
facilities that are designed to reasonably assure that its operations with
respect to the Company and its shareholders will continue uninterrupted. The
Bank further warrants and represents
- 18 -
<PAGE>
that it has in place disaster recovery procedures and that such procedures are
periodically reviewed and tested.
Article 14 Consequential Damages
---------------------
14.01 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 15 Merger of Agreement
-------------------
15.01 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 16 Counterparts
------------
16.01 This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
Article 17 Multiple Funds
--------------
17.01 Every reference to a Fund shall be deemed a reference solely to
the particular Fund of the Company (as set forth in Schedule A, as may be
amended from time to time). Under no circumstances shall the rights, obligations
or remedies with respect to a particular Fund constitute a right, obligation or
remedy applicable to any other Fund. In particular, and without otherwise
- 19 -
<PAGE>
limiting the scope of this paragraph, the Bank shall have no right to set off
claims of a Fund by applying property of any other Fund.
Article 18 Limitation on Liability
-----------------------
Copies of the Trust Instrument, as amended, establishing the Company
are on file with the Secretary of the Trust, and notice is hereby given that
this Agreement is executed on behalf of the Company by officers of the Company
as officers and not individually and that the obligations of or arising out of
this Agreement are not binding upon any of the Trustees, officers, shareholders,
employees or agents of the Company but are binding only upon the assets and
property of the various Funds of the Company, severally and not jointly.
Article 19 Arbitration
-----------
19.01 Any controversy, claim, or dispute arising out of or relating to
this Agreement or the Sub-Transfer Agent Agreement, or any breach thereof,
including without limitation any dispute concerning the scope of this Article
19, will be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association as supplemented herein, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
19.02 There will be three arbitrators, including at least one
practicing attorney and one certified public accountant.
- 20 -
<PAGE>
Pending final award, arbitrator compensation and expenses will be advanced
equally by both parties.
19.03 The AAA will hold an administrative conference with counsel for
the parties within 20 days after the filing of the demand for arbitration. The
parties and the AAA will thereafter cooperate in order to complete the
appointment of three arbitrators as quickly as possible. Within 15 days after
all three arbitrators have been appointed, an initial meeting among the
arbitrators and counsel for the parties will be held for the purpose of
establishing a plan for administration of the arbitration, including:
(a) defining the issues;
(b) scope, timing, and types of discovery, which may at the discretion
of the arbitrators include production of documents in the possession of the
parties, but may not without consent of all particles include depositions;
(c) exchange of documents and filing of detailed statement of claim and
prehearing memoranda;
(d) schedule and place of hearings; and
(e) any other matters that may promote the efficient, expeditious, and
cost-effective conduct of the proceeding.
19.04 The arbitration will take place in the State of Ohio.
19.05 The final award will include pre-award interest at a rate of
interest determined by the arbitrators to approximate
- 21 -
<PAGE>
the cost to he prevailing party of borrowing money during the relevant period.
19.06 The final award may grant such other, further and different
relief as authorized by the American Arbitration Association Commercial
Arbitration Rules, which may not include punitive damages.
- 22 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
THE VICTORY PORTFOLIOS, on behalf of
each of the Funds listed on Schedule
A, individually and not jointly
By:/s/William B. Blundin
----------------------
Vice President
ATTEST:
/s/Scott A. Englehart
- -----------------------------
Secretary
STATE STREET BANK AND TRUST COMPANY
BY:/s/Ronald E. Logue
------------------
Executive Vice President
ATTEST:
/s/Stephen Cesso
- -----------------------------
Vice President
- 23 -
<PAGE>
SCHEDULE A
1. Victory Balanced Fund
Class A Shares
Class B Shares
Key Shares
2. Victory Diversified Stock Fund
Class A Shares
Class B Shares
3. Victory Government Mortgage Fund
4. Victory Growth Fund
5. Victory Financial Reserves Fund
6. Victory Fund For Income
7. Victory Government Bond Fund
Class A Shares
Class B Shares
8. Victory Institutional Money Market Fund
Investor Shares
Select Shares
9. Victory Intermediate Income Fund
10. Victory International Growth Fund
Class A Shares
Class B Shares
11. Victory Investment Quality Bond Fund
12. Victory Limited Term Income Fund
13. Victory National Municipal Bond Fund
Class A Shares
Class B Shares
14. Victory New York Tax-Free Fund
Class A Shares
Class B Shares
15. Victory Ohio Municipal Bond Fund
16. Victory Ohio Municipal Money Market Fund
17. Victory Ohio Regional Stock Fund
Class A Shares
Class B Shares
18. Victory Prime Obligations Fund
19. Victory Special Growth Fund
20. Victory Special Value Fund
Class A Shares
Class B Shares
21. Victory Stock Index Fund
22. Victory Tax-Free Money Market
23. Victory U.S. Government Obligations Fund
Investor Class Shares
Select Class Shares
24. Victory Value Fund
- 24 -
<PAGE>
STATE STREET BANK AND TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase X X+
of Shares.
2. Issue shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X X+
4. Effect transactions 1-3 above X X+
directly with broker-dealers.
5. Pay over monies to redeeming X X+
Shareholders.
6. Effect transfers of Shares. X X+
7. Prepare and transmit dividends X X+
distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities
12. Mail proxies. X
13. Mail shareholder reports. X
14. Mail prospectuses to current X
Shareholders.
15. Withhold taxes on U.S. resident X
and non-resident alien accounts.
16. Prepare and file U.S. Treasury X
Department forms.
17. Prepare and mail account and X X+
confirmation statements for
Shareholders.
- 25 -
<PAGE>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
18. Provide Shareholder account X
information.
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b)
and (c) of the Agreement.
+ Shared responsibility with each KeyCorp division responsible
for their customers represented by onmnibus accounts
THE VICTORY PORTFOLIOS, on behalf of
each of the Funds listed on Schedule
A, individually and not jointly
By:/s/William B. Blundin
----------------------
Vice President
ATTEST:
/s/Scott A. Englehart
- -----------------------------
Secretary
STATE STREET BANK AND TRUST COMPANY
BY:/s/Ronald E. Logue
------------------
Executive Vice President
ATTEST:
/s/Stephen Cesso
- -----------------------------
Vice President
- 26 -
<PAGE>
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
THE VICTORY PORTFOLIOS
- --------------------------------------------------------------------------------
Annual Account Service Fees
- ---------------------------
Account Fee $13.25
Complex Base Fee* $600,000
Closed Account Fee $ 1.50
Each class is considered a fund and will be billed accordingly.
Fees are billable on a monthly basis at the rate of 1/12 of the annual fee. A
charge is made for an account in the month that an account opens or closes.
Activity Based Fees
- -------------------
New Account Set-up $5.00/each
Manual Transactions $1.50/each
Telephone Calls $1.50/each
Correspondence $2.50/each
IRA Custodial Fees (If Applicable)
- ----------------------------------
Annual Maintenance $10.00/account
Conversion Fee
- --------------
One Time Fee $30,000
Out-of-Pocket Expenses Billed as incurred
Out-of-Pocket expenses include but are not limited to: confirmation statements,
postage, forms, audio response, telephone, records retention, transcripts,
microfilm, microfiche, and expenses incurred at the specific direction of the
fund.
*This complex base fee may be allocated across the Funds at the discretion of
KeyCorp. The complex base fee is applicable up to 50 Cusips.
THE VICTORY PORTFOLIOS, on behalf of
each of the Funds listed on Schedule A,
individually and not jointly STATE STREET BANK AND TRUST CO.
By /s/William B. Blundin By /s/Ronald E. Logue
--------------------- ------------------
Title Vice President Title Executive Vice President
Date July 22, 1996 Date July 26, 1996
- 27 -
BUSINESS MANAGEMENT AGREEMENT
THIS BUSINESS MANAGEMENT AGREEMENT (the "Agreement") is made
as of the first day of January, 1996, between KeyCorp Mutual Fund Advisers,
Inc., an Ohio corporation ("KMFA" or the "Business Manager") and Society Asset
Management, Inc., an Ohio corporation ("SAM" or the "Sub-Adviser").
RECITALS
WHEREAS, KMFA and SAM serve as investment adviser and
investment subadviser, respectively, with respect to certain series (the
"Managed Series") of The Victory Portfolios, a Delaware business trust (the
"Fund"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations promulgated thereunder; and
WHEREAS, the Sub-Adviser and the Business Manager desire to
enter into an agreement pursuant to which the Business Manager will provide
business management services for the Sub-Adviser in connection with its
portfolio management responsibilities for the Fund, on the terms and conditions
set forth in this Agreement.
NOW, THEREFORE in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT OF BUSINESS MANAGER. The Business Manager shall
assist in the management of the administrative affairs of the Managed Series and
shall, subject to the policies and control of the Fund's Board of Trustees, be
responsible for supporting the coordination of all operational details
concerning each of the Managed Series, including, but not limited to, enlisting
the support or services of such other persons as the Business Manager deems
necessary or advisable to perform its obligations under this Agreement. The
Business Manager shall use its best judgment, efforts and facilities in
rendering its services as Business Manager.
2. RESPONSIBILITIES OF BUSINESS MANAGER. In carrying out its
obligations under this Agreement, the Business Manager shall:
(a) assist in the supervision and coordination of relations
with, and performance of, administrators, custodians, depositories,
transfer agents, accountants, attorneys, insurers and such other
persons as may be engaged by the Fund to support the activities of the
Managed Series;
<PAGE>
(b) assist in the preparation of all regulatory filings and
reports required of the Managed Series or the Fund including, but not
limited to, prospectuses and supplements thereto, proxy materials, tax
returns, reports to the shareholders of the Managed Series and the Fund
and reports to and filings with the Securities and Exchange Commission
(the "Commission") and applicable state securities authorities;
(c) assist in the management and coordination of all
regulatory and compliance systems and programs of each of the Managed
Series or the Fund;
(d) provide such executive, administrative, recordkeeping or
clerical services as may be requested by the Sub-Adviser with respect
to the Managed Series or the Fund;
(e) provide or coordinate the provision of non-investment
related statistical or research data and such other information,
reports or evaluations as may be necessary or advisable to support the
investment activities of the Sub-Adviser;
(f) provide, prepare and present reports and analyses,
financial or otherwise, to the Fund's Board of Trustees, relating to
the operations and administration of the Managed Series; and
(g) perform such other services of an operational or
administrative nature as the Fund's Board of Directors may from time to
time request or the Business Manager and the Sub-Adviser shall from
time to time agree.
3. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out
its obligations under this Agreement, the Business. Manager shall at all times
comply with:
(a) all applicable provisions of the 1940 Act;
(b) all provisions of the registration statement of the Fund
filed with the Commission under the Securities Act of 1933, as amended
(the "1933 Act"), and the 1940 Act;
(c) the provisions of the Fund's Trust Instrument, as may be
amended from time to time;
(d) any and all applicable provisions of federal and state
law, including, but not limited to, the laws governing national banks
and their subsidiaries.
4. COMPENSATIONS EXPENSES. For the services to be rendered
under this Agreement, the Sub-Adviser shall pay to the Business Manager, or its
affiliates, with respect to each of the Managed Series, a fee, which shall be
accrued daily and paid in arrears on the first business day of each month, at
the annual rates set forth on Schedule A, attached to this Agreement, as a
percentage of the average daily net assets of the Managed Series during the
preceding month. Average daily net assets shall be based upon determinations of
net assets
- 2 -
<PAGE>
made as of the close of business on each business day throughout such month. The
fee for any partial month shall be calculated on a proportionate basis, based
upon average daily net assets for such partial month. The Business Manager shall
pay all expenses incurred by it in connection with its activities under this
Agreement.
5. NON-EXCLUSIVITY. The services of the Business Manager are
not exclusive, and the Business Manager and its affiliates shall be free to
render corporate, administrative, advisory or other services to others
(including, but not limited to, other investment companies) and to engage in
other activities, so long as its services under this Agreement are not impaired
thereby. The Business Manager and its affiliates shall be free to enter into
other agreements with the Fund and the Managed Series for providing additional
services not covered by this Agreement, and to receive additional compensation
for such services.
6. TERM AND TERMINATION. This Agreement shall become effective
on the date hereof and shall remain in force and effect until December 31, 1997.
Thereafter, the Agreement shall continue in force and effect from year to year,
for so long as the Investment Sub-Advisory Agreement between KMFA and SAM, of
even date herewith (the "Sub-Advisory Agreement"), shall continue in force and
effect. This Agreement shall terminate upon the termination of the Sub-Advisory
Agreement. This Agreement shall terminate automatically in the event of its
assignment.
7. CERTAIN DEFINITIONS. The terms "assignment" and "control"
when used herein, shall have the respective meanings specified in the 1940 Act.
References in this Agreement to the 1940 Act, the 1933 Act and the Investment
Advisers Act of 1940, as amended (the "Advisers Act") shall be construed as
references to such laws as now in effect or as hereafter amended, and shall be
understood as inclusive of any applicable rules, interpretations and/or orders
adopted or issued thereunder by the Commission.
8. INDEPENDENT CONTRACTOR. The Business Manager shall for all
purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided herein or authorized by the Board of Trustees of
the Fund from time to time, have no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.
9. STRUCTURE OF AGREEMENT. The responsibilities and benefits
set forth in this Agreement shall be deemed to be effective as between the
Business Manager and SubAdviser in connection with each of the Managed Series
severally and not jointly. This Agreement is intended to govern only the
relationships between the Business Manager, on the one hand, and the
Sub-Adviser, on the other hand, with respect to the matters described in this
Agreement, and is not intended to and shall not govern (i) the relationship
between the Business Manager or Sub-Adviser and the Fund, or (ii) the
relationship among the Managed Series.
- 3 -
<PAGE>
10. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Ohio, provided that nothing herein shall be construed in a
manner inconsistent with the 1940 Act or the Advisers Act.
11. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby and, to this extent,
the provisions of this Agreement shall be deemed to be severable.
12. NOTICES. Notices of any kind to be given to the Business
Manager hereunder by the Sub-Adviser shall be in writing and shall be duly given
if mailed or delivered to the Business Manager at 127 Public Square, Cleveland,
Ohio 44114-1306, Attention: W. Christopher Maxwell or at such other address or
to such individual as shall be so specified by the Business Manager to the
Sub-Adviser. Notices of any kind to be given to the Sub-Adviser hereunder by the
Business Manager shall be in writing and shall be duly given if mailed or
delivered to the Sub-Adviser at 127 Public Square, Cleveland, Ohio 44114-1306,
Attention: Martin J. Walker or at such other address or to such individual as
shall be so specified by the Sub-Adviser to the Adviser. Notices shall be
effective upon delivery.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date written above.
SOCIETY ASSET MANAGEMENT, INC. KEY CORP MUTUAL FUND
ADVISERS, INC.
By:/s/Martin J. Walker By:/s/W. Christopher Maxwell
------------------- -------------------------
Name: Martin J. Walker Name: W. Christopher Maxwell
Title: Chairman, CEO and Title: CEO and Chairman of
President the Board
- 4 -
<PAGE>
SCHEDULE A
BUSINESS MANAGEMENT FEES
For the Victory Balanced Fund:
NET ASSETS IN MILLIONS RATE OF FEE*
---------------------- ------------
up to $10 .45%
next $15 .30
next $25 .20
above $50 .15
For the Victory Diversified Stock Fund, Growth Fund, Stock Index Fund and Value
Fund:
NET ASSETS IN MILLIONS RATE OF FEE*
---------------------- ------------
up to $10 .30%
next $15 .15
next $25 .05
above $50 .00
For the Victory International Growth Fund, Ohio Regional Stock Fund and Special
Value Fund:
NET ASSETS IN MILLIONS RATE OF FEE*
---------------------- ------------
up to $10 .55%
next $15 .35
next $25 .20
above $50 .10
For the Victory Intermediate Income Fund, Investment Quality Bond Fund, Limited
Term Income Fund, Ohio Municipal Bond Fund, Government Bond Fund, Government
Mortgage Fund, National Municipal Bond Fund and New York Tax-Free Fund:
NET ASSETS IN MILLIONS RATE OF FEE*
---------------------- ------------
up to $10 .25%
next $15 .15
next $25 .10
above $50 .05
For the Victory Prime Obligations Fund, Tax-Free Money Market Fund, U.S.
Government Obligations Fund, Financial Reserves Fund, Institutional Money Market
Fund and Ohio Municipal Money Market Fund:
- 5 -
<PAGE>
NET ASSETS IN MILLIONS RATE OF FEE*
---------------------- ------------
up to $10 .20%
next $15 .15
next $25 .10
above $50 .075
* As a percentage of average daily net assets. KMFA shall have the right, but
not the obligation, to voluntarily waive any portion of the business management
fee from time to time. Any such voluntary waiver will be irrevocable and
determined in advance of rendering business management services by KMFA, and
shall be in writing and signed by the parties to the Business Management
Agreement.
- 6 -
Kramer, Levin, Naftalis & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022-3852
(212) 715-9100
ARTHUR H. AUFSES III Richard Marlin Sherwin Kamin
THOMAS D. BALLIETT Thomas E. Molner Arthur B. Kramer
JAY G. BARIS Thomas H. Moreland Maurice N. Nessen
SAUL E. BURIAN Ellen R. Nadler Founding Partners
BARRY MICHAEL CASS Gary P. Naftali Counsel
THOMAS E. CONSTANCE Michael J. Nassa --------
MICHAEL J. DELL Michael S. Nelson Martin Balsam
KENNETH H. ECKSTEIN Jay A. Neveloff Joshua M. Berman
CHARLOTTE M. FISCHMAN Michael S.Oberman Jules Buchwald
DAVID S. FRANKEL Paul S. Pearlman Rudolph De Winter
MARVIN E. FRANKEL Susan J. Penry-Williams Meyer Eisenberg
ALAN R. FRIEDMAN Bruce Rabb Arthur D. Emil
CARL FRISCHLING Allan E. Reznick Maxwell M. Rabb
MARK J. HEADLEY Scott S. Rosenblum James Schreiber
ROBERT M. HELLER Michele D. Ross Counsel
PHILIP S. KAUFMAN Max J. Schwartz -------
PETER S. KOLEVZON Mark B. Segall M. Frances Buchinsky
KENNETH P. KOPELMAN Judith Singer Debora K. Grobman
MICHAEL PAUL KOROTKIN Howard A. Sobel Christian S. Herzeca
KEVIN B. LEBLANG Steven C. Todrys Pinchas Mendelson
DAVID P. LEVIN Jeffrey S. Trachtman Lynn R. Saidenberg
EZRA G. LEVIN D. Grant Vingoe Jonathan M. Wagner
LARRY M. LOEB Harold P. Weinberger Special Counsel
MONICA C. LORD E. Lisk Wyckoff, Jr. -------
FAX
(212) 715-8000
---
WRITER'S DIRECT NUMBER
(212)715-9100
-------------
July 29, 1996
The Victory Portfolios
3435 Stelzer Road
Columbus, Ohio 43219
Re: The Victory Portfolios
File No. 33-8982
Post-Effective Amendment
to Registration Statement on Form N-1A
--------------------------------------
Gentlemen:
We hereby consent to the reference of our firm as counsel in Post-Effective
Amendment No. 30 to the Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
-------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 30 to the Registration Statement on Form N-1A (File No. 33-8982) of The
Victory Portfolios (comprising, respectively of the U.S. Government Obligations
Fund, Prime Obligations Fund, Financial Reserves Fund (formerly the Financial
Reserves Portfolio), Institutional Money Market Fund (formerly the Institutional
Money Market Portfolio), Tax-Free Money Market Fund, Ohio Municipal Money Market
Fund (formerly Ohio Municipal Money Market Portfolio), Limited Term Income Fund,
Intermediate Income Fund, Investment Quality Bond Fund, Government Bond Fund,
Government Mortgage Fund, Fund for Income (formerly Fund for Income Portfolio),
National Municipal Bond Fund (formerly National Municipal Bond Portfolio), New
York Tax-Free Fund (formerly New York Tax-Free Portfolio), 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,
and International Growth Fund) of our report dated December 19, 1995 on our
audits of the financial statements and financial highlights of The Victory
Portfolios as of October 31, 1995 and for the periods then ended. We also
consent to the reference to our Firm under the captions "Financial Highlights"
and "Independent Accountants" in the prospectuses and under the caption
"Independent Accountants" in the Statements of Additional Information relating
to The Victory Balanced Fund, The Victory Diversified Stock Fund, The Victory
Ohio Regional Stock Fund, The Victory Special Value Fund, and The Victory
International Growth Fund.
/s/COOPERS & LYBRAND L.L.P.
Columbus, Ohio
July 26, 1996
The Victory Funds
Managed by KeyCorp
SEMIANNUAL REPORT
April 30, 1996
"When you do nothing, you feel overwhelmed and
powerless. But when you get involved, you feel the
sense of hope and accomplishment that comes from
knowing you are working to make things better."
Pauline R. Kezer
<PAGE>
2
TABLE OF CONTENTS
Shareholder Letter 2
Financial Statements
Schedules of Investments 5
Statements of Assets and Liabilities 83
Statements of Operations 89
Statements of Changes in Net Assets 95
Notes to Financial Statements and Financial Highlights 103
KeyCorp Mutual Fund Advisers, Inc. ("KMFA"), a subsidiary of KeyCorp, is the
investment adviser to The Victory Funds. The Victory Funds are sponsored and
distributed by Victory Broker Dealer Services, Inc., which is not affiliated
with KMFA, KeyCorp, any KeyCorp bank or their affiliates. KMFA and Key Trust
Company of Ohio, N.A., also a subsidiary of KeyCorp, receive fees from The
Victory Funds for their services.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus for The Victory Funds.
NOT FDIC INSURED
Shares of The Victory Funds are not deposits or other obligations of, or
guaranteed by, any KeyCorp bank, KeyCorp Mutual Fund Advisers, Inc., or their
affiliates, and are subject to investment risks, including possible loss of the
principal amount invested.
<PAGE>
3
A Letter to
Our Shareholders
Leigh A. Wilson
President
THE VICTORY FUNDS
Dear Shareholder,
We are pleased to present you with the semiannual report for The Victory Funds
for the six month period ended April 30, 1996. During this period the stock
market experienced record highs. This robust performance has coincided with an
increased influx of new investment dollars into mutual funds.
In January of this year, KeyCorp Mutual Fund Advisers, Inc. became the adviser
to the Funds. With the leadership of its CEO, W. Christopher Maxwell, the
objective and purpose of ("KMFA") is to continue to enhance the Funds' focus on
quality services and products for its shareholders. I am pleased to introduce
Chris to you and give you an opportunity to hear his perspective.
Leigh Wilson:
Chris, industry statistics show that mutual fund assets reached over $3 trillion
this year. Victory participated in this growth and out-paced the industry as a
whole in 1995 with its stock portfolio assets increasing 60% versus the
industry's 40% growth rate. To what do you attribute Victory's strong growth?
Chris Maxwell:
While the day-to-day investment management process and mutual fund business is
continually confronted with complex issues and challenges, I would like to think
that Victory's positive momentum is based on some enduring, key factors:
product, performance and quality service. Victory Funds cover a wide range of
investment styles and objectives for a wide variety of investors. In recent
months, Victory introduced several new share classes, an additional feature that
appeals to a broad group of investors.
Leigh Wilson:
Would you elaborate a bit on an issue that is of importance to many of our
shareholders: namely, performance?
<PAGE>
4
W. Christopher Maxwell
Chief Executive Officer
KEYCORP MUTUAL FUND ADVISERS
Chris Maxwell:
Consistent performance is extremely important to investors. The opportunity to
boast double-digit returns for all of Victory's stock funds for the 12 months
ended April 30, 1996 is rewarding to both our management team and Victory
shareholders.
Rankings and ratings don't always tell the full or complete story; however, the
coveted #1 rank in their class for one-year performance assigned to Victory
National Municipal Bond and Ohio Municipal Bond Funds by Lipper Analytical
Services, are performance grades we've worked hard to achieve. We are also proud
of our Victory Diversified Stock Fund's total return numbers. For the period
ending April 30, 1996 they were 31.32% (1 year), 15.23% (5 year) and 14.34%
since inception (10-20-89 to 4-30-96).*
Lipper Analytical Services ranked The National Municipal Bond Fund (Class A
Shares) #1 of 135 funds in the Lipper Intermediate Municipal Debt Funds category
for the one-year period ended 4/30/96.
Lipper Analytical Services ranked The Ohio Municipal Bond Fund (Class A Shares)
#1 of 54 funds in the Lipper Ohio Municipal Debt Funds category for the one-year
period ended 4-30-96 and #6 of 18 funds for the five-year period ended 4-30-96.
All rankings are based on total return and do not include the effect of sales
charges. During the period for which the rankings are based, The National
Municipal Bond Fund and The Ohio Municipal Bond Fund waived fees and/or
reimbursed operating expenses. In the absence of these waivers or
reimbursements, the total return would have been lower and the ranking for both
funds may also have been lower.
Past performance is no guarantee of future results. Investment returns and
principal value will fluctuate so that you may have a gain or loss when you sell
your shares. *25.03%, 14.12% and 13.49% are The Diversified Stock Fund's average
annual total returns including the maximum 4.75% sales charge for the one - five
and inception to date periods as of April 30, 1996. All other performance
figures exclude sales charges. Past performance is no guarantee of future
results.
"There is no point at which you can say, 'Well, I'm successful now. I might as
well take a nap.'" -Carrie Fisher
Leigh Wilson:
How does the strength of the U.S. economy influence the investment markets?
Chris Maxwell:
We are currently experiencing a phase of economic strength buoyed by consumer
spending. Some economists interpret the statistics as a temporary increase in
consumer purchasing power, while others see the strength as longer-lasting due
<PAGE>
5
to underlying trends in business investments. Whatever the case, the fact
remains that for the financial markets, steady and sustained growth is
preferable to volatility, in whatever direction.
Leigh Wilson:
I recall that the healthy employment report released in February sent financial
markets into a temporary tailspin. How did Victory shareholders react during
this period?
Chris Maxwell:
The stability of the Funds' assets during volatile market conditions confirms
that The Victory Funds have appeal to long-term investors. In fact, The National
Municipal Bond Fund attracted new investment dollars of approximately $45
million in February alone. This is a considerable one month record when measured
against fears of inflation and weak bond prices, especially when new investments
into the Fund actually tripled the size of the Fund's investment portfolio.
Leigh Wilson:
Any last thoughts you'd like to share with our readers on service, quality, and
investing in general?
Chris Maxwell:
Management has recently undertaken the considerable task of selecting a new
service agent for the Funds to provide shareholders with the highest quality of
services. We recognize that communication in the form of statements, tax
information, and the like, as well as services to support Victory Fund share
transactions are extremely important to our shareholders. The conversion to a
new transfer agent is an important element in Victory's service standards.
In addition, we are always looking for opportunities to provide Victory
shareholders with the best possible investment service. During the past several
months, portfolio management assignments have changed to allow the Funds to take
the best advantage of management talent available throughout our corporate
franchise. The steady inflow of assets into the mutual fund industry has more to
do with longer-term trends-the way people save and invest, how much they need to
set aside for a comfortable retirement, their children's education and other
financial goals. More simply, this trend has to do with the way people live and
how they want to live in the future. An investors' future financial health is
dependent on a disciplined investment program.
For more information about The Victory Funds, including charges and expenses,
request a prospectus by calling 1-800-KEY-FUND. Please read it carefully before
you invest or send money.
The Victory Funds are distributed by Victory Broker-Dealer Services, Inc., which
is not affiliated with KeyCorp, and advised by KeyCorp Mutual Fund Advisers,
Inc., a subsidiary of KeyCorp. KeyCorp Mutual Fund Advisers, Inc. and certain
other subsidiaries of KeyCorp receive fees from the Funds for their services, as
set forth in the prospectus.
<PAGE>
6
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
U.S. GOVERNMENT OBLIGATIONS FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- -------------------------------------------
U.S. TREASURY NOTES (22.1%)
$25,000 4.25%, 5/15/96 $ 24,988
80,000 6.13%, 7/31/96 80,109
50,000 6.50%, 9/30/96 50,286
50,000 6.88%, 10/31/96 50,424
25,000 7.25%, 11/30/96 25,289
30,000 7.50%, 1/31/97 30,571
- ---------------------------------------------------------
TOTAL U.S. TREASURY NOTES 261,667
- ---------------------------------------------------------
TOTAL INVESTMENTS 261,667
- ---------------------------------------------------------
- ---------------------------------------------------------
REPURCHASE AGREEMENTS (77.8%)
55,000 Audrey Langston,
5.32%, 5/1/96,
(Collateralized by $55,620
various U.S. Treasury
Securities, 4.75%-6.50%,
5/15/96-4/30/97, market
value-$56,110) 55,000
55,000 Barclays Bank,
5.32%, 5/1/96,
(Collateralized by
$216,656 various U.S.
Treasury Securities,
0.00%-6.37%,
8/15/02-8/15/25, market
value-$56,100) 55,000
55,000 Chase Securities,
5.32%, 5/1/96,
(Collateralized by $53,295
various U.S. Treasury
Notes, 5.75%-8.88%,
11/15/98-8/15/03, market
value-$56,101) 55,000
50,000 Deutsche Bank,
5.30%, 5/1/96,
(Collateralized by $45,985
various U.S. Treasury
Securities, 5.63%-10.75%,
2/28/97-8/15/05, market
value-$51,000) 50,000
51,688 Donaldson-Lufkin Jenrette,
5.34%, 5/1/96,
(Collateralized by
$155,192 various U.S.
Treasury Securities,
0.00%, 2/15/97-11/15/21,
market value-$52,722) 51,688
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$55,000 Goldman Sachs,
5.33%, 5/1/96,
(Collateralized by $47,337
U.S. Treasury Bonds,
6.50%, 2/15/20, market
value-$56,101) $ 55,000
55,000 Harris Securities,
5.35%, 5/1/96,
(Collateralized by
$131,345 various U.S.
Treasury Securities,
0.00%, 6/15/97-11/15/21,
market value-$56,100) 55,000
50,000 Lehman Brothers,
5.30%, 5/1/96,
(Collateralized by $46,115
U.S. Treasury Notes,
8.75%, 8/15/00, market
value-$51,834) 50,000
50,000 Morgan Stanley,
5.30% 5/1/96,
(Collateralized by $51,160
U.S. Treasury Bills,
5/23/96, market value-
$51,002) 50,000
290,000 NationsBank,
5.37%, 5/1/96,
(Collateralized by
$301,285 various U.S.
Treasury Securities & U.S.
Government Agencies,
0.00%-9.25%, 5/15/96-
4/30/01, market value-
$295,803) 290,000
55,000 Nomura Securities,
5.32%, 5/1/96,
(Collateralized by $69,238
various U.S. Treasury
Securities, 0.00%-12.00%,
4/30/97-2/15/25, market
value-$56,243) 55,000
50,000 Sanwa Bank,
5.30%, 5/1/96,
(Collateralized by $41,521
various U.S. Treasury
Securities & U.S.
Government Agencies,
5.65%-6.45%, 5/1/96-
12/12/05, market value-
$51,001) 50,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
7
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
U.S. GOVERNMENT OBLIGATIONS FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$50,000 UBS Securities,
5.31%, 5/1/96,
(Collateralized by $49,135
U.S. Treasury Notes,
7.50%, 12/31/96, market
value-$51,005) $ 50,000
- ---------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 921,688
- ---------------------------------------------------------
TOTAL (COST $1,183,355)(A) $1,183,355
=========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $1,184,314.
(a) Cost for federal income tax and financial reporting purposes are the same.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
8
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
PRIME OBLIGATIONS FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- --------------------------------------------
CERTIFICATES OF DEPOSIT (1.1%)
$ 5,000 Deutsche Bank,
5.06%, 8/5/96 $ 5,000
- --------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT 5,000
- --------------------------------------------------------
- --------------------------------------------
COMMERCIAL PAPER (30.3%)
15,000 Bishopgate Funding Corp.,
5.33%, 5/20/96 14,958
3,000 Broadway Capital Corp.,
5.40%, 5/14/96 2,994
5,000 Broadway Capital Corp.,
5.40%, 5/15/96 4,990
10,000 Canon USA,
5.32%, 5/10/96 9,987
2,000 Coca-Cola,
5.30%, 5/31/96 1,991
4,000 Cofco,
5.29%, 6/17/96 3,972
5,000 Compagnie Bancaire,
5.32%, 6/28/96 4,957
5,000 Dean Witter Discover,
5.05%, 5/8/96 4,995
2,980 Fleet Funding Corp.,
5.35%, 5/15/96 2,974
10,000 Fleet Funding Corp.,
5.35%, 5/22/96 9,969
5,633 Fleet Funding Corp.,
5.35%, 5/28/96 5,610
3,000 Galicia Funding Corp.,
5.30%, 9/20/96 2,937
10,000 Hansen Finance,
5.40%, 5/22/96 9,969
6,000 Intel Corp.,
5.24%, 6/28/96 5,949
2,000 Morgan Stanley Corp.,
5.40%, 5/13/96 1,996
4,000 Pemex LOC,
5.25%, 5/13/96 3,993
3,000 Pitney Bowes Credit Corp.,
5.25%, 5/15/96 2,994
3,200 Sony Capital Corp.,
5.33%, 5/17/96 3,193
5,000 Toshiba America,
5.13%, 5/28/96 4,981
10,000 Toyota Motor Credit Corp.,
5.33%, 6/12/96 9,938
5,000 Transamerica Finance Corp.,
5.33%, 6/11/96 4,970
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 3,000 Transamerica Finance Corp.,
5.31%, 6/28/96 $ 2,974
4,000 United States Leasing
Capital Corp.,
5.34%, 5/1/96 4,000
6,100 Vehicle Services LOC,
5.16%, 6/14/96 6,062
4,000 WMX Technologies,
5.23%, 10/8/96 3,907
- --------------------------------------------------------
TOTAL COMMERCIAL PAPER 135,260
- --------------------------------------------------------
- --------------------------------------------
CORPORATE BONDS (4.3%)
2,000 Associates Corp.,
7.50%, 10/15/96 2,029
2,000 AT&T Capital Corp.,
6.30%, 7/30/96 2,001
3,000 Ford Motor Credit Corp.,
9.00%, 6/28/96 3,069
1,100 Ford Motor Credit Corp.,
8.25%, 7/15/96 1,106
2,000 General Electric Capital
Corp.,
5.97%, 8/21/95 2,000
900 Merrill Lynch Corp.,
4.75%, 6/24/96 892
2,500 Philip Morris,
5.88%, 7/1/96 2,564
5,725 WMX Technologies,
4.88%, 6/15/96 5,673
- --------------------------------------------------------
TOTAL CORPORATE BONDS 19,334
- --------------------------------------------------------
- --------------------------------------------
CORPORATE NOTES (32.9%)
3,215 Astro Aluminum,
5.50%*, 4/1/05** 3,215
5,000 AT&T Capital Corp.,
5.45%*, 11/1/96 5,000
10,000 AT&T Capital Corp.,
5.59%*, 11/29/96 9,999
3,300 Baylis Group Partnership
5.60%*, 1/1/10** 3,300
5,000 Bear Stearns Cos.,
5.58%*, 5/23/96** 5,000
275 Carelife, Inc.,
5.50%*, 8/1/11** 275
2,350 Carelife, Inc.,
5.50%*, 8/1/11** 2,350
1,530 Cleveland Steel Container,
5.50%*, 12/1/08** 1,530
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
9
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
PRIME OBLIGATIONS FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 7,500 Cuyahoga County, Ohio
Taxable Economic
Development Revenue,
5.50%*, 6/1/22** $ 7,500
5,000 Dean Witter,
5.67%*, 2/3/97 5,007
865 Dietz Road Ltd. Partnership,
5.50%*, 11/1/08** 865
2,920 Dome Corp. -- Dome Corp.
Project,
5.53%*, 8/31/16** 2,920
2,500 Ford Motor Credit Corp.,
5.41%, 3/14/97 2,497
1,000 GCG Portage,
5.40%*, 2/1/26** 1,000
5,350 General Electric Capital
Corp.,
5.28%*, 8/1/96 5,348
1,900 GMH Enterprises,
5.50%*, 7/1/03** 1,900
15,000 Goldman Sachs Group,
5.55%*, 8/5/96 14,995
385 Highland Road Partners,
5.50%*, 10/1/04** 385
4,000 Huntington National Bank,
5.40%*, 11/13/96 4,000
22,000 Lehman Government Securities
Master Note,
5.53%*, 5/1/96** 22,000
925 McKinley Air Transport,
5.50%*, 8/1/09** 925
1,000 MCMC Pob LII,
5.50%*, 8/1/14** 1,000
5,000 Merrill Lynch Corp.,
5.38%*, 5/24/96 4,996
8,000 Morgan Stanley Group,
5.54%*, 3/15/01** 8,000
900 Olen Corp.,
5.50%*, 12/1/04** 900
1,580 Olen Corp.,
5.50%*, 8/1/08** 1,580
1,300 Olympic Steel Corp.,
5.55%*, 10/1/08** 1,300
5,000 PHH Corp.,
5.34%*, 8/21/96** 4,999
700 Rivnut Engineered Products,
5.50%*, 2/1/01** 700
840 S & SLP Project,
5.50%*, 12/1/07** 840
60 D. J. Schipper Enterprise,
5.90%*, 4/1/09** 60
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 390 Schipper -- DJA Properties,
5.47%*, 10/1/05** $ 390
2,963 Schipper Enterprises,
5.47%*, 4/1/09** 2,963
15,000 Sea River Maritime Exxon
Shipping,
5.42%*, 10/1/01** 15,000
750 Sofa Express Project,
5.50%*, 4/1/06** 750
1,660 Tell-Schipper Properties,
Inc.,
5.47%*, 10/1/03** 1,660
1,915 Zanetos Partnership Project,
5.50%*, 7/1/13** 1,915
- --------------------------------------------------------
TOTAL CORPORATE NOTES 147,064
- --------------------------------------------------------
- --------------------------------------------
MEDIUM TERM NOTES (12.6%)
5,000 Bear Stearns Cos.,
6.22%, 12/16/96 5,009
5,000 Boatmans First National
Bank,
5.49%*, 6/12/96 5,000
4,390 CIT Group Holdings,
8.88%, 6/15/96 4,406
4,000 Federal Home Loan Bank Note,
5.40%, 3/25/96 3,995
5,000 Ford Motor Credit Corp.,
5.54%*, 5/20/96 4,995
3,500 Ford Motor Credit Corp.,
9.07%, 7/5/96 3,524
15,000 General American Life
Insurance,
5.64%*, 7 Day Put** 15,000
815 Highland Road Partners,
5.50%, 10/1/04 815
3,125 Morgan Stanley Group,
5.72%, 1/20/97 3,131
1,000 Morgan Stanley Group,
7.79%*, 2/3/97 1,017
1,000 PepsiCo, Inc.,
7.00%, 11/15/96 1,009
3,350 Reichert Limited
Partnership,
5.50%*, 4/15/11** 3,350
1,500 Transamerica Finance Corp.,
5.85%, 7/15/96 1,501
3,500 Transamerica Finance Corp.,
5.43%*, 5/27/97 3,497
- --------------------------------------------------------
TOTAL MEDIUM TERM NOTES 56,249
- --------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
10
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
PRIME OBLIGATIONS FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- --------------------------------------------
MUNICIPAL BONDS (1.1%)
OHIO (1.1%):
$ 5,000 Industrial Development
Authority of Bedford
County,
5.31%*, 12/1/25** $ 5,000
- --------------------------------------------------------
TOTAL MUNICIPAL BONDS 5,000
- --------------------------------------------------------
- --------------------------------------------
TIME DEPOSITS (1.1%)
5,000 NationsBank Nassau,
5.31%*, 5/1/96 5,000
- --------------------------------------------------------
TOTAL TIME DEPOSITS 5,000
- --------------------------------------------------------
- --------------------------------------------
U.S. GOVERNMENT AGENCIES (10.4%)
FEDERAL HOME LOAN MORTGAGE CORP.:
4,000 5.10%, 8/23/96 4,000
5,500 5.10%, 1/13/97 5,500
FEDERAL NATIONAL MORTGAGE ASSOC.:
5,000 5.05%, 6/3/96 4,977
5,000 5.81%, 9/27/96 5,000
900 5.85%, 10/7/96 902
4,000 5.60%, 11/1/96 4,003
STUDENT LOAN MARKETING ASSOC.:
3,500 5.88%, 5/1/96 3,506
9,000 5.38%, 6/13/96 8,999
3,000 5.28%, 7/1/96 3,002
2,700 5.28%, 7/19/96 2,699
FEDERAL HOME LOAN BANK:
4,000 5.38%, 3/14/97 4,000
- --------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 46,588
- --------------------------------------------------------
- --------------------------------------------
U.S. TREASURY NOTES (0.9%)
4,000 8.50%, 4/15/97 4,108
- --------------------------------------------------------
TOTAL U.S. TREASURY NOTES 4,108
- --------------------------------------------------------
TOTAL INVESTMENTS $423,603
========================================================
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- --------------------------------------------
REPURCHASE AGREEMENTS (8.6%)
$ 19,326 Donaldson-Lufkin Jenrette,
5.34%, 5/1/96,
(Collateralized by $22,107,
various Resolution Funding
Corporation Strips, 0.00%,
10/15/96 - 4/15/99, market
value-$19,713) $ 19,326
19,000 NationsBank,
5.37%, 5/1/96,
(Collateralized by $38,376
U.S. Treasury Securities,
0.00%, 2/15/97 - 5/15/20,
market value-$19,382) 19,000
- --------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 38,326
- --------------------------------------------------------
TOTAL (COST $461,929)(A) $461,929
========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $446,971.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit and/or liquidity arrangements. The interest rate, which will change
periodically, is based upon bank prime rates or an index of market interest
rates. The rate reflected on the Schedule of Investments is the rate in
effect on April 30, 1996.
** Put and demand features exist allowing the Fund to require the repurchase of
the instrument within variable time periods ranging from daily, weekly,
monthly or semi-annually.
LOC -- Letter of Credit.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
11
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
FINANCIAL RESERVES FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- -------------------------------------------
BANKER'S ACCEPTANCES (1.9%)
$ 5,000 ABN Amro,
5.25%, 5/17/96 $ 4,988
11,000 NationsBank,
5.13%, 5/1/96 11,000
- ----------------------------------------------------------
TOTAL BANKER'S ACCEPTANCES 15,988
- ----------------------------------------------------------
- -------------------------------------------
CERTIFICATES OF DEPOSIT (1.2%)
10,000 Deutsche Bank,
5.06%, 8/5/96 10,001
- ----------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT 10,001
- ----------------------------------------------------------
- -------------------------------------------
COMMERCIAL PAPER (39.8%)
7,000 Avco Financial Services,
5.29%, 6/21/96 6,948
7,000 Beal,
5.26%, 7/31/96 LOC
Westdeutsche Landsbank 6,907
8,000 Beta Finance,
5.33%, 5/1/96 8,000
13,000 Blue Hawk Funding,
5.35%, 5/1/96 13,000
9,123 Broadway Capital Corp.,
5.40%, 5/15/96 9,104
8,000 Broadway Capital Corp.,
5.35%, 7/25/96 7,899
10,000 Cannon USA,
5.32%, 5/10/96 9,987
25,000 Coca Cola Co.,
5.29%, 5/24/96 24,915
10,000 Coca Cola Co.,
5.30%, 5/31/96 9,956
5,000 Coca-Cola Co.,
5.28%, 6/12/96 4,969
6,000 Cofco,
5.32%, 5/31/96
LOC Credit Swiss 5,973
6,000 Cofco,
5.29%, 6/17/96, LOC Credit
Swiss 5,959
5,000 Compagnie Bancaire,
5.25%, 6/11/96 4,970
5,000 Dean Witter Discover,
5.05%, 5/8/96 4,995
14,314 Fleet Funding,
5.35%, 5/22/96 14,269
5,000 Ford Motor Credit Corp.,
5.35%, 5/2/96 4,999
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 6,000 Galicia Funding,
5.30%, 9/20/96, LOC $ 5,875
10,000 Hanson Finance,
5.15%, 5/15/96 9,980
10,000 Hanson Finance,
5.40%, 5/22/96 9,969
10,000 Hanson Finance,
5.23%, 5/30/96 9,958
7,000 Intel Corp.,
5.24%, 6/28/96 6,941
6,000 Pemex,
5.25%, 5/13/96 5,990
3,000 Pitney Bowes Credit Corp.,
5.25%, 5/15/96 2,994
5,600 Pitney Bowes Credit Corp.,
5.31%, 6/12/96 5,565
10,000 Pitney Bowes Credit Corp.,
5.32%, 6/24/96 9,920
11,300 Sino Chemical,
5.37%, 5/29/96, LOC 11,253
15,000 Smith Barney,
5.30%, 5/15/96 14,969
10,000 Sony Capital Corp.,
5.45%, 5/10/96 9,986
10,000 Toshiba America,
5.13%, 5/28/96 9,961
6,000 Toyota Motor Credit Corp.,
5.33%, 6/12/96 5,963
9,000 Transamerica Finance,
5.33%, 6/11/96 8,945
4,000 Transamerica Finance,
5.31%, 6/28/96 3,966
7,000 USL Capital Corp.,
5.34%, 5/1/96 7,000
7,000 USL Capital Corp.,
5.35%, 5/8/96 6,993
11,000 Vehicle Services,
5.16%, 6/14/96 10,931
7,000 WMX Technology,
5.23%, 10/8/96 6,837
25,000 135 Bishopgate Funding,
5.33%, 5/20/96 24,930
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 331,776
- ----------------------------------------------------------
- -------------------------------------------
CORPORATE BONDS (3.1%)
1,700 AT&T Capital Corp.,
6.30%, 7/25/96 1,701
6,000 General Electric Capital
Corp.,
5.95%, 8/22/96 5,999
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
12
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
FINANCIAL RESERVES FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 2,000 U.S. West Capital Funding,
Inc.,
8.00%, 10/15/96 $ 2,021
16,000 WMX Technologies,
4.88%, 6/15/96 15,884
- ----------------------------------------------------------
TOTAL CORPORATE BONDS 25,605
- ----------------------------------------------------------
- -------------------------------------------
CORPORATE NOTES (34.9%)
8,000 AT&T Capital Corp.,
5.45%, 11/1/96 8,000
16,000 AT&T Capital Corp.,
5.59%, 11/29/96 15,999
5,000 American Express Centurion
Bank,
5.68%, 10/18/96 4,998
4,000 American General Finance,
5.80%, 4/1/97 3,998
4,500 American General Finance,
5.80%, 4/1/97 4,516
2,000 American West Properties,
5.45%*, 12/1/25**, LOC 2,000
2,330 Austin Printing Co.,
5.50%*, 8/1/14** 2,330
5,500 Australian Wheat Board,
5.76%, 5/29/96 5,500
3,470 Automated Packaging System,
5.50%*, 10/1/08**, LOC 3,470
9,000 Bear Stearns Co.,
5.57%, 5/23/96 9,000
10,000 Bear Stearns Co.,
6.22%, 12/16/96 10,018
1,000 Bee Holdings, Inc.,
5.50%*, 9/1/15**, LOC 1,000
2,000 Bee Holdings, Inc.,
5.50%*, 9/1/15**, LOC 2,000
10,000 Boatmans First National
Bank, Kansas City,
5.50%, 6/12/96 10,000
4,275 Buckeye Corrugated,
5.50%*, 1/1/05** 4,275
6,000 CIT Group Holdings,
8.88%, 6/15/96 6,022
4,000 CIT Group Holdings,
7.63%, 12/5/96 4,047
7,000 Federal Home Loan Bank,
5.40%, 3/25/96 6,992
3,240 Federal Home Loan Mortgage
Corp.,
6.75%, 5/6/99** 3,240
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 3,353 Ford Motor Credit Corp.,
8.25%, 5/15/96 $ 3,356
4,200 Ford Motor Credit Corp.,
8.88%, 8/1/96 4,233
4,000 Ford Motor Credit Corp.,
7.70%, 2/27/97 4,077
1,000 Ford Motor Credit Corp.,
8.05%, 3/28/97 1,020
25,000 General American Life
Insurance, Vrn, GIC 25,000
5,000 Goldman Sachs,
6.81%, 5/23/96 5,004
1,350 Hancor, Inc.,
5.50%*, 12/1/04**, LOC 1,350
7,000 Huntington National Bank,
5.40%, 11/13/96 7,000
31,982 Lehman Brothers Government
Security,
5.54%, 1/1/99** 31,982
5,000 Merrill Lynch Corp.,
4.75%, 6/24/96 4,995
15,000 Morgan Stanley Group,
5.54%, 3/15/01** 15,000
5,000 NationsBank,
5.94%, 9/18/96 5,004
1,000 PepsiCo, Inc.,
7.22%, 11/15/96 1,008
10,000 PHH Corp.,
5.34%, 8/21/96 9,999
7,000 PNC Bank,
5.40%, 3/4/97 6,995
650 Parkway Business Plaza,
5.50%*, 4/1/13**, LOC 650
1,845 SGS Tool Co.,
5.50%*, 8/1/08**, LOC 1,845
3,125 Sandridge Foods,
5.50%*, 12/1/00**, LOC 3,125
25,000 Sea River Maritime, Inc.,
5.43%, 10/1/11**, LOC 25,000
5,000 Student Loan Marketing
Assoc.,
5.38%, 6/13/96, LOC 4,999
660 TPC Properties, Inc.,
5.50%*, 11/1/09**, LOC 660
5,000 Venturecor, Inc.,
5.60%*, 4/1/36**, LOC 5,000
14,000 Xerox Credit Corp.,
5.38%*, 5/13/97**, LOC 13,987
2,430 Zanetos Partnership Project,
5.50%*, 7/1/13**, LOC 2,430
- ----------------------------------------------------------
TOTAL CORPORATE NOTES 291,124
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
13
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
FINANCIAL RESERVES FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- -------------------------------------------
MUNICIPAL BONDS (1.0%)
$ 8,000 Bedford County, Industrial
Development Authority,
5.90%, 12/1/25**,
LOC, Societe Generale $ 8,000
- ----------------------------------------------------------
TOTAL MUNICIPAL BONDS 8,000
- ----------------------------------------------------------
- -------------------------------------------
U.S. GOVERNMENT AGENCIES (11.6%)
FEDERAL HOME LOAN BANK:
7,000 5.38%*, 3/14/97** 7,000
FEDERAL HOME LOAN MORTGAGE CORP.:
7,000 5.10%, 8/23/96** 6,999
FEDERAL NATIONAL MORTGAGE ASSOC.:
8,000 5.05%, 6/3/96 7,963
15,000 5.31%*, 5/25/99 15,000
20,000 5.29%*, 7/14/99 20,000
10,000 5.81%*, 9/27/96 10,000
5,000 5.60%, 11/1/96 5,003
STUDENT LOAN MORTGAGE ASSOC.:
10,000 5.48%*, 10/30/97 10,028
10,000 5.32%*, 9/28/98 9,996
4,500 5.34%*, 2/8/99 4,502
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 96,491
- ----------------------------------------------------------
- -------------------------------------------
U.S. TREASURY NOTES (0.9%)
7,000 8.50%, 4/15/97 7,189
- ----------------------------------------------------------
TOTAL U.S. TREASURY NOTES 7,189
- ----------------------------------------------------------
TOTAL INVESTMENTS 786,174
- ----------------------------------------------------------
- -------------------------------------------
REPURCHASE AGREEMENTS (8.8%)
21,500 Donaldson-Lufkin Jenrette,
5.34%, 5/1/96
(Collateralized by
$287,774 U.S. Treasury
Notes & Resolution Trust
Corporation Strips, 0.00%,
5/15/96-10/15/22, market
value-$36,647) 21,500
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$22,000 Goldman Sachs,
5.33%, 5/1/96
(Collateralized by $22,112
U.S. Treasury Note, 6.00%,
8/31/97, market value-
$22,440) $ 22,000
30,000 NationsBank,
5.37%, 5/1/96
(Collateralized by $31,843
U.S. Treasury Notes,
0.00%, 11/15/96-2/15/97,
market value $30,603) 30,000
- ----------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 73,500
- ----------------------------------------------------------
TOTAL (COST $859,674)(A) $ 859,674
==========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $834,562.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other liquidity arrangements. The interest rate which will change
periodically is based upon bank prime rates or an index of market interest
rates. The rate reflected on the Schedule of Investments is the rate in
effect at April 30, 1996.
** Put and demand features exist allowing the fund to require the repurchase of
the instrument within variable time periods ranging from daily, weekly,
monthly or semi-annually.
GIC -- Guaranteed Insurance Contract.
LOC -- Letter of Credit.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
14
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INSTITUTIONAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- ----------------------------------------------
BANKER'S ACCEPTANCES (1.5%)
$ 10,000 Canadian Imperial Bank of
Commerce,
5.32%, 6/18/96 $ 9,929
- ----------------------------------------------------------
TOTAL BANKER'S ACCEPTANCES 9,929
- ----------------------------------------------------------
- ----------------------------------------------
CERTIFICATES OF DEPOSIT (1.5%)
10,000 Deutsche Bank,
5.06%, 8/5/96 10,001
- ----------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT 10,001
- ----------------------------------------------------------
- ----------------------------------------------
COMMERCIAL PAPER (40.4%)
13,000 Avco Financial Services,
5.29%, 6/21/96 12,903
6,000 Beal,
5.26%, 7/31/96, LOC
Westdeutsche Landsbank 5,920
30,000 Blue Hawk Funding,
5.35%, 5/1/96 30,000
7,894 Broadway Capital Corp.,
5.41%, 5/28/96 7,862
7,000 Coca-Cola Co.
5.30%, 5/31/96 6,969
25,000 Coca-Cola Co.
5.28%, 6/12/96 24,846
10,000 Cofco,
5.36%, 5/28/96, LOC Credit
Swiss 9,960
6,000 Cofco,
5.29%, 6/17/96, LOC Credit
Swiss 5,959
5,000 Compagnie Bancaire,
5.25%, 6/11/96 4,970
5,000 Compagnie Bancaire,
5.29%, 6/21/96 4,962
5,000 Dean Witter Discover,
5.05%, 5/8/96 4,995
5,000 Fleet Funding,
5.35%, 5/22/96 4,984
6,000 Galicia Funding,
5.30%, 9/20/96, LOC 5,875
10,000 Hanson Finance,
5.15%, 5/15/96 9,980
10,000 Hanson Finance,
5.23%, 5/30/96 9,958
2,350 Hanson Finance,
5.42%, 6/5/96 2,338
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 7,000 Intel Corp.,
5.24%, 6/28/96 $ 6,941
15,000 135 Bishopgate Funding,
5.33%, 5/20/96 14,958
5,000 Pemex,
5.25%, 5/13/96 4,991
3,000 Pitney Bowes Credit Corp.,
5.25%, 5/15/96 2,994
13,155 Retailer Funding Corp.,
5.32%, 5/22/96 13,114
7,000 Sony Capital Corp.,
5.33%, 5/17/96 6,983
6,000 Transamerica Financial
Corp.,
5.33%, 6/11/96 5,964
5,000 Transamerica Financial
Corp.,
5.31%, 6/28/96 4,957
8,000 USL Capital Corp.,
5.34%, 5/24/96 7,973
6,000 USL Capital Corp.,
5.34%, 5/1/96 6,000
2,000 Unibanco,
5.35%, 7/1/96, LOC
Westdeutsche Landsbank 1,982
10,000 Vehicle Services,
5.16%, 6/14/96 9,937
6,000 WMX Technology,
5.23%, 10/8/96 5,860
16,800 Western Financial Corp.,
5.31%, 5/15/96 16,765
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 261,900
- ----------------------------------------------------------
- ----------------------------------------------
CORPORATE BONDS (2.5%)
3,000 General Electric Capital
Corp.,
5.95%, 8/22/96 3,000
2,500 Merrill Lynch Corp.,
4.75%, 6/24/96 2,496
1,535 Professional Center
Associates Ltd.,
5.50%*, 8/1/15**, LOC
National City Bank 1,535
2,200 Sedlak Interiors, Inc.,
5.60%*, 5/1/10** 2,200
7,000 WMX Technologies,
4.88%, 6/15/96 6,937
- ----------------------------------------------------------
TOTAL CORPORATE BONDS 16,168
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
15
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INSTITUTIONAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- ----------------------------------------------
CORPORATE NOTES (28.9%)
$ 2,025 Akron Welding,
5.50%*, 12/1/01**, LOC
National City Bank $ 2,025
5,000 American Express Centurion,
5.50%*, 1/13/97 5,001
7,000 AT&T Capital Corp.,
5.45%*, 11/1/96 7,000
14,000 AT&T Capital Corp.,
5.59%, 11/29/96* 13,999
400 Auto Tracking System,
5.50%*, 5/1/99** 400
2,300 Automated Packaging System,
5.50%*, 10/1/08**, LOC
National City Bank 2,300
6,000 Bear Stearns Co.,
6.22%, 12/16/96 6,011
5,000 Bear Stearns Co.,
5.57%*, 5/23/96 5,000
5,000 Boatmans First National
Bank, Kansas City,
5.49%*, 6/12/96 5,000
1,600 Buckeye Corrugated, Inc.
Project,
5.50%*, 1/3/05**, LOC
National City Bank 1,600
3,215 Burton I Saltzman,
5.50%*, 8/1/08** 3,215
6,000 City Group Holdings,
8.88%, 6/15/96 6,022
5,000 Dean Witter,
5.67%*, 2/3/97 5,007
1,250 Fairborn Christel Mann,
5.60%*, 6/10/10** 1,250
6,000 Federal Home Loan Bank Note,
5.40%, 3/25/96 5,993
5,000 Ford Motor Credit Corp.,
8.88%, 8/1/96 5,039
2,000 Ford Motor Credit Corp.,
9.00%*, 7/24/96 2,014
25,000 General American Life
Insurance,
5.64%*, 12/31/96** 25,000
3,800 General Electric Capital
Corp.,
7.63%, 7/24/96 3,816
4,000 General Electric Capital
Corp.,
7.63%, 7/30/96 4,017
5,000 Huntington National Bank,
5.40%*, 11/13/96 5,000
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 3,850 Hannah Blvd. Limited
Partnership,
5.54%*, 9/1/15**, LOC
Commerica Bank $ 3,850
1,910 Industrial Dimensions, Inc.,
5.50%*, 1/1/00** 1,910
8,293 Lehman Government Securities
Master Note,
5.52%*, 1/1/99** 8,293
2,050 Maximum Principal Mubea
Project,
5.50%*, 12/1/04** 2,050
2,370 Monticello Investments,
5.50%*, 7/1/04** 2,370
13,000 Morgan Stanley Group,
5.54%*, 3/15/01** 13,000
5,000 PHH Corp.,
5.34%*, 8/21/96** 4,999
6,000 PNC Bank,
5.40%*, 3/4/97** 5,995
505 Perfection Corp.,
5.50%*, 4/1/09** 505
2,250 Pomeroy Investments,
5.55%*, 9/1/15**, LOC
Firemans Fund 2,250
5,000 Republic New York Corp.,
5.54%*, 1/1/99** 5,000
14,600 Sea River Maritime, Inc.,
5.43%*, 10/1/11** 14,600
7,000 Morgan Stanley,
5.61%*, 1/31/97** 7,004
500 Tube Products,
5.50%*, 11/1/09** 500
- ----------------------------------------------------------
TOTAL CORPORATE NOTES 187,035
- ----------------------------------------------------------
- ----------------------------------------------
MUNICIPAL BONDS (1.1%)
6,000 Industrial Development
Authority of Bedford
County, Society Generale
Bank, 5.90%*, 12/1/25** 6,000
1,030 Ottawa County Michigan,
Series C, Old Kent Bank,
5.65%*, 3/1/16** 1,030
- ----------------------------------------------------------
TOTAL MUNICIPAL BONDS 7,030
- ----------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES (22.4%)
FEDERAL HOME LOAN BANK:
5,000 5.81%, 8/26/96 5,008
6,000 5.38%, 3/14/97 6,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
16
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INSTITUTIONAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP.:
$ 6,000 5.10%, 8/23/96 $ 5,999
3,500 5.69%, 3/27/97 3,500
FEDERAL NATIONAL MORTGAGE ASSOC.:
7,000 5.05%, 6/3/96 6,968
5,000 5.81%, 9/27/96 5,000
10,000 5.60%, 11/1/96 10,007
25,000 5.31%, 5/25/99 25,000
33,000 5.29%, 7/26/99 33,000
STUDENT LOAN MARKETING ASSOC.:
1,000 5.50%, 11/27/96 1,001
1,190 5.48%, 10/30/97 1,193
4,000 5.32%, 9/28/98 4,000
6,000 5.34%, 1/13/99 5,999
32,500 5.35%, 8/2/99 32,500
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 145,175
- ----------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY NOTES (1.0%)
6,000 8.50%, 4/15/97 6,162
- ----------------------------------------------------------
TOTAL U.S. TREASURY NOTES 6,162
- ----------------------------------------------------------
TOTAL INVESTMENTS 643,400
- ----------------------------------------------------------
- ----------------------------------------------
REPURCHASE AGREEMENTS (4.5%)
29,004 Donaldson-Lufkin Jenrette,
(Collateralized by
$399,255 various U.S.
Treasury Securities,
0.00%, 5/15/96-11/15/05,
market value $29,584) 29,004
- ----------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS 29,004
- ----------------------------------------------------------
TOTAL (COST $672,404)(A) $672,404
==========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $647,655.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other liquidity arrangements. The interest rate which will change
periodically is based upon bank prime rates or an index of market interest
rates. The rate reflected on the Schedule of Investments is the rate in
effect at April 30,1996.
** Put and demand features exist allowing the fund to require the repurchase of
the instrument within variable time periods ranging from daily, weekly,
monthly or semi-annually.
LOC -- Letter of credit
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
17
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
TAX-FREE MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- ----------------------------------------------
MUNICIPAL BONDS (99.3%)
ALABAMA (0.7%):
$ 2,210 Ardmore IDR,
4.35%*, 6/1/04**, LOC Bank
One $ 2,210
----------
ARIZONA (1.3%):
1,500 Pima County IDR,
4.25%*, 9/1/09**, LOC
National City Bank 1,500
2,470 State Transportation
Excise Tax,
4.50%, 7/1/96, AMBAC 2,473
----------
3,973
----------
CALIFORNIA (6.2%):
6,000 Housing Finance,
3.50%, 8/1/27**, GIC
Bayerische Landesbank 6,000
2,050 Los Angeles County
Transportation,
Prerefunded,
7.50%, 7/1/01** 2,078
3,500 State Schools Cash Reserve,
4.75%, 7/3/96 3,506
7,000 State Schools Cash Reserve,
4.50%, 12/20/96 7,030
----------
18,614
----------
DISTRICT OF COLUMBIA (0.3%):
1,000 District of Columbia,
Prerefunded,
7.88%, 6/1/96 1,024
----------
FLORIDA (8.4%):
9,700 Dade County Housing Finance
Authority,
3.40%*, 8/1/05, LOC
John Hancock 9,700
2,500 Hillsborough County,
Ringhaven,
4.25%, 12/1/11, LOC Mellon
Bank 2,500
1,900 Housing Finance,
Prerefunded,
5.50%, 11/1/96 1,916
4,500 Housing Finance Authority of
Broward County,
4.35%*, 12/1/29, LOC
John Hancock 4,500
1,000 Immokalee Water & Sewer
District,
3.65%, 8/30/96 1,000
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 2,000 Lee County Housing Finance
Authority,
3.74%*, 9/1/29, LOC
Bayerische Landesbank $ 2,000
3,000 Manatee County Housing,
3.74%*, 7/1/29**, LOC
Bayerische Landesbank 3,000
625 Orlando, Orange County,
Prerefunded,
7.50%, 7/1/96 641
----------
25,257
----------
GEORGIA (3.2%):
2,020 State Residential,
3.80%*, 6/1/96**, First
National Bank of Chicago 2,020
7,140 State Residential,
3.80%*, 6/1/96**, First
National Bank of Chicago 7,140
575 Warner Robins, Water &
Sewer, Prerefunded,
7.76%, 7/1/96 590
----------
9,750
----------
ILLINOIS (8.1%):
3,000 Chicago IDR,
4.10%*, 11/1/05, LOC NBD
Bank 3,000
1,050 Development IDR,
4.25%*, 11/1/08, LOC ABN
Amro Bank 1,050
1,600 Development, Kindlen,
4.30%*, 5/1/06, LOC
La Salle National Bank 1,600
3,600 Financial Authority,
4.10%*, 12/1/05, LOC
La Salle National Bank 3,600
5,000 Health Facility,
4.15%*, 8/1/15, LOC, First
National Bank of Chicago 5,000
2,800 Kankakee County IDR,
4.30%*, 12/1/07, LOC Societe
Generale 2,800
2,470 Lincolnwood IDR,
4.25%*, 2/1/04, LOC
Bank One 2,470
1,785 River Grove IDR,
4.25%*, 2/1/03, LOC
Bank One 1,785
1,000 State,
7.75%, 6/1/96 1,023
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
18
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
TAX-FREE MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,975 Tinley Park Multi-Family
Revenue,
4.10%*, 12/1/08, LOC
La Salle National Bank $ 1,975
----------
24,303
----------
INDIANA (9.4%):
1,575 Crawfordsville,
4.30%*, 4/1/30, LOC Federal
Home Loan Bank 1,575
4,874 Goshen Community Schools,
4.00%, 12/31/96 4,885
2,600 Greenwood IDR,
4.35%*, 2/1/16, LOC
Bank One 2,600
1,750 Hamilton Southeastern
Schools,
3.90%, 12/31/96 1,753
1,050 Indianapolis, Calderon,
4.35%*, 2/1/99, LOC
Bank One 1,050
835 Indianapolis Local,
6.64%, 12/1/96 835
1,850 Munster School,
4.00%, 6/28/96 1,852
2,020 Scottsburg,
4.40%*, 10/1/09, LOC PNC
Bank 2,020
4,100 Seymour,
4.25%*, 1/1/31, LOC Federal
Home Loan Bank 4,100
500 Seymour,
4.25%*, 1/1/31, LOC Federal
Home Loan Bank 500
935 Syracuse Economic
Development Revenue,
4.30%*, 12/1/05, LOC Bank
One Indiana 935
5,000 Tippecanoe School Corp.,
3.66%, 12/30/96, LOC Bank
One 5,002
1,130 Wakarusa Economic
Development,
4.30%*, 7/1/03, LOC
Bank One 1,130
----------
28,237
----------
IOWA (1.4%):
4,325 City of Urbandale,
3.75%*, 10/1/15, LOC
Principle 4,325
----------
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
KANSAS (0.8%):
$ 2,300 Fairway,
3.75%*, 11/1/14, LOC
Principle $ 2,300
----------
KENTUCKY (7.2%):
2,475 Boone County,
4.40%*, 12/1/09, LOC PNC
Bank 2,475
5,000 Carroll, Ladder Co. Project,
4.45%*, 9/1/10, LOC National
City Bank 5,000
3,190 Covington,
4.15%*, 4/1/05, LOC
Fifth Third Bank 3,190
1,400 Lewis County ,
4.30%*, 12/1/03, LOC
Fifth Third Bank 1,400
2,000 Louisville, Zeochem,
4.05%*, 9/1/01, LOC National
City Bank 2,000
3,000 Pendelton,
4.00%, 7/1/96, LOC
Pittsburgh National Bank 3,000
1,500 Rural Economic Development
Authority,
4.30%*, 9/1/10, LOC
Westdeutsche Landesbank 1,500
3,000 Somerset Glen Oak,
4.35%*, 4/1/06, LOC
Bank One 3,000
----------
21,565
----------
LOUISIANA (2.7%):
8,000 St. Tammany, Public Finance
Authority,
4.25%*, 6/1/05, LOC Banque
Paribas 8,000
----------
MAINE (3.9%):
1,000 South Portland,
3.73%, 6/27/96 1,000
770 State GO,
5.90%, 7/1/96 772
10,000 State General Anticipation
Notes,
3.90%, 5/15/96 10,001
----------
11,773
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
19
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
TAX-FREE MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
MICHIGAN (0.9%):
$ 1,250 Detroit, Wayne County School
District,
4.50%, 5/1/96, LOC
St. Aid $ 1,250
1,300 State Strategic,
3.85%*, 5/1/05, LOC Comerica 1,300
----------
2,550
----------
MINNESOTA (2.1%):
3,330 St.Cloud Housing, Webway,
4.35%*, 11/1/05, LOC
National City Bank 3,330
3,000 School Districts Tax & Aid,
4.25%, 9/18/96 3,002
----------
6,332
----------
MISSOURI (4.8%):
1,200 Cuba IDR,
4.35%*, 10/1/05, LOC Bank
One 1,200
3,600 Kansas City,
3.75%*, 5/1/15, LOC
Principle 3,600
4,600 St. Louis, IDR,
4.35%*, 2/1/07, LOC
John Hancock 4,600
5,000 St. Louis Transportation,
4.50%, 6/20/96 5,005
----------
14,405
----------
NEVADA (0.9%):
1,375 Director State Department
Business & Industry,
4.35%*, 8/1/01, LOC
Bank One Milwaukee 1,375
1,290 Director State Department
Business & Industry,
4.35%*, 8/1/14, LOC
Bank One Milwaukee 1,290
----------
2,665
----------
OHIO (11.0%):
420 Akron Bath Copley Township
Hospital,
4.25%*, 5/1/13, LOC National
City Bank 420
2,000 Avon,
4.16%, 7/11/96 2,002
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,000 Chillicothe,
4.04%, 7/5/96 $ 1,000
2,250 Franklin County IDR,
4.30%*, 6/1/10, LOC
Fifth Third Bank 2,250
2,800 Housing Finance Authority,
4.15%*, 3/1/15, LOC
Bayerische Landesbank 2,800
4,000 Housing Finance Authority,
4.15%*, 3/1/15, LOC
Bayerische Landesbank 4,000
3,700 Housing Finance Authority,
4.15%*, 3/1/15, LOC
Bayerische Landesbank 3,700
1,700 Hudson,
4.20%, 8/15/96 1,701
1,660 Lebanon, Bond Anticipation
Note,
3.92%, 12/20/96 1,663
2,550 Lorain County Elyria Home,
4.15%*, 6/1/12, LOC
Fifth Third Bank 2,550
1,200 Mahoning County,
4.25%*, 4/1/17, LOC
Bank One 1,200
3,255 Marion County,
4.25%*, 11/1/21, LOC Bank
One 3,255
775 Pickerington,
4.15%, 6/28/96 775
1,000 Plain Township,
4.39%, 9/17/96 1,002
1,400 Portage County, Bond
Anticipation Note,
4.15%, 7/11/96 1,400
300 Scioto County VHA, AMBAC,
4.10%*, 12/1/25, LOC Mellon
Bank 300
800 Strongsville,
3.90%, 12/26/96 801
400 Student Loan Funding Corp.,
4.55%*, 12/29/98 400
735 Summit County,
3.95%, 6/1/96 735
1,000 Wilmington,
3.91%, 12/27/96 1,001
----------
32,955
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
20
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
TAX-FREE MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
OREGON (0.7%):
$ 2,000 Klamath Falls,
Secured to Maturity,
4.40%, 5/1/96** $ 2,000
----------
PENNSYLVANIA (0.3%):
1,000 E. Lycoming,
4.25%, 6/28/96 1,000
----------
TENNESSEE (2.1%):
6,200 Hawkins County, Kingston,
4.65%*, 8/1/09, LOC Bankers
Trust 6,200
----------
TEXAS (7.8%):
4,140 Harris County,
4.35%*, 10/1/16, LOC Morgan
Guarantee 4,140
1,000 State GO,
6.70%, 12/1/96 1,017
5,000 State Transportation,
4.75%, 8/30/96 5,011
9,200 Tyler Health Facilities,
3.35%, 6/14/96, LOC Banque
Parabas 9,200
4,000 Veteran Housing Association,
3.90%, 11/6/96** 4,000
----------
23,368
----------
UTAH (2.5%):
7,500 Tooele County,
3.35%, 5/23/96, LOC
Union Bank Switzerland 7,500
----------
WASHINGTON (0.3%):
1,000 Pierce County,
3.90%, 11/1/96, LOC Deutsche
Bank 1,000
----------
WISCONSIN (11.1%):
1,030 Appleton IDR,
4.35%*, 8/1/01, LOC
Bank One Milwaukee 1,030
1,450 Berlin IDR,
4.35%*, 4/1/07, LOC
Bank One 1,450
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 5,980 Evansville,
4.35%*, 12/1/08, LOC Bank
One $ 5,980
3,635 Fredonia IDR,
4.35%*, 4/1/06, LOC
Bank One 3,635
2,800 Janesville,
4.40%*, 9/1/07, LOC General
Electric Credit Corp. 2,800
3,870 Kenosha Metalmen,
4.35%*, 9/1/14, LOC
Bank One of Milwaukee 3,870
1,000 Milwaukee Metro Sewer,
Prerefunded,
9.00%, 5/1/96 1,000
1,600 Oak Creek,
4.35%*, 12/1/07, LOC Bank
One 1,600
1,200 Oshkosh, Schloesser,
4.35%*, 3/1/02, LOC
Bank One 1,200
3,000 Plymouth IDR,
4.35%*, 8/1/04, LOC Rabobank 3,000
1,500 Prairie Du Chien,
4.30%*, 6/1/02, LOC La Salle
National Bank 1,500
2,000 Waukesha IDR,
4.35%*, 12/1/07, LOC Bank
One 2,000
4,000 Wausaw School District,
4.05%, 9/20/96 4,001
----------
33,066
----------
WYOMING (1.2%):
3,700 Gillette County,
3.20%, 5/10/96, LOC Deutsche
Bank 3,700
- ------------------------------------------------------------
TOTAL MUNICIPAL BONDS 298,072
- ------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
21
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
TAX-FREE MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- ----------------------------------------------
INVESTMENT COMPANIES (0.1%)
155,000 Federated #15 Tax-Free Money
Market Fund $ 155
1,000 Fidelity Ohio Tax-Free Fund 1
- ------------------------------------------------------------
TOTAL INVESTMENT COMPANIES 156
- ------------------------------------------------------------
TOTAL (COST $298,228)(A) $ 298,228
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $300,129.
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market interest rates. The rate reflected on the Schedule of Investments is
the rate in effect at April 30, 1996.
** Put and demand features exist allowing the Fund to require the repurchase of
the instrument within variable time periods including daily, weekly, monthly,
or semi-annually.
AMBAC -- AMBAC Indemnity Corp.
GO -- General Obligation
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
22
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
- ----------------------------------------------
MUNICIPAL BONDS (99.4%)
OHIO (99.4%):
$ 6,000 Akron, 3.51%, 12/19/96 $ 6,001
3,565 Akron Sewer System Revenue,
4.20%*, 12/4/14**, LOC
Credit Suisse 3,565
2,000 Archbold, 4.31%, 3/27/97 2,010
3,000 Auglaize County, 4.35%*,
5/1/03**, LOC Bank One 3,000
870 Avon, 4.14%, 7/3/96 870
3,000 Avon Schools, 3.94%, 7/11/96 3,003
1,200 Barberton, 4.86%, 5/16/96 1,200
970 Barberton, 4.05%, 10/4/96 970
500 Bay Village, 4.00%, 6/20/96 500
6,800 Beavercreek Local School,
4.03%, 7/18/96 6,808
1,750 Bedford Heights, IDR,
4.10%*, 12/1/04**, LOC
National City Bank 1,750
960 Bellview Long Term GO,
3.75%, 10/22/96 960
1,000 Belmont County, 4.34%,
8/30/96 1,001
1,000 Belmont County, 4.09%,
11/26/96 1,002
1,550 Belmont County, 3.89%,
12/19/96 1,553
1,525 Berea, 4.20%, 7/18/96 1,526
475 Berea, 3.85%, 10/24/96 475
1,165 Blue Ash IDR, 3.40%, 9/1/96,
LOC Society National Bank 1,165
2,000 Bowling Green, 4.30%,
9/12/96 2,002
2,600 Bowling Green IDR, 4.30%*,
8/1/09**, LOC General
Electric Capital Corp. 2,600
950 Brecksville, 4.59%, 5/2/96 950
1,235 Brecksville, 4.10%, 8/9/96 1,235
6,400 Brecksville-Broadview
Heights, City School
District, 3.90%, 1/17/97 6,415
540 Brooklyn Heights IDR,
4.35%*, 2/1/02**, LOC Bank
One 540
1,000 Butler County, 4.30%*,
11/1/20** 1,000
1,450 Cardington, 4.42%, 9/12/96 1,453
3,500 Centerville Health Bethany,
4.00%*, 11/1/13**, LOC
Pittsburgh National Bank 3,500
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 2,325 Chillicothe IDR, 4.20%*,
10/1/15**, LOC Huntington
National Bank $ 2,325
400 Cincinnati, 4.60%, 12/1/96 403
7,400 Cincinnati & Hamilton IDR,
3.70%*, 5/1/15**, LOC
Pittsburgh National Bank 7,400
480 Circleville, 4.45%, 6/13/96 480
935 Clark County, 3.93%, 7/5/96 935
200 Clark County IDR, 3.65%,
10/1/96, LOC Huntington
National Bank 200
790 Clark County, 3.65%,
10/1/96, LOC Huntington
National Bank 790
1,000 Clark County, 3.65%,
10/1/96, LOC Huntington
National Bank 1,000
500 Cleveland City School
District, 4.50%, 6/1/96,
AMBAC 500
7,000 Cleveland-Cuyahoga County
IDR, 4.10%*, 12/1/15**,
LOC Credit Locale De
France 7,000
500 Cleveland Heights, 4.15%,
8/29/96 500
1,530 Cleveland Water Works,
7.88%, 1/1/16** 1,604
6,100 Clinton County IDR, 4.15%*,
6/1/11**, LOC Wachovia
Bank 6,100
500 Clinton County IDR, 4.30%*,
11/1/99**, LOC Wachovia
Bank 500
3,150 Columbus, 3.85%, 9/15/96 3,151
10,000 Columbus City School
District, 3.70%, 6/28/96 10,002
750 Columbus Sewer, 8.00% 6/1/96 768
600 Cuyahoga County, 3.60%
10/15/96 600
3,325 Cuyahoga County IDR, 4.25%*,
12/1/12**, LOC National
City Bank 3,325
300 Cuyahoga County IDR, 4.15%*,
12/1/98**, LOC National
City Bank 300
4,180 Cuyahoga County IDR, 4.07%*,
12/7/05**, LOC National
City Bank 4,180
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
23
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 380 Cuyahoga County IDR, 4.60%*,
11/2/09**, LOC National
City Bank $ 380
2,700 Cuyahoga County Revenue,
4.15%*, 4/1/12**, LOC
Union Bank of Switzerland 2,700
2,500 Cuyahoga Falls IDR, 4.30%*,
9/1/14**, LOC Fifth Third
Bank 2,500
3,400 Cuyahoga Falls IDR, 4.30%*,
5/1/15**, LOC Fifth Third
Bank 3,400
8,000 Dayton, 4.10%, 7/29/96 8,008
1,340 Defiance County IDR, 4.30%*,
12/1/97**, LOC Pittsburgh
National Bank 1,340
900 Delaware County IDR, 3.60%*,
12/1/04**, LOC Wells Fargo 900
1,800 East Palestine City School
District, 3.50%, 2/28/97 1,802
1,575 Elyria, 4.18%, 7/25/96 1,576
980 Elyria, 3.74%, 3/20/97 981
950 Elyria City School District,
4.13%, 4/10/97 953
900 Erie County, 4.17%, 7/19/96 900
1,075 Euclid IDR, 3.60%, 10/15/96,
LOC Bank One 1,075
2,500 Fairfield County, 4.08%,
8/30/96 2,501
767 Fairfield County, 4.75%,
9/4/96 768
900 Findlay, 4.75%, 6/11/96 901
809 Franklin, 3.96%, 4/9/97 810
1,485 Franklin County, 3.80%,
5/1/96, LOC Bank One 1,485
2,205 Franklin County IDR, 3.55%,
9/1/96, LOC Society
National Bank 2,205
3,665 Franklin County IDR, 3.60%*,
12/1/02**, LOC Huntington
National Bank 3,665
1,560 Franklin County IDR, 4.30%*,
10/1/15**, LOC Fifth Third
Bank 1,560
7,000 Franklin County IDR, 3.60%*,
12/1/15**, LOC Bank One 7,000
2,600 Franklin County IDR, 4.15%*,
12/1/16**, LOC Fifth Third
Bank 2,600
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 700 Franklin County IDR, 4.35%*,
4/1/19**, LOC Huntington
National Bank $ 700
5,600 Franklin County, Children's
Hospital, 4.30%*,
12/1/14** 5,600
1,860 Franklin County Health Care
Facilities, 4.15%*,
6/1/15**, LOC Fifth Third
Bank 1,860
1,000 Franklin County Hospital
Revenue, 4.10%*, 5/1/15**,
LOC NBD Bank 1,000
2,575 Gallia County IDR, 3.70%*,
12/15/10**, LOC Fifth
Third Bank 2,575
1,100 Geauga County, 3.79%,
12/2/96 1,101
4,000 Geauga County, 3.94%,
12/12/96 4,006
1,100 Geauga County Park, 4.04%,
12/12/96 1,102
1,408 Georgetown School District,
3.84%, 12/19/96 1,409
940 Granville, 4.06%, 11/19/96 941
525 Greene County, 4.00%,
7/18/96 525
3,300 Greene County IDR, 3.60%*,
8/1/09**, LOC Pittsburgh
National Bank 3,300
3,335 Hamilton County IDR, 4.30%*,
12/1/04**, LOC Fifth Third
Bank 3,335
2,605 Hamilton County IDR, 4.30%*,
12/1/08**, LOC Fifth Third
Bank 2,605
1,290 Hancock County, 4.30%*,
6/1/96** 1,290
1,083 Harrison, 3.79%, 1/10/97 1,085
3,800 Highland Heights, 3.89%,
12/19/96 3,804
865 Hilliard IDR, 4.30%*,
12/1/14**, LOC Fifth Third
Bank 865
1,245 Holmes County, 4.15%,
5/21/96 1,245
500 Holmes County IDR, 4.25%*,
4/1/09**, LOC Rabobank 500
5,000 Housing Finance Authority,
3.40%, 9/1/28**, GNMA 5,000
16,530 Housing Finance Authority,
4.35%*, 3/1/22**, LOC
Bayerische Landesbank 16,530
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
24
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,076 Huber Heights, 3.75%, 4/1/97 $ 1,077
1,000 Independence, 3.98%, 9/6/96 1,000
2,000 Indian Lake, 4.14%, 4/9/97 2,004
1,840 Licking County IDR, 4.35%*,
4/1/05**, LOC Bank One 1,840
1,455 Lorain County IDR, 3.60%,
10/15/96, LOC Fifth Third
Bank 1,455
2,300 Lorain County IDR, 4.15%*,
6/1/12**, LOC Fifth Third
Bank 2,300
2,000 Lorain County Hospital,
4.00%*, 5/1/01**, LOC
Pittsburgh National Bank 2,000
1,050 Lorain County IDR, 4.30%*,
6/1/09**, LOC Bank One 1,050
1,195 Lucas County, 4.00%, 6/1/96 1,195
565 Lucas County, 4.25%*,
3/1/06**, LOC National
City Bank 565
425 Lucas County IDR, 4.25%*,
12/1/07**, LOC National
City Bank 425
6,000 Lucas County, 4.25%*,
12/1/12**, LOC National
City Bank 6,000
390 Mahoning County IDR, 4.15%*,
6/1/03**, LOC Bank One 390
2,850 Mahoning County, 4.25%*,
4/1/17**, LOC Bank One 2,850
4,400 Mahoning County, 4.00%*,
3/15/20**, LOC Bank One 4,400
2,000 Mahoning County, 4.15%*,
12/1/21**, LOC PNC Bank 2,000
860 Maple Heights, 3.50%,
12/12/96 861
895 Marion County Hospital,
4.25%*, 4/1/17**, LOC Bank
One 895
5 Marion County Hospital Pool,
4.25%*, 3/1/16**, LOC Bank
One 5
630 Marion County Hospital Pool,
4.25%*, 5/1/19**, LOC Bank
One 630
241 Marion County Hospital Pool,
4.25%*, 8/1/20**, LOC Bank
One 241
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,270 Marion County Hospital Pool,
4.25%*, 10/1/22**, LOC
Bank One $ 1,270
550 Mayfield Heights, 4.00%,
7/5/96 550
850 Mayfield Heights, 4.00%,
7/25/96 850
3,500 Medina County, 4.25%,
10/10/96 3,504
700 Middlefield, 3.49%, 2/28/97 700
500 Milford, 4.27%, 4/14/96 501
335 Montgomery County IDR,
3.80%, 12/15/04**, LOC
Bank One 335
685 Montgomery County, 3.75%,
11/1/96, MBIA 685
875 Montgomery County Health
Care Facility, 4.15%*,
9/1/01**, LOC Society
National Bank 875
5,000 Montgomery County IDR,
3.50%, 7/5/96, LOC
Northern Trust 5,000
2,830 Montgomery IDR, 4.60%*,
5/2/05**, LOC Huntington
National Bank 2,830
1,820 Muskingum County, 4.60%*,
1/1/01**, LOC Huntington
National Bank 1,820
2,000 Muskingum County Health,
7.50%, 3/1/12** 2,101
200 North Baltimore, 4.65%,
4/17/97 201
10,000 North Olmsted, 4.67%,
6/20/96 10,006
2,000 Northeastern Local School,
4.10%, 6/11/96 2,001
1,300 Northwood, 4.70%, 8/1/96 1,302
1,650 Orrville, 4.00%*, 12/1/07**,
LOC National City Bank 1,650
200 Orrville IDR, 4.15%*,
9/1/00**, LOC National
City Bank 200
250 Orrville IDR, 4.15%*,
8/1/03**, LOC National
City Bank 250
1,200 Paulding County IDR, 4.15%*,
3/1/99**, LOC Fifth Third
Bank 1,200
1,206 Pepper Pike, 4.00%, 9/27/96 1,208
750 Perrysburg, 4.65%, 8/22/96 751
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
25
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 590 Pickerington, 4.07%, 8/9/96 $ 590
1,200 Pickerington, 4.00%,
11/26/96 1,201
3,500 Pike County IDR, 4.30%*,
6/1/13**, LOC Fifth Third 3,500
2,090 Portsmouth IDR, 4.35%*,
10/1/02**, LOC Bank One 2,090
2,000 Portsmouth, 4.30%*,
12/1/09**, LOC National
City Bank 2,000
2,720 Richland County, 4.35%*,
12/1/16**, LOC Huntington
National Bank 2,720
3,500 Rickenbacker Port Authority,
4.25%*, 12/1/10**, LOC
Bank One 3,500
580 Rossford, 4.80%, 1/2/97 583
2,530 Salem Hospital Facility,
4.00%*, 11/1/11**, LOC PNC
Bank 2,530
2,000 School District Cash Flow,
4.52%, 6/28/96 2,002
2,300 Seneca County, St. Francis
Hospital, 4.20%*,
12/15/13**, LOC National
City Bank 2,300
1,560 Seven Hills, 3.95%, 5/9/96 1,560
1,800 Sharonville IDR, 4.30%*,
10/1/98**, LOC Fifth Third
Bank 1,800
6,155 Sharonville IDR, 4.25%*,
9/1/14**, LOC National
City Bank 6,155
585 Sheffield Village, 4.50%,
9/20/96 586
500 Stark County, 4.18%, 6/20/96 500
2,390 Stark County, 4.25%*,
3/1/13** 2,390
5,000 State Air Quality
Development Revenue,
3.15%, 5/8/96, FGIC 5,000
2,000 State Air Quality
Development Revenue,
3.30%, 5/8/96, LOC Toronto
Dominion 2,000
2,700 State Air Quality
Development Revenue,
3.20%, 5/9/96, FGIC 2,700
4,350 State Air Quality
Development Revenue,
3.45%, 5/14/96, LOC
Toronto Dominion 4,350
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,000 State Air Quality
Development Revenue,
3.45%, 5/15/96, FGIC $ 1,000
700 State Air Quality
Development Revenue,
3.30%, 5/17/96, FGIC 700
1,700 State Air Quality
Development Revenue,
3.45%, 5/17/96, FGIC 1,700
1,500 State Air Quality
Development Revenue,
3.30%, 5/22/96, FGIC 1,500
5,000 State Air Quality
Development Revenue,
3.20%, 6/13/96, FGIC 5,000
3,800 State Air Quality
Development Revenue,
3.25%, 6/14/96, FGIC 3,800
4,000 State Air Quality
Development Revenue,
3.50%, 7/8/96, LOC Toronto
Dominion 4,000
7,500 State Air Quality
Development Revenue,
3.50%, 7/9/96, LOC Toronto
Dominion 7,500
1,175 State Air Quality
Development Revenue,
4.25%, 2/1/14**, LOC
Canadian Imperial Bank 1,177
5,500 State Air Quality
Development Revenue,
4.75%, 5/1/18** LOC Union
Bank of Switzerland 5,500
13,600 State Air Quality
Development Revenue,
4.15%*, 4/1/28**, LOC
Societe Generale 13,600
440 State IDR, 4.30%, 6/1/00**,
LOC Pittsburgh National
Bank 440
1,000 State Environmental IDR,
3.60%*, 12/1/01**, LOC
Pittsburgh National Bank 1,000
1,000 State Higher Education,
4.25%*, 9/1/09**, LOC
National City Bank 1,000
2,200 State Higher Education,
4.15%*, 4/1/22** 2,200
700 State Highway, 5.70%,
5/15/96 701
210 State IDR, 4.25%*, 7/1/02**,
LOC Bank One 210
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
26
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 2,105 State IDR, 4.25%*, 1/2/03**,
LOC Bank One $ 2,105
390 State IDR, 4.25%**,
1/2/03**, LOC Bank One 390
995 State IDR, 4.25%*, 6/7/06**,
LOC National City Bank 995
950 State IDR, 4.25%*, 7/1/07**,
LOC Bank One 950
830 State IDR, 4.25%*,
12/1/11**, LOC Bank One 830
720 State IDR, 4.25%*, 6/1/16**,
LOC National City Bank 720
2,500 State IDR, 4.35%*, 6/1/20**,
LOC Bank of Cleveland 2,500
2,500 State IDR, 4.35%, 6/1/25**,
LOC Bank One 2,500
150 State Public Education,
5.20%, 6/1/96, LOC AMBAC 150
2,435 State Water Development
Authority, 3.35%, 5/1/96,
FGIC 2,435
1,500 State Water Development
Authority, 3.20%, 5/10/96,
FGIC 1,500
7,000 State Water Development
Authority, 3.20%, 6/12/96,
FGIC 7,000
5,000 State Water Development
Authority, 3.60%, 7/5/96,
LOC Toronto Dominion 5,000
5,000 State Water Development
Authority, 3.70%, 8/2/96,
LOC Toronto Dominion 5,000
500 State Water Division, 4.75%,
5/1/96, LOC Union Bank of
Switzerland 500
530 Stow School District, 3.72%,
8/1/96 530
3,952 Stow School District, 3.69%,
8/1/96 3,954
1,190 Streetsboro, 4.26%, 10/10/96 1,191
1,150 Strongsville, 4.20%, 9/12/96 1,151
40,185 Student Loan Funding Corp.,
Cincinnati, Student Loan
Revenue, 4.55%*,
12/29/98**, LOC Fuji 40,185
3,400 Student Loan Funding Corp.,
Cincinnati, 4.25%*,
1/1/07**, LOC NatWest 3,400
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 5,100 Student Loan Funding, Corp.
Cincinnati, 4.25%*,
1/1/07**, LOC NatWest $ 5,100
9,700 Student Loan Funding,
Cincinnati, 4.25%*,
1/1/07, LOC NatWest 9,700
1,290 Summit County, 4.25%, 6/6/96 1,290
445 Summit County, 3.35%, 9/1/96 445
515 Summit County IDR, 3.57%,
9/1/96**, LOC Bank One 515
255 Summit County IDR, 3.70%,
10/1/16**, LOC Bank One 255
400 Summit County IDR, 4.25%*,
11/1/01**, LOC Fifth Third
Bank 400
2,300 Summit County IDR, 4.51%*,
8/1/05**, Huntington
National Bank 2,300
650 Summit County IDR, 4.35%*,
9/1/01**, LOC Bank One 650
1,070 Summit County IDR, 4.35%*,
9/1/01**, LOC Bank One 1,070
1,775 Summit County IDR, 4.25%*,
9/1/11**, LOC Bank One 1,775
2,885 Summit County, 4.15%*,
7/1/99**, LOC Bank One 2,885
2,265 Summit County IDR, 4.25%*,
9/1/05**, LOC Bank ONe 2,265
3,180 Toledo, 3.90%, 6/1/96, LOC
Canadian Imperial Bank of
Commerce 3,181
5,220 Toledo, 4.38%, 12/1/96, LOC
Canadian Imperial Bank of
Commerce 5,247
1,000 Toledo, Lucas County, IDR,
3.30%, 5/17/96, LOC Bank
of Nova Scotia 1,000
1,000 Toledo, Lucas County, 3.20%,
5/10/96, LOC Bank of Nova
Scotia 1,000
2,800 Toledo, Lucas County,
4.30%*, 12/1/06** 2,800
1,145 Toledo, Lucas County Port
Authority, 4.35%*,
12/1/13**, LOC Old Kent
Bank 1,145
1,685 Troy Economic Development
Revenue, 4.35%, 9/4/96,
LOC Societe Generale 1,685
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
27
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL MONEY MARKET FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 500 Trumbull County, 4.00%,
10/10/96 $ 501
1,150 Trumbull County, 4.07%,
4/10/97 1,153
300 Trumbull County IDR, 4.30%*,
6/1/05**, LOC Pittsburgh
National Bank 300
7,000 Trumbull County IDR, 4.25%*,
12/1/06**, LOC Mellon Bank 7,000
750 Twinsburg IDR, 4.15%*,
7/1/98**, LOC National
City Bank 750
8,000 Twinsburg Ohio School
District, 4.50%, 6/6/96 8,005
1,955 Union County, 4.19%, 6/28/96 1,956
1,750 Vermilion, 4.20%*,
10/1/04**, LOC Bank One 1,750
1,000 Warren County, 4.10%,
9/1/96, LOC NBD Bank 1,000
1,000 Warren County, 4.58%, 9/5/96 1,003
1,950 Washington County, 3.88%,
12/19/96 1,953
600 Wauseon, 5.25%, 5/23/96 600
1,600 West Cleremont, 4.32%,
4/15/97 1,606
2,260 Westerville, 4.30%*,
12/1/11**, LOC National
City Bank 2,260
2,450 Westlake, 4.15%*, 3/1/02**,
LOC Bayerische Landesbank 2,450
6,650 Westlake IDR, 4.07%*,
7/2/08**, LOC National
City Bank 6,650
250 Westlake IDR, 3.75%,
11/1/96, LOC Huntington
National Bank 250
2,600 Williams County, 5.25%,
5/16/96 2,601
4,250 Williams County, 4.15%*,
11/1/08**, LOC NBD Bank 4,250
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED
AMOUNT SECURITY DESCRIPTION COST
<S> <C> <C> <C>
$ 1,985 Wilmington, 4.07%, 9/5/96 $ 1,988
715 Wilmington, 4.07%, 9/5/96 716
3,000 Wooster, 3.53%, 12/19/96 3,001
928 Wyoming, 4.19%, 7/10/96 928
- ------------------------------------------------------------
TOTAL MUNICIPAL BONDS 573,928
- ------------------------------------------------------------
- ----------------------------------------------
TOTAL INVESTMENT COMPANIES (0.0%)
128,666 Federated Ohio Municipal
Cash Trust Fund 129
- ------------------------------------------------------------
TOTAL INVESTMENT COMPANIES 129
- ------------------------------------------------------------
TOTAL (COST $574,057)(A) $ 574,057
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $577,332.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of
market interest rates. The rate reflected on the Schedule of Portfolio
Investments is the rate in effect at April 30, 1996.
** Put and demand features exist allowing the Fund to require the repurchase of
the investment within variable time periods of less than one year.
AMBAC -- AMBAC Indemnity Corp.
FGIC -- Financial Guarantee Insurance Company
FNMA -- Federal National Mortgage Assoc.
GECC -- General Electric Capital Corp.
GNMA -- Government National Mortgage Assoc.
GO -- General Obligation
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Insurance Association
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
28
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
LIMITED TERM INCOME FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
ASSET BACKED SECURITIES (0.6%)
$ 1,000 American Express Asset
Backed,
6.05%, 7/15/97 $ 1,001
68 GMAC 1993 A Grantor Trust,
Class A,
4.15%, 3/15/98 68
- ----------------------------------------------------------
TOTAL ASSET BACKED SECURITIES 1,069
- ----------------------------------------------------------
- ---------------------------------------------------------
COMMERCIAL PAPER/
MASTER DEMAND NOTES (2.6%)
2,666 General Electric Capital
Corp.,
5.35%, 5/1/96 2,666
- ----------------------------------------------------------
- ----------------------------------------------
CORPORATE BONDS (13.2%)
AUTOMOTIVE (1.8%)
3,000 Ford Motor Credit,
7.13%, 12/1/97 3,065
--------
BROKERAGE SERVICES (2.0%):
1,500 Lehman Brothers Holdings,
5.50%, 6/15/96 1,500
2,000 Lehman Brothers Holdings,
5.75%, 11/15/98 1,955
1,800 Merrill Lynch,
5.00%, 12/15/96 1,800
--------
5,255
--------
BUSINESS EQUIPMENT (1.3%):
2,175 International Business
Machines Corp.,
6.38%, 11/1/97 2,175
--------
CHEMICALS (0.6%):
1,000 Dow Capital,
5.75%, 9/15/97 998
--------
FINANCIAL SERVICES (2.7%):
1,000 Associates Corp.,
6.88%, 1/15/97 1,008
1,500 Associates Corp.,
7.25%, 9/1/99 1,526
2,000 Norwest Corp.,
7.75%, 12/31/96 2,027
--------
4,561
--------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
INDUSTRIAL GOODS & SERVICES (2.4%):
$ 2,000 Burlington Resources,
7.15%, 5/1/99 $ 2,030
2,000 WMX Technologies,
7.13%, 3/22/97 2,018
--------
4,048
--------
INSURANCE (1.2%):
2,000 International Lease Finance,
8.35%, 10/1/98 2,080
--------
UTILITIES -- GAS & ELECTRIC (1.2%):
1,000 Northern Illinois Gas,
5.50%, 2/1/97 995
1,000 Northern States Power,
5.50%, 2/1/99 970
--------
1,965
- ----------------------------------------------------------
TOTAL CORPORATE BONDS 24,147
- ----------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES (11.1%)
FEDERAL HOME LOAN MORTGAGE CORP.:
10,000 Discount Note, 5/13/96 9,981
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
8,841 6.50%, 9/20/24 8,912
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 18,893
- ----------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY NOTES (76.0%)
1,000 5.63%, 10/31/97 996
4,000 7.38%, 11/15/97 4,081
5,000 5.25%, 12/31/97 4,942
2,000 5.13%, 2/28/98 1,968
22,000 7.88%, 4/15/98 22,725
67,000 8.25%, 7/15/98 69,906
23,000 5.13%, 11/30/98 22,428
2,000 6.38%, 3/31/01 1,994
- ----------------------------------------------------------
TOTAL U.S. TREASURY NOTES 129,040
- ----------------------------------------------------------
TOTAL (COST $176,844) (A) $175,815
==========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $169,815.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 375
Unrealized depreciation (1,404)
--------
Net unrealized depreciation $ (1,029)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
29
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INTERMEDIATE INCOME FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (2.9%)
FEDERAL HOME LOAN MORTGAGE CORP.:
$ 1,699 6.00%, 10/25/03 $ 1,695
1,524 5.80%, 4/15/14 1,518
819 7.50%, 7/25/18 825
1,426 7.50%, 9/15/20 1,437
- ----------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 5,475
- ----------------------------------------------------------
- ----------------------------------------------
COMMERCIAL PAPER (0.3%)
FINANCIAL SERVICES (0.3%):
630 General Electric Capital
Corp.,
5.35%, 5/1/96 630
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 630
- ----------------------------------------------------------
- ----------------------------------------------
CORPORATE BONDS (25.9%)
AUTOMOTIVE (1.7%):
1,000 Ford Motor Co.,
9.00%, 9/15/01 1,091
1,000 General Motors Corp.,
9.63%, 12/1/00 1,104
1,000 General Motors Corp.,
9.13%, 7/15/01 1,090
--------
3,285
--------
BANKING (2.1%):
2,000 Republic NY Corp.,
7.75%, 5/15/02 2,075
2,000 Southtrust Bank, Birmingham,
5.58%, 2/6/06 1,912
--------
3,987
--------
BROKERAGE SERVICES (2.6%):
5,000 Lehman Brothers Sr.
Subordinated Note,
5.75%, 11/15/98 4,887
--------
CHEMICALS (0.6%):
1,000 Dow Chemical,
5.75%, 9/15/97 998
--------
FINANCIAL SERVICES (9.4%):
4,000 Bear Stearns Co.,
9.38%, 6/1/01 4,410
2,000 Commercial Credit,
5.88%, 1/15/01 1,880
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 2,500 Merrill Lynch,
8.25%, 11/15/99 $ 2,616
1,000 Norwest Corp.,
7.75%, 12/31/96 1,014
3,000 Transamerica Financial,
8.75%, 10/1/99 3,176
2,000 Travelers Group,
6.88%, 6/1/25 1,947
3,000 U.S. West Capital Funding,
6.31%, 11/1/05 2,933
--------
17,976
--------
INDUSTRIAL GOODS & SERVICES (7.4%):
3,000 Amoco Canada,
7.25%, 12/1/02 3,060
1,000 EG&G, Inc.,
6.80%, 10/15/05 954
5,000 Honeywell,
6.60%, 4/15/01 4,944
3,000 Service Corp. International,
8.38%, 12/15/04 3,210
2,000 WMX Technologies,
7.13%, 3/22/97 2,018
--------
14,186
--------
RETAIL STORES (1.0%):
2,000 Dayton Hudson,
6.63%, 3/1/03 1,920
--------
UTILITIES -- TELECOMMUNICATIONS (1.1%):
2,000 GTE Corp. Notes,
9.10%, 6/1/03 2,185
- ----------------------------------------------------------
TOTAL CORPORATE BONDS 49,424
- ----------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES (3.5%)
FEDERAL NATIONAL MORTGAGE ASSOC.:
2,000 5.23%, 11/25/98 1,947
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
5,100 6.00%, 4/15/26 4,649
- ----------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 6,596
- ----------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY BONDS (1.3%)
2,000 10.38%, 11/15/12 2,540
- ----------------------------------------------------------
TOTAL U.S. TREASURY BONDS 2,540
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
30
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INTERMEDIATE INCOME FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
U.S. TREASURY NOTES (64.7%)
$ 3,000 6.50%, 5/15/97 $ 3,023
30,000 7.88%, 4/15/98 30,988
8,000 5.13%, 11/30/98 7,801
7,000 7.00%, 4/15/99 7,141
48,000 6.25%, 8/31/00 47,695
11,000 5.63%, 11/30/00 10,658
14,000 5.75%, 8/15/03 13,302
3,000 6.50%, 8/15/05 2,957
- ----------------------------------------------------------
TOTAL U.S. TREASURY NOTES 123,565
- ----------------------------------------------------------
TOTAL (COST $190,669)(A) $188,230
==========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $191,043.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 881
Unrealized depreciation (3,320)
--------
Net unrealized depreciation $ (2,439)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
31
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INVESTMENT QUALITY BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
ASSET BACKED SECURITIES (0.3%)
$ 429 Railcar Trust, Series 92-1,
7.75%, 6/1/04 $ 443
- ------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES 443
- ------------------------------------------------------------
- ----------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.7%)
FEDERAL HOME LOAN MORTGAGE CORP.:
972 7.50%, 4/1/07 979
- ------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 979
- ------------------------------------------------------------
- ----------------------------------------------
CORPORATE BONDS (27.4%)
AUTOMOTIVE (2.1%):
1,000 Ford Motor Co.,
9.00%, 9/15/01 1,091
1,000 Ford Motor Co.,
8.88%, 1/15/22 1,115
500 General Motors,
9.13%, 7/15/01 545
----------
2,751
----------
BANKING (2.8%):
600 BankAmerica Corp.,
9.63%, 2/13/01 665
1,020 First Union Corp.,
9.45%, 6/15/99 1,099
1,000 SunTrust Banks, Inc.,
7.38%, 7/1/02 1,015
1,000 Wachovia Corp.,
6.05%, 10/1/25 965
----------
3,744
----------
BROKERAGE SERVICES (2.8%):
500 Morgan Stanley,
8.00%, 10/15/96 505
1,000 Morgan Stanley,
5.63%, 3/1/99 974
1,000 Morgan Stanley,
8.88%, 10/15/01 1,087
1,200 Salomon Brothers,
6.70%, 12/1/98 1,186
----------
3,752
----------
DIVERSIFIED (1.0%):
1,400 Hanson Overseas,
6.75%, 9/15/05 1,332
----------
ELECTRICAL & ELECTRONIC (1.5%):
2,000 Philips Electronics,
7.13%, 5/15/25 1,967
----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
FINANCIAL SERVICES (2.6%):
$ 1,500 BHP Finance,
6.69%, 3/1/06 $ 1,435
1,020 Merrill Lynch,
8.25%, 11/15/99 1,067
1,000 Merrill Lynch,
6.00%, 3/1/01 964
----------
3,466
----------
HEALTH CARE (0.8%):
1,000 Columbia Health Care,
8.85%, 1/1/07 1,102
----------
INDUSTRIAL GOODS & SERVICES (6.5%):
2,000 Black & Decker,
7.50%, 4/1/03 2,027
2,000 Champion International,
7.75%, 9/1/25 1,913
1,500 EG&G, Inc.,
6.80%, 10/15/05 1,431
1,500 Georgia-Pacific,
9.95%, 6/15/02 1,704
1,000 Lubrizol Corp.,
7.25%, 6/15/25 960
500 Westvaco Corp.,
9.75%, 6/15/20 608
----------
8,643
----------
INSURANCE (0.8%):
1,000 Nationwide Mutual,
9.88%, 2/15/25 1,085
----------
MACHINERY & EQUIPMENT (0.9%):
1,100 John Deere Capital,
8.63%, 8/1/19 1,177
----------
OIL & GAS (0.7%):
1,000 Union Oil of California,
6.38%, 2/1/04 942
----------
PRINTING & PUBLISHING (0.8%):
1,000 Time Warner, Inc.,
9.15%, 2/1/23 1,048
----------
RETAIL STORES (0.7%):
1,000 Dayton Hudson,
6.40%, 2/15/03 948
----------
TOBACCO & TOBACCO PRODUCTS (1.6%):
2,000 Phillip Morris,
9.00%, 1/1/01 2,160
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
32
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
INVESTMENT QUALITY BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UTILITIES -- TELECOMMUNICATIONS (1.8%):
$ 510 GTE Hawaiian Telephone
Service,
9.00%, 12/1/00 $ 518
510 MCI Communications,
7.63%, 11/7/96 514
1,000 New England Telephone &
Telegraph,
6.25%, 12/15/97 999
360 Northern Telecom Ltd.,
8.25%, 6/13/96 361
----------
2,392
- ------------------------------------------------------------
TOTAL CORPORATE BONDS 36,509
- ------------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES (31.1%)
FEDERAL HOME LOAN MORTGAGE CORP.:
1,486 6.00%, 2/1/11 1,408
FEDERAL NATIONAL MORTGAGE ASSOC.:
1,436 7.50%, 3/1/24 1,421
1,792 9.00%, 3/1/25 1,870
1,026 9.00%, 5/1/25 1,071
2,862 6.00%, 8/1/10 2,714
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
2,466 6.50%, 2/15/09 2,409
1,307 9.00%, 2/15/17 1,368
1,311 8.50%, 9/15/17 1,352
1,062 9.00%, 12/15/19 1,112
1,540 9.00%, 1/15/20 1,618
2,548 7.50%, 8/15/22 2,521
1,446 8.50%, 8/15/22 1,495
1,052 8.50%, 2/15/23 1,087
879 6.50%, 7/15/23 829
187 7.50%, 8/15/23 185
570 7.50%, 8/15/23 564
1,345 7.00%, 10/15/23 1,300
1,361 7.50%, 10/15/23 1,345
2,005 6.50%, 1/15/24 1,874
4,457 7.50%, 1/15/24 4,408
1,850 7.50%, 5/15/24 1,829
5,611 8.50%, 12/15/24 5,795
2,040 6.50%, 4/15/26 1,909
- ------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 41,484
- ------------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
U.S. TREASURY BONDS (7.7%)
$ 4,800 10.38%, 11/15/12 $ 6,096
4,000 7.50%, 11/15/24 4,217
- ------------------------------------------------------------
TOTAL U.S. TREASURY BONDS 10,313
- ------------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY NOTES (30.0%)
2,100 6.13%, 3/31/98 2,103
1,750 5.00%, 2/15/99 1,697
2,500 7.75%, 1/31/00 2,614
2,000 7.13%, 2/29/00 2,050
12,510 6.13%, 9/30/00 12,371
19,300 6.38%, 8/15/02 19,133
- ------------------------------------------------------------
TOTAL U.S. TREASURY NOTES 39,968
- ------------------------------------------------------------
TOTAL (COST $133,082)(A) $ 129,696
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $133,416.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 334
Unrealized depreciation (3,720)
----------
Net unrealized depreciation $ (3,386)
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
33
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
GOVERNMENT BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (3.2%)
FINANCIAL SERVICES (3.2%):
$ 849 General Electric Capital
Corp.,
5.35%, 5/1/96 $ 849
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 849
- ----------------------------------------------------------
- ---------------------------------------------------------
U.S. TREASURY NOTES (78.8%)
2,000 7.88%, 4/15/98 2,066
9,500 6.88%, 8/31/99 9,658
3,000 7.75%, 11/30/99 3,132
1,000 6.25%, 8/31/00 994
1,000 5.75%, 10/31/00 974
4,000 6.50%, 5/15/05 3,944
- ----------------------------------------------------------
TOTAL U.S. TREASURY NOTES 20,768
- ----------------------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
U.S. TREASURY BONDS (16.3%)
$ 2,250 12.00%, 8/15/13 $ 3,181
1,000 8.13%, 8/15/19 1,115
- ----------------------------------------------------------
TOTAL U.S. TREASURY BONDS 4,296
- ----------------------------------------------------------
TOTAL (COST $26,763)(A) $ 25,913
==========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $26,354.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 9
Unrealized depreciation (859)
--------
Net unrealized depreciation $ (850)
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
34
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
GOVERNMENT MORTGAGE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
COMMERCIAL PAPER/
MASTER DEMAND NOTES (1.0%)
FINANCIAL SERVICES (1.0%):
$ 1,290 General Electric Capital
Corp.,
5.35%, 5/1/96 $ 1,290
- ---------------------------------------------------------
TOTAL COMMERCIAL PAPER/MASTER DEMAND
NOTES 1,290
- ---------------------------------------------------------
- ---------------------------------------------------------
U.S. GOVERNMENT
AGENCIES (95.0%)
FEDERAL HOME LOAN MORTGAGE CORP.:
178 9.50%, 8/1/21 189
1,884 4.76%, 12/1/23* 1,933
4,583 7.50%, 4/1/24 4,538
4,257 7.50%, 4/1/24 4,216
4,739 7.50%, 4/1/24 4,691
4,644 7.50%, 4/1/24 4,598
FEDERAL NATIONAL MORTGAGE ASSOC.:
8,757 6.00%, 8/1/10 8,306
1,181 8.00%, 5/1/17 1,192
1,859 9.50%, 6/1/22 1,970
2,098 8.00%, 2/1/23 2,119
9,445 6.50%, 4/1/24 8,889
3,247 8.50%, 8/1/24 3,334
2,262 8.50%, 6/1/25 2,322
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
$ 4,757 9.50%, 4/15/10 $ 5,107
9,776 6.00%, 1/15/11 9,325
1,797 9.50%, 11/15/17 1,915
447 9.00%, 11/15/18 469
324 9.50%, 1/15/19 346
400 8.50%, 12/15/19 412
34 8.50%, 2/15/20 35
1,086 9.50%, 5/15/20 1,157
1,330 9.00%, 3/15/21 1,392
93 8.50%, 5/15/21 96
975 9.00%, 5/15/21 1,021
946 9.00%, 6/15/21 990
1,873 9.50%, 6/15/21 1,996
5,552 8.00%, 5/15/22 5,620
5,976 8.00%, 5/15/22 6,050
3,470 8.00%, 10/15/22 3,513
2,759 9.00%, 2/15/23 2,892
4,195 7.50%, 7/15/23 4,152
1,513 8.00%, 8/15/23 1,532
4,617 7.00%, 9/15/23 4,458
2,699 7.00%, 10/15/23 2,606
4,457 7.00%, 12/15/23 4,302
5,314 6.50%, 1/15/24 4,965
2,671 7.50%, 1/15/24 2,642
4,420 6.50%, 9/20/24 4,456
3,920 9.50%, 6/15/25 4,193
- ---------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 123,939
- ---------------------------------------------------------
- ---------------------------------------------
U.S. TREASURY NOTES (3.0%)
3,000 5.75%, 10/31/00 2,923
1,000 5.63%, 2/15/06 926
- ---------------------------------------------------------
TOTAL U.S. TREASURY NOTES 3,849
- ---------------------------------------------------------
TOTAL (COST $131,866)(A) $129,078
=========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $130,436.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 395
Unrealized depreciation (3,183)
--------
Net unrealized appreciation $ (2,788)
=========
</TABLE>
*Adjustable Rate Mortgage.
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
35
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands)
FUND FOR INCOME (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (49.4%)
$ 1,072 Bear Stearns Mortgage
Capital Corp.,
9.40%, 6/25/21 $ 1,072
2,364 Bear Stearns Secured
Investors Trust,
7.50%, 9/20/20 2,351
50 Drexel Burnham & Lambert
Trust,
9.30%, 6/1/17 51
1,921 Federal National Mortgage
Assoc.,
9.25%, 3/25/18 1,983
1,000 General Electric Capital
Mortgage Services, Inc.,
7.00%, 3/25/08 952
1,870 Housing Securities, Inc.,
7.25%, 4/25/08 1,842
1,000 Kidder Peabody Acceptance
Corp.,
6.80%, 9/1/06 969
68 Merrill Lynch Trust,
8.90%, 10/20/15 69
1,297 Prudential Home Mortgage
Securities,
7.00%, 1/25/08 1,265
1,500 Resolution Trust Corp.,
8.20%, 11/25/21 1,509
- ------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 12,063
- ------------------------------------------------------------
- ----------------------------------------------
COMMERCIAL PAPER (3.7%)
INDUSTRIAL (3.7%):
817 Dow Chemical,
5.30%, 5/1/96 817
- ------------------------------------------------------------
TOTAL COMMERCIAL PAPER 817
- ------------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES (38.8%)
FEDERAL HOME LOAN MORTGAGE CORP.:
11 12.00%, 10/1/10 12
2 12.00%, 7/1/14 2
3 12.00%, 7/1/14 3
64 9.30%, 8/15/15 65
21 10.00%, 2/1/17 23
127 9.50%, 8/1/19 135
145 10.00%, 9/1/19 158
194 9.50%, 11/1/19 207
79 9.50%, 11/1/19 83
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 66 8.85%, 4/15/20 $ 65
736 9.50%, 12/1/22 779
FEDERAL NATIONAL MORTGAGE ASSOC.:
1,000 8.25%, 3/25/04 1,015
1,800 8.50%, 2/1/05 1,882
36 13.00%, 12/1/12 40
11 10.00%, 5/1/13 12
30 12.00%, 8/1/13 33
11 10.00%, 1/1/14 12
22 12.00%, 4/1/15 24
8 10.00%, 8/1/17 9
18 10.00%, 8/1/17 20
4 10.00%, 10/1/17 5
12 10.00%, 10/1/17 13
6 10.00%, 11/1/17 7
4 10.00%, 1/1/18 4
10 10.50%, 1/1/18 11
8 10.00%, 1/1/18 8
12 10.00%, 1/1/18 13
37 10.00%, 2/1/18 40
24 9.50%, 1/1/19 25
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
65 11.00%, 9/20/14 71
54 10.50%, 2/15/16 59
49 10.00%, 3/15/16 53
54 9.50%, 8/15/17 58
107 9.50%, 8/15/17 114
98 10.00%, 10/15/17 106
68 10.00%, 1/15/18 74
79 10.00%, 1/15/18 86
21 10.00%, 2/15/18 23
43 10.00%, 3/15/18 47
405 9.50%, 5/15/18 432
213 9.50%, 6/15/18 227
98 10.00%, 7/15/18 107
8 10.00%, 7/15/18 9
73 10.00%, 9/15/18 79
101 10.00%, 9/15/18 110
96 10.00%, 9/15/18 104
45 10.00%, 9/15/18 48
81 10.00%, 9/15/18 88
328 10.00%, 11/15/18 358
110 10.00%, 1/15/19 120
48 10.25%, 3/15/19 52
49 10.25%, 6/15/19 53
191 9.50%, 10/15/19 203
874 9.50%, 9/20/20 924
274 10.00%, 6/15/21 298
- ------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES 8,608
- ------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
36
Schedule of Investments -- Continued
THE VICTORY PORTFOLIOS April 30, 1996
FUND FOR INCOME (Amounts in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
U.S. TREASURY OBLIGATIONS (1.6%)
U.S. Treasury Strip's
$ 2,000 0.00%, 8/15/20 $ 351
- ------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS 351
- ------------------------------------------------------------
TOTAL (COST $21,220)(A) $ 21,839
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $22,195.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 760
Unrealized depreciation (141)
----------
Net unrealized appreciation $ 619
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
37
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NATIONAL MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
MUNICIPAL BONDS (102.0%)
ALABAMA (6.7%):
$ 5 East Alabama, Health Care
Authority, Series A,
Revenue Bond, 5.10%,
9/1/08, MBIA $ 5
300 Mobile, Water & Sewer,
4.50%, 1/1/00, FGIC 300
1,290 University of South Alabama
Revenue Bond,
4.20%, 11/15/03 1,222
1,825 University of South Alabama
Revenue Bond,
4.60%, 11/15/07 1,683
----------
3,210
----------
ALASKA (0.5%):
250 Anchorage,
5.25%, 10/1/02, FGIC 257
----------
ARIZONA (5.6%):
250 Maricopa County,
School District,
4.40%, 7/1/02 244
270 Maricopa County,
School District,
4.60%, 7/1/04 262
125 Maricopa County,
School District #95,
Queens Creek, Series A,
5.20%, 7/1/05 127
2,000 Pima County,
4.05%*, 7/1/22, LOC Bank
of America 2,000
50 Salt River Project,
Agricultural Improvement,
Series A,
5.63%, 1/1/06 52
----------
2,685
----------
CALIFORNIA (0.0%):
5 Capital Area Development
Authority,
GO, Tax Allocation,
4.35%, 10/1/01 5
5 State Public Works,
Department of Corrections,
Del Norte Project, Series
C,
4.88%, 12/1/06 5
----------
10
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
COLORADO (1.9%):
$ 250 Adams County,
School District #12,
4.70%, 12/15/02, MBIA $ 249
400 Routt County, School
District, GO, 3.90%,
12/1/96 400
250 Summit County, School
District, GO, 4.75%,
12/1/02 251
----------
900
----------
CONNECTICUT (0.5%):
5 State, Special Tax
Obligation,
4.30%, 10/1/03 5
200 State, Special Tax
Obligation,
6.00%, 9/1/06 214
----------
219
----------
DISTRICT OF COLUMBIA (2.0%):
1,000 District of Columbia
Hospital,
5.75%, 8/15/26, MBIA 949
----------
FLORIDA (9.5%):
1,000 Lakeland, Hospital Revenue
Bonds,
5.25%, 11/15/06 899
5 Melbourne, Water & Sewer,
Series A,
4.50%, 10/1/05, FGIC 5
150 Orlando, Utilities
Commission,
Water & Electric,
5.80%, 10/1/06 158
5 Palm Bay, Utility Revenue,
5.00%, 10/1/08 5
1,830 Sarasota Hosptial, Revenue
Bonds,
6.00%, 10/1/05 1,963
1,435 Sarasota, Revenue
Obligations,
6.00%, 10/1/06 1,537
----------
4,567
----------
GEORGIA (10.4%):
3,410 State,
6.50%, 12/1/01 3,733
1,200 State, Series E, GO,
5.50%, 7/1/03 1,256
----------
4,989
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
38
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NATIONAL MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
HAWAII (5.8%):
$ 1,635 Honolulu City,
6.00%, 11/1/05 $ 1,742
1,000 Honolulu City & County,
5.40%, 4/1/05 1,025
----------
2,767
----------
ILLINOIS (2.0%):
250 Chicago Public Building
Commission,
Revenue Bonds, 6.05%,
1/1/06, AMBAC 264
500 Northlake, Tax Increment,
5.00%, 12/1/04, MBIA 501
200 State Sales Tax Revenue
Bonds, Series V,
5.88%, 6/15/05 212
----------
977
----------
INDIANA (7.8%):
15 Board Book Revenue Bonds,
5.38%, 2/1/03 15
2,500 Southwest Allen,
5.13%, 7/15/16 2,252
1,400 Vincennes Community School
Building,
6.00%, 7/1/09 1,453
----------
3,720
----------
IOWA (0.8%):
400 Woodbury, Health Systems
Revenue Bonds,
5.10%, 9/1/06, MBIA 393
----------
KANSAS (1.0%):
500 Leawood,
4.80%, 9/1/08 475
----------
KENTUCKY (0.1%):
15 Economic Development Finance
Authority,
St. Claire Medical Center,
5.35%, 9/1/04 15
30 State Turnpike Authority,
Revitalization Projects,
5.30%, 7/1/04, AMBAC 31
----------
46
----------
MAINE (0.0%):
5 State Housing Authority,
5.00%, 11/15/06 5
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
MASSACHUSETTS (0.1%):
$ 10 New England Education Loan
Marketing Corp., Series A,
5.80%, 3/1/02 $ 10
50 Commonwealth, Series B, GO,
5.20%, 11/1/04 51
----------
61
----------
MICHIGAN (7.3%):
255 Byron Center,
5.40%, 5/1/07 258
500 Inkster School District,
5.40%, 5/1/11 496
500 Kalamazoo,
4.90%, 5/1/08, MBIA 477
1,000 Kalamazoo,
5.00%, 5/1/09, MBIA 956
250 Leslie Public Schools,
5.55%, 5/1/07 256
225 Municipal Bond Authority
Revenue Bonds,
6.70%, 11/1/06 248
275 Municipal Bond Authority
Revenue Bonds,
6.80%, 11/1/07 302
500 State Strategic Consumer,
3.85%*, 6/15/10 500
----------
3,493
----------
MILWAUKEE (0.5%):
200 Sewer District, Series A,
GO,
6.70%, 10/1/02 221
----------
MISSOURI (5.8%):
500 Excelsior Springs School
District Building Corp.,
6.50%, 3/1/09 532
250 Poplar Bluff, Public
Building Corp.,
5.00%, 9/1/06 248
2,000 State Health & Educational
Facilities,
4.05%*, 9/1/30 2,000
----------
2,780
----------
MONTANA (4.3%):
675 University of Montana,
0.00%*, 11/15/14 231
2,010 University of Montana,
5.00%, 11/15/17 1,823
----------
2,054
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
39
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NATIONAL MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
NEVADA (0.1%):
$ 25 Nevada State, Series B, GO,
5.60%, 7/15/06 $ 26
----------
NEW JERSEY (0.0%):
20 New Jersey State
Transportation, Series A,
5.40%, 12/15/02 21
----------
NEW YORK (0.0%):
5 Schenectady Industrial
Development Agency,
Broadway Center Project,
5.00%, 9/1/09, FGIC 5
----------
OHIO (16.0%):
390 Butler County Waterworks,
3.60%, 12/1/97 388
610 Centerville,
5.50%, 12/1/06, FGIC 629
640 Centerville,
5.50%, 12/1/07, FGIC 658
200 Columbus Sewer, Revenue
Bonds,
5.50%, 6/1/01 208
1,000 Franklin County, Hospital
Revenue,
5.88%, 11/1/25 969
400 Huber Heights, Water
Systems,
5.10%, 12/1/06, MBIA 399
250 Muskingum County Hospital
Facilities,
3.80%, 12/1/96 250
250 Muskingum County Hospital
Facilities,
4.10%, 12/1/97 250
500 Muskingum County, Hospital
Revenue,
4.45%, 12/01/99, LOC
National City Bank 497
800 Springboro Community City
School District,
3.60%, 12/1/97 797
615 Springboro Community City
School District,
3.80%, 12/10/98 608
5 State, GO,
4.90%, 8/1/09 5
500 State, Special Obligation,
5.80%, 6/1/03 529
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 15 State Building Authority,
Correctional Facilities,
Series A,
5.50%, 10/1/05 $ 15
1,500 State Quality,
4.10%*, 12/1/15 1,500
----------
7,702
----------
PENNSYLVANIA (0.0%):
5 Harrisburg Water Authority,
Series A,
5.00%, 8/15/08, FGIC 5
----------
PUERTO RICO (2.9%):
1,500 Commonwealth,
5.38%, 7/1/22, MBIA 1,407
----------
RHODE ISLAND (0.0%):
5 State Health & Educational,
Butler Hospital Financing,
4.60%, 1/1/01 5
----------
SOUTH CAROLINA (0.0%):
20 Piedmont Municipal Power
Agency,
5.50%, 1/1/08, MBIA 20
----------
SOUTH DAKOTA (1.0%):
250 Rapid City, Sales Tax
Revenue Bonds, Series C,
4.70%, 6/1/00 251
250 Rapid City, Water Revenue,
5.00%, 11/1/04, FGIC 251
----------
502
----------
TEXAS (5.0%):
200 Conroe Independent School
District, GO,
6.50%, 2/1/04 219
15 Dallas County Hospital
District,
5.40%, 5/15/06, AMBAC 15
200 Keller Independent School
District,
6.20%, 8/15/04 216
15 North Texas Water District,
4.20%, 6/1/00, AMBAC 15
100 State, Series A, GO,
6.00%, 10/1/08 107
570 Wichita Falls,
4.10%, 9/1/97, AMBAC 571
525 Wichita Falls,
4.40%, 9/1/98 525
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
40
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NATIONAL MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 525 Wichita Falls,
5.00%, 9/1/02, AMBAC $ 526
200 Ysleta Independent School
District, GO,
5.60%, 8/15/02 209
----------
2,403
----------
UTAH (0.9%):
5 Brigham City, Series A, GO,
4.90%, 6/1/07 5
410 St. George Water Revenue,
5.05%, 6/1/05, AMBAC 409
----------
414
----------
WASHINGTON (0.5%):
15 Seattle Indian Services
Commission, GO,
4.95%, 11/1/00 15
200 Seattle Municipal Light &
Power, Revenue Bonds,
6.00%, 7/1/03 213
----------
228
----------
WEST VIRGINIA (0.5%):
250 West Virginia State
Hospital,
5.00%, 9/1/05, MBIA 246
----------
WISCONSIN (1.1%):
450 Sheboygan Area School
District,
6.80%, 4/1/98 471
20 State, GO,
5.80%, 5/1/01 21
25 State Transportation, Series
A,
7.50%, 7/1/04 29
5 Sturgeon Bay, Combined
Utilities,
4.75%, 1/1/05, AMBAC 5
----------
526
----------
WYOMING (1.4%):
425 Sweetwater County School
District,
6.00%, 6/1/97 435
225 Sweetwater County School
District,
6.00%, 6/1/98 233
----------
668
- ------------------------------------------------------------
TOTAL MUNICIPAL BONDS 48,956
- ------------------------------------------------------------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
INVESTMENT COMPANIES (5.1%)
$1,193 Federated Ohio Municipal
Cash Trust Fund $ 1,193
1,264 Nuveen Reserves Fund 1,264
- ------------------------------------------------------------
TOTAL INVESTMENT COMPANIES 2,457
- ------------------------------------------------------------
TOTAL (COST $52,136)(A) $ 51,413
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $47,999.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 312
Unrealized depreciation (1,035)
----------
Net unrealized depreciation $ (723)
==========
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Investments is the rate
in effect at April 30, 1996.
AMBAC -- AMBAC Indemnity Corp. FGIC -- Financial Guaranty Insurance Co. GO --
General Obligation LOC -- Letter of Credit MBIA -- Municipal Bond Insurance
Assoc.
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
41
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NEW YORK TAX-FREE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- --------------------------------------------
NEW YORK MUNICIPAL BONDS (97.4%)
$ 1,200 Metropolitan Transit
Authority, 7.50%, 7/1/98,
AMBAC $ 1,305
250 Metropolitan Transit
Authority, 7.00%, 7/1/09
AMBAC 289
250 Nassau County Industrial
Development Agency, Civic
Facilities Revenue Bonds,
6.75%, 8/1/11, AMBAC 268
680 New York City, Cultural
Resources, Revenue Bonds,
6.63%, 1/1/11, AMBAC 723
300 New York City, GO, Series B,
7.00%, 10/1/18, FSA 318
350 New York City, GO, Series C,
7.00%, 2/1/12, FGIC 359
700 New York City, Housing
Development, Refunding
Revenue Bonds, Multi-Unit
Mortgage, Series A, 7.30%,
6/1/10, FHA 748
675 New York City, Housing
Development Refunding
Revenue Bonds, Multi-Unit
Mortgage, Series A, 7.35%,
6/1/19, FHA 717
335 New York City, Housing
Development Revenue Bonds,
Series 1, 7.38%, 4/1/17,
MBIA 349
200 New York City, Industrial
Development Agency, Civic
Facilities Revenue Bonds,
USTA National Tennis
Center, 6.38%, 11/15/14 209
650 New York City, Municipal
Water Finance Authority,
6.75%, 6/15/16, 699
220 New York City, Transit
Authority, 7.50%, 1/1/00 246
700 New York State, Dormitory
Authority, Revenue Bonds,
City University, Series 2,
6.75%, 7/1/24, MBIA 753
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 750 New York State, Dormitory
Authority, Ithaca College,
Revenue Bonds, 6.50%,
7/1/10, MBIA $ 787
225 New York State, Dormitory
Authority, Revenue Bonds,
Judicial Facilities
Leases, Series B, 7.00%,
4/15/16, MBIA 246
370 New York State, GO, 6.75%,
8/1/18, AMBAC 394
325 New York State, GO, 6.75%,
8/1/19, AMBAC 347
340 New York State, Medical Care
Facilities Finance Agency,
7.45%, 2/15/00 380
200 New York State Medical Care
Facilities Finance Agency,
Montefiore Medical, 5.75%,
2/15/25, AMBAC 193
565 New York State, Medical Care
Facilities Finance Agency,
Refunding Revenue Bonds,
North Shore University,
7.20%, 11/1/20, MBIA 617
550 New York State, Medical Care
Facilities Finance Agency,
Revenue Bonds, St. Luke's,
Series A, 7.10%, 2/15/27 569
500 New York State Medical Care
Facilities, Unrefunded
Revenue Bonds, 7.38%,
8/15/19, MBIA 544
550 New York State, TWY
Authority, General Revenue
Bonds, Series C, 6.00%,
1/1/25, FGIC 548
1,000 New York State Urban
Development, 7.50%, 1/1/98 1,077
400 New York State Urban
Development, 7.50%, 1/1/00 447
900 Triborough Bridge & Tunnel
Authority, 7.00%, 1/1/01 1,004
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
42
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
NEW YORK TAX-FREE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 1,000 Triborough Bridge & Tunnel
Authority, Special
Obligation Refunding
Revenue Bonds, Series B,
6.88%, 1/1/15, AMBAC $ 1,075
500 University Puerto Rico,
Revenue Bonds, 5.25%,
6/1/25, MBIA 460
- -------------------------------------------------------
TOTAL NEW YORK MUNICIPAL BONDS 15,671
- -------------------------------------------------------
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- --------------------------------------------
INVESTMENT COMPANIES (0.7%)
108 Providence of New York $ 108
- -------------------------------------------------------
TOTAL INVESTMENT COMPANIES 108
- -------------------------------------------------------
TOTAL (COST $14,822)(A) $15,779
========================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $16,097.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 957
Unrealized depreciation --
-------
Net unrealized appreciation $ 957
========
</TABLE>
AMBAC -- AMBAC Indemnity Corporation FGIC -- Financial Guaranty Insurance
Company FHA -- Federal Housing Administration FSA -- Financial Security
Assurance GO -- General Obligation MBIA -- Municipal Bond Insurance Assoc.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
43
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
MUNICIPAL BONDS (92.4%)
ALTERNATIVE MINIMUM TAX PAPER (11.3%):
$ 3,500 Student Loan Funding Corp.,
Series A, 5.50%, 12/1/01 $ 3,535
4,000 Student Loan Funding Corp.,
Series A, 5.85%, 8/1/04* 4,049
- ------------------------------------------------------------
TOTAL ALTERNATIVE MINIMUM TAX PAPER 7,584
- ------------------------------------------------------------
DEMAND NOTES (1.5%):
1,000 Ohio State Air Quality,
4.10%, 12/1/95 1,000
- ------------------------------------------------------------
GENERAL OBLIGATION BONDS (33.3%)
STATE (0.2%):
150 Ohio State General
Obligation, 4.35%, 8/1/02 147
----------
COUNTY, CITY, SPECIAL DISTRICT & SCHOOLS (33.1%):
1,000 Anthony Wayne School
District, 5.75%, 12/1/18,
FGIC 986
1,500 Batavia Local School
District, 7.00%, 12/1/14,
MBIA 1,680
750 Batavia Local School
District, 6.30%, 12/1/22 784
500 Beavercreek Local School
District, 6.85%, 12/1/97,
FGIC 500
1,000 Brecksville-Broadview
Heights, City School
District, 6.50%, 12/1/16 1,055
500 Canton Waterworks System,
5.75%, 12/1/10, AMBAC 507
500 Columbus, 5.35%, 9/15/06 511
1,385 Crawford County, 6.75%,
12/1/19, AMBAC 1,497
1,250 Delaware City School
District, 5.75%, 12/1/20,
FGIC 1,232
1,000 Hilliard School District,
6.15%, 12/1/06 1,056
1,135 Holmes County, 5.80%,
12/1/19 1,124
415 Indian Lake School District,
3.70%, 12/1/97, FGIC 414
450 Indian Lake School District,
3.85%, 12/1/98, FGIC 446
205 Indian Lake School District,
4.45%, 12/1/03, FGIC 199
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 585 Indian Lake School District,
5.85%, 12/1/11, FGIC $ 241
2,500 Indian Valley Local School
District, 7.00%, 12/1/14 2,812
1,250 Lakeview Local School
District, 6.95%, 12/1/19,
AMBAC 1,376
250 Lorain, 5.35%, 12/1/08,
AMBAC 250
600 Madison County, 7.00%,
12/1/19, AMBAC 668
1,000 Monroe Falls, Series A,
6.95%, 12/1/14, AMBAC 1,090
500 Northeastern Ohio Local
School District, 5.55%,
12/1/18, FGIC 480
500 Olentangy Local School
District, 6.25%, 12/1/14 518
235 Springboro, 4.20%, 12/1/01,
AMBAC 230
500 Springboro, 4.30%, 12/1/02,
AMBAC 486
1,000 Sylvania City School
District, 5.75%, 12/1/22,
FGIC 986
1,000 Toledo, 6.10%, 12/1/14,
AMBAC 1,025
----------
22,153
- ------------------------------------------------------------
TOTAL GENERAL OBLIGATION BONDS 22,300
- ------------------------------------------------------------
- ----------------------------------------------
REVENUE BONDS (46.3%)
HOSPITALS, NURSING HOMES & HEALTH CARE (20.3%):
2,250 Butler County, Middletown
Regional Hospital, 6.75%,
11/15/10, FGIC 2,432
330 Franklin County Hospital,
4.50%, 11/1/98 330
840 Franklin County Hospital,
4.75%, 11/1/99 842
455 Franklin County Hospital,
4.90%, 11/1/00 456
500 Franklin County Hospital,
5.00% 11/1/01 502
500 Franklin County Hospital,
5.88%, 11/1/25 485
1,720 Franklin County, Riverside
Hospital, 7.25%, 5/15/20,
MBIA 1,871
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
44
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
$ 1,000 Garfield Heights, Marymont
Hospital, Refunding &
Improvement, 6.70%,
11/15/15 $ 1,035
2,200 Lake County Hospital
Improvement Facilities,
6.38%, 8/15/03, AMBAC 2,363
545 Muskingum County Hospital,
4.45%, 12/1/99 542
500 Muskingum County Hospital,
5.35%, 12/1/07 493
635 Portage County Hospital,
6.50%, 11/15/03, MBIA 698
675 Portage County Hospital,
6.50%, 11/15/04, MBIA 745
715 Portage County Hospital,
6.50%, 11/15/05, MBIA 790
----------
13,584
----------
HOUSING (7.8%):
2000 Cuyahoga County Multifamily
Revenue, 6.60%, 10/20/30,
GNMA 2,042
1000 Ohio State Housing Finance
Agency, 5.70%, 3/1/17 960
275 Ohio Cap Corp., 5.75%,
7/1/06, MBIA 281
1775 Ohio Cap Corp., 6.35%,
7/1/22 1,786
115 Ohio Cap Corp., 6.50%,
1/1/24 117
----------
5,186
----------
PUBLIC FACILITIES (CONVENTION, SPORT, PUBLIC BUILDINGS)
(6.1%):
2,000 Ohio State Building
Authority, Adult
Correctional Facilities,
6.00%, 10/1/07 2,104
1,000 Ohio State Building
Authority, Adult
Correctional Facilities,
5.50%, 4/1/16 960
1,000 Ohio State Public
Facilities, Higher
Education, 5.88%, 12/1/04 1,052
----------
4,116
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UTILITY (SEWERS, TELEPHONE, ELECTRIC) (12.1%):
$ 1,985 Cleveland Public Power
Systems, 7.00%, 11/15/24,
MBIA $ 2,201
500 Huber Heights Water System,
5.25%, 12/1/07, MBIA 500
815 Huber Heights Water System,
5.55%, 12/1/10, MBIA 816
1,000 Huber Heights Water System,
0.00%, 12/1/21, MBIA 223
1,000 Huber Heights Water System,
0.00%, 12/1/22, MBIA 210
1,100 Huber Heights Water System,
0.00%, 12/1/23, MBIA 218
1,245 Huber Heights Water System,
0.00%, 12/1/24, MBIA 232
1,265 Huber Heights Water System,
0.00%, 12/1/25, MBIA 223
500 Ohio State Water Development
Authority Revenue, Fresh
Water Service, 5.90%,
12/1/15 499
1,000 Ohio State Water Development
Authority Revenue, Fresh
Water Service, 5.90%,
12/1/21, AMBAC 995
500 Southwest Regional Water,
6.00%, 12/1/20, MBIA 506
250 Toledo Waterworks, 4.50%,
11/15/99 250
500 Toledo Waterworks, 4.75%,
11/15/00, FGIC 503
500 Toledo Waterworks, 5.00%,
11/15/02, FGIC 505
250 Warren County Sewer, 5.65%,
12/1/20, FGIC 243
----------
8,124
- ------------------------------------------------------------
TOTAL REVENUE BONDS 31,010
- ------------------------------------------------------------
TOTAL MUNICIPAL BONDS 61,894
- ------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
45
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO MUNICIPAL BOND FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
INVESTMENT COMPANIES (6.8%):
$1,722,973 Dreyfus Ohio Money Market
Institutional Fund $ 1,723
2,857,659 Federated Ohio Municipal
Cash Trust Fund 2,857
- ------------------------------------------------------------
Total Investment Companies 4,580
- ------------------------------------------------------------
TOTAL (COST $65,320) (A) $ 66,474
============================================================
</TABLE>
- ---------------
Percentages indicated are based on net assets of $66,982.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 1,452
Unrealized depreciation (298)
----------
Net unrealized appreciation $ 1,154
==========
</TABLE>
* Variable rate securities having liquidity sources through bank letters of
credit or other credit and/or liquidity agreements. The interest rate, which
will change periodically, is based upon bank prime rates or an index of market
interest rates. The rate reflected on the Schedule of Investments is the rate
in effect at April 30, 1996.
AMBAC -- AMBAC Indemnity Corp.
FGIC -- Financial Guarantee Insurance Company
GNMA -- Government National Mortgage Assoc.
MBIA -- Municipal Bond Insurance Assoc.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
46
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
COLLATERALIZED MORTGAGE
OBLIGATIONS (0.5%)
FEDERAL HOME LOAN MORTGAGE CORP.:
$ 384 7.50%, 4/1/07 $ 386
FEDERAL NATIONAL MORTGAGE ASSOC.:
685 7.40%, 7/25/17 686
- ------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 1,072
- ------------------------------------------------------------
- ----------------------------------------------
COMMERCIAL PAPER (5.8%)
FINANCIAL SERVICES (5.8%)
13,697 General Electric Capital
Corp., 5.35%, 5/1/96 13,697
- ------------------------------------------------------------
TOTAL COMMERCIAL PAPER 13,697
- ------------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (54.6%)
AEROSPACE/DEFENSE (2.2%):
19,900 Boeing Co. 1,634
41,300 Raytheon Co. 2,091
18,400 Textron, Inc. 1,578
----------
5,303
----------
ALUMINUM (0.7%):
25,300 Aluminum Co. of America 1,578
----------
AUTOMOBILE PARTS (0.3%):
20,000 Autozone 730
----------
AUTOMOBILES (0.9%):
8,000 Chrysler Corp. 502
30,000 Ford Motor Co. 1,076
8,000 Ford Motor Co., Convertible
Preferred 499
----------
2,077
----------
BANKS (4.3%):
54,900 BankAmerica Corp. 4,159
900 BBV-ADR 34
25,000 Chase Manhattan Corp. 1,722
27,600 First Union Corp. 1,697
1,300 IMI-ADR 31
12,000 J.P. Morgan & Co., Inc. 1,010
43,000 Norwest Corp. 1,553
2,000 Westpac Banking-ADR(b) 48
----------
10,254
----------
BEVERAGES (1.0%):
30,400 Anheuser Busch Co., Inc. 2,041
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
CHEMICALS (1.4%):
24,500 Air Products & Chemicals,
Inc. $ 1,399
14,800 Dow Chemical Co. 1,315
1,200 Imperial Chemical -- ADR 66
14,200 Lubrizol Corp. 412
600 Norsk Hydro -- ADR 28
----------
3,220
----------
COMPUTERS & PERIPHERALS (1.6%):
20,000 Bay Networks 630
22,000 Cisco Systems(b) 1,141
18,400 Hewlett Packard Co. 1,948
----------
3,719
----------
CONTAINERS (0.8%):
27,600 Newell Co. 787
30,000 Sonoco Products Co. 851
----------
1,638
----------
COSMETICS & RELATED (0.7%):
19,400 Avon Products 1,724
----------
ELECTRICAL EQUIPMENT (2.2%):
24,100 Emerson Electric Co. 2,015
34,400 General Electric Co. 2,666
900 Hitachi -- ADR 97
7,500 Motorola, Inc. 459
----------
5,237
----------
ELECTRONIC COMPUTING EQUIPMENT (0.4%):
17,900 Compaq Computer Corp.(b) 835
----------
FINANCIAL SERVICES (2.0%):
26,400 American Express Co. 1,280
1,000 Barclays -- ADR 44
61,200 Federal National Mortgage
Assoc. 1,874
23,300 Household International,
Inc. 1,611
----------
4,809
----------
FOOD DISTRIBUTORS (0.2%):
16,500 Supervalu, Inc. 528
----------
FOOD PROCESSING & PACKAGING (1.3%):
31,500 ConAgra, Inc. 1,217
2,000 Grand Metropolitan PLC --
ADR 53
59,000 Sara Lee Corp. 1,829
----------
3,099
----------
FOREST PRODUCTS (0.9%):
35,000 International Paper Co. 1,396
14,000 Mead Corp. 779
----------
2,175
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
47
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
HEALTH CARE (0.8%):
35,000 Columbia HCA Healthcare $ 1,859
----------
HEAVY MACHINERY (0.9%):
64,300 Baker Hughes, Inc. 2,042
----------
INDUSTRIAL SERVICES (1.0%):
21,700 American Home Products Corp. 2,289
----------
INSURANCE (2.3%):
61,942 Allstate 2,408
9,200 Chubb Corp. 871
30,200 St. Paul Cos., Inc. 2,136
----------
5,415
----------
MANUFACTURING (1.3%):
31,700 Allied Signal, Inc. 1,843
23,300 Litton Industries, Inc. 1,057
400 Unilever NV 55
----------
2,955
----------
MEDICAL SUPPLIES (0.6%):
25,200 Medtronic, Inc. 1,339
----------
METALS (0.2%):
17,100 USX U.S. Steel Group 564
----------
OIL (4.9%):
12,000 Atlantic Richfield Co. 1,413
700 British Petroleum Co.,
PLC -- ADR 76
5,000 Exxon Corp. 425
31,700 Mobil Corp. 3,645
900 Repsol -- ADR 33
400 Royal Dutch Petroleum Co. 57
23,500 Royal Dutch Petroleum Co. --
ADR 3,366
29,500 Texaco, Inc. 2,522
2,800 YPF S.A. -- ADR 61
----------
11,598
----------
OIL & GAS EXPLORATION (2.3%):
57,600 Enron Corp. 2,318
75,900 Phillips Petroleum Co. 3,150
----------
5,468
----------
OILFIELD EQUIPMENT & SERVICES (0.6%):
16,000 Schlumberger, Ltd. 1,412
----------
PAINT, VARNISHES & ENAMELS (0.4%):
17,700 Sherwin Williams Co. 827
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
PHARMACEUTICALS (4.0%):
59,000 Abbott Laboratories $ 2,397
20,600 Merck & Co., Inc. 1,246
52,800 Pfizer, Inc. 3,637
36,200 Schering-Plough 2,077
1,400 Smithkline Beecham 76
----------
9,433
----------
PUBLISHING (0.3%):
20,000 Time Warner, Inc. 817
----------
RADIO & TELEVISION (0.7%):
41,700 Viacom, Class B 1,710
----------
RAILROADS (0.4%):
12,500 Norfolk Southern Corp. 1,050
----------
RETAIL (3.2%):
29,800 Dayton Hudson Corp. 2,846
20,000 Home Depot, Inc. 947
15,000 Lowes Cos., Inc. 486
12,700 Pep Boys -- Manny, Moe &
Jack 424
19,500 Sears & Roebuck Co. 973
27,800 Walgreen Co. 890
42,500 Wal-Mart Stores, Inc. 1,015
----------
7,581
----------
SEMICONDUCTORS (1.0%):
19,700 Intel Corp. 1,335
600 Kyocera -- ADR 91
25,000 LSI Logic Corp. 900
----------
2,326
----------
SOAPS & CLEANING AGENTS (0.2%):
6,000 Colgate Palmolive, Inc. 460
1,300 Procter & Gamble Co. 110
----------
570
----------
SOFTWARE & COMPUTER SERVICES (1.1%):
10,650 Microsoft 1,207
32,000 Novell, Inc. 464
30,000 Oracle Systems Corp. 1,013
----------
2,684
----------
STEEL (0.1%):
2,100 British Steel -- ADR 64
880 Broken Hill Proprietary --
ADR 54
2,300 Worthington Industries, Inc. 47
----------
165
----------
TAX RETURN PREPARATION (0.6%):
40,500 H & R Block 1,423
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
48
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
TOBACCO & TOBACCO PRODUCTS (0.7%):
4,000 B.A.T. Industries -- ADR $ 62
16,500 Philip Morris Cos., Inc. 1,487
3,900 UST, Inc. 125
----------
1,674
----------
TRANSPORTATION (0.0%):
900 British Airways -- ADR 70
----------
UTILITIES -- ELECTRIC (2.7%):
54,900 Consolidated Edison Co. NY,
Inc. 1,613
44,000 DQE Co. 1,166
64,800 Houston Industries 1,385
57,800 Texas Utilities Co. 2,326
----------
6,490
----------
UTILITIES -- TELECOMMUNICATIONS (3.4%):
40,000 AT&T Corp. 2,450
15,000 Ameritech Corp. 876
900 British Telecom -- ADR 50
700 CIA Telecommuncacion --
Chile -- ADR 64
54,500 GTE Corp. 2,364
76,000 MCI Telecommunications Corp. 2,237
1,000 Telefonica De Espana -- ADR 53
----------
8,094
- ------------------------------------------------------------
TOTAL COMMON STOCKS 128,822
- ------------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS -- FOREIGN (1.7%)
AUSTRALIA (0.0%):
BUILDING PRODUCTS (0.0%):
11,700 CSR, Ltd. 42
- ------------------------------------------------------------
TOTAL AUSTRALIA 42
- ------------------------------------------------------------
AUSTRIA (0.0%):
GAS EXPLORATION, PRODUCTION & SERVICE (0.0%):
270 OMV AG 27
- ------------------------------------------------------------
TOTAL AUSTRIA 27
- ------------------------------------------------------------
BELGIUM (0.0%):
UTILITIES -- ELECTRIC (0.0%):
260 Electrabel SA 58
- ------------------------------------------------------------
TOTAL BELGIUM 58
- ------------------------------------------------------------
BRITAIN (0.1%):
BANKS (0.0%):
10,500 Allied Irish Banks 55
----------
FINANCIAL SERVICES (0.0%):
2,100 HSBC Holding 31
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
PUBLISHING (0.0%):
2,200 Reed Elsevier
International(b) $ 38
----------
RETAIL (0.0%):
8,000 Marks & Spencer(b) 53
----------
TELECOMMUNICATIONS (0.0%):
7,000 British Telecom 38
----------
UTILITIES -- WATER (0.0%):
5,000 Severn Trent PLC(b) 45
- ------------------------------------------------------------
TOTAL BRITAIN 260
- ------------------------------------------------------------
DENMARK (0.0%):
FINANCIAL SERVICES (0.0%):
1,000 Dansk Bank(b) 65
----------
MEDICAL EQUIPMENT (0.0%):
500 Radiometer, Class B 38
- ------------------------------------------------------------
TOTAL DENMARK 103
- ------------------------------------------------------------
FRANCE (0.1%):
AGRICULTURE (0.0%):
300 Eridania Beghin 49
----------
CHEMICALS (0.0%):
450 Compagnie De Saint Gobain 54
----------
ENGINEERING (0.0%):
500 GTM Entrepose 32
----------
FINANCIAL SERVICES (0.0%):
400 Ecco 90
----------
INSURANCE (0.0%):
1,500 Union Des Assurances De
Paris 32
----------
OIL & GAS PRODUCTION (0.0%):
700 Elf Aquitaine 52
- ------------------------------------------------------------
TOTAL FRANCE 309
- ------------------------------------------------------------
GERMANY (0.2%):
BANKING (0.0%):
200 Commerzbank(b) 43
----------
BREWERY (0.0%):
390 Brau Und Brunnen AG 42
----------
CHEMICALS (0.0%):
250 BASF 68
----------
INSURANCE (0.0%):
20 Allianz AG Holding 34
----------
MANUFACTURING (0.0%):
100 Siemens AG 55
----------
OIL & GAS EXPLORATION (0.0%):
800 Veba AG 40
----------
PUBLISHING (0.0%):
17 Axel Springer 11
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
49
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UTILITIES -- ELECTRIC (0.0%):
1,400 Veba(b) $ 69
- ------------------------------------------------------------
TOTAL GERMANY 362
- ------------------------------------------------------------
HOLLAND (0.0%):
INSURANCE (0.0%):
1,100 Internationale Nederlanden 85
- ------------------------------------------------------------
TOTAL HOLLAND 85
- ------------------------------------------------------------
HONG KONG (0.1%):
REAL ESTATE (0.1%):
10,000 Cheung Kong 71
50,000 Hang Lung Development Co.,
Ltd. 95
10,000 Hutchinson Whampoa(b) 62
- ------------------------------------------------------------
TOTAL HONG KONG 228
- ------------------------------------------------------------
ITALY (0.1%):
AUTOMOTIVE (0.0%):
33,300 Fiat 60
----------
INSURANCE (0.0%):
2,400 Assicurazioni Generrali 60
----------
UTILITIES -- TELECOMMUNICATIONS (0.0%):
47,800 Telecom Italia 79
- ------------------------------------------------------------
TOTAL ITALY 199
- ------------------------------------------------------------
JAPAN (0.8%):
BANKS (0.2%):
15,000 Ashikaga Bank 101
20,000 Higo Bank 174
32,000 Yasuda Trust & Banking 212
----------
487
----------
BEVERAGES (0.1%):
15,000 Kirin Brewery Co.(b) 195
----------
ELECTRICAL & ELECTRONIC (0.0%):
7,000 Hitachi, Ltd. 76
----------
ENGINEERING (0.1%):
10,000 Daito Trust Construct Co. 148
----------
FINANCIAL SERVICES (0.0%):
3,000 Kinden(b) 48
3,000 Nomura Securities(b) 65
----------
113
----------
HOUSEHOLD PRODUCTS (0.0%):
6,000 Kao Corp. 80
----------
INDUSTRIAL GOODS & SERVICES (0.1%):
12,000 Inax Corp. 131
----------
PHARMACEUTICALS (0.0%):
5,000 Taisho Pharmaceutical 109
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
REAL ESTATE (0.0%):
8,000 Mitsui Fudosan(b) $ 105
----------
RETAIL (0.1%):
4,000 Aoyama Trading Co., Ltd. 126
----------
STEEL (0.0%):
15,000 Nippon Steel(b) 54
----------
UTILITIES -- ELECTRIC (0.1%):
7,000 Shikoku Electric Power 172
----------
UTILITIES -- WATER (0.0%):
3,000 Kurita Water Industries 75
- ------------------------------------------------------------
TOTAL JAPAN 1,871
- ------------------------------------------------------------
SPAIN (0.1%):
FINANCIAL SERVICES (0.0%):
600 Banco Bilbao Vizcaya 23
----------
UTILITIES -- ELECTRIC (0.0%):
8,000 Iberdrola I 78
- ------------------------------------------------------------
TOTAL SPAIN 101
- ------------------------------------------------------------
SWEDEN (0.1%):
AUTOMOTIVE (0.0%):
2,000 Volvo AB(b) 46
----------
HOUSEHOLD GOODS (0.0%):
500 Electrolux, B Shares 25
----------
PHARMACEUTICALS (0.0%):
900 Astra AB, B Shares 40
- ------------------------------------------------------------
TOTAL SWEDEN 111
- ------------------------------------------------------------
SWITZERLAND (0.1%):
BUSINESS SERVICES (0.0%):
35 Societie Generale Servalance
Bearer 78
----------
FINANCIAL SERVICES (0.0%):
737 CS Holding(b) 67
----------
FOOD MANUFACTURING (0.0%):
67 Nestle SA Registered 74
----------
PHARMACEUTICALS (0.0%):
38 Ciba Geige AG-Registered 44
9 Roche Genussshein(b) 71
----------
115
- ------------------------------------------------------------
TOTAL SWITZERLAND 334
- ------------------------------------------------------------
TOTAL FOREIGN COMMON STOCKS 4,090
- ------------------------------------------------------------
- ----------------------------------------------
CONVERTIBLE BONDS (0.1%)
BANKS (0.1%):
$ 94 Mitsubishi Bank
International Finance
Bermuda, 3.00%, 11/30/02 108
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
50
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
TELECOMMUNICATIONS (0.0%):
$ 100 Telekom Malaysia, 4.00%,
10/3/04 $ 107
- ------------------------------------------------------------
TOTAL CONVERTIBLE BONDS 215
- ------------------------------------------------------------
- ----------------------------------------------
CORPORATE BONDS (10.7%)
AUTOMOTIVE (1.1%):
800 Ford Motor Co., 8.88%,
1/15/22 892
1,500 General Motors, 9.13%,
7/15/01 1,635
----------
2,527
----------
BANKING (1.5%):
300 BankAmerica Corp., 9.63%,
2/13/01 332
1,000 BankAmerica Corp., 8.38%,
2/13/02 1,066
1,200 First Union Corp., 9.45%,
8/15/01 1,328
400 SunTrust Banks, Inc., 7.38%,
7/1/02 406
500 Wachovia Corp., 6.05%,
10/1/25 482
----------
3,614
----------
BROKERAGE SERVICES (0.7%):
80 Morgan Stanley, 5.63%,
3/1/99 779
750 Morgan Stanley, 8.88%,
10/15/01 816
----------
1,595
----------
ELECTRICAL & ELECTRONIC (0.3%):
800 Philips Electronics, 7.13%,
5/15/25 787
----------
FINANCIAL SERVICES (2.2%):
1,000 Associates, 7.50%, 10/15/96 1,008
1,500 BHP Finance, 6.69%, 3/1/06 1,434
1,000 Merrill Lynch Corp., 8.25%,
11/15/99 1,046
1,000 Merrill Lynch Corp., 6.00%,
3/1/01 964
800 Salomon Brothers, 6.70%,
12/1/98 791
----------
5,243
----------
HEALTH CARE (0.5%):
1,000 Columbia HCA Healthcare,
8.85%, 1/1/07 1,102
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
IMPORT/EXPORT (0.4%):
$ 1,000 Union Oil of California,
6.38%, 2/1/04 $ 943
----------
INDUSTRIAL GOODS & SERVICES (2.6%):
1,200 Black & Decker, 7.50%,
4/1/03 1,216
1,000 Champion International,
7.75%, 9/1/25 956
500 EG&G, 6.80%, 10/15/05 477
1,000 Georgia-Pacific, 9.95%,
6/15/02 1,136
700 John Deere Capital, 8.63%,
8/1/19 749
500 Lubrizoil Corp., 7.25%,
6/15/25 480
500 Waste Management, 7.88%,
8/15/96 503
500 Westvaco Corp., 9.75%,
6/15/20 608
----------
6,125
----------
INSURANCE (0.5%):
1,000 Nationwide Mutual, 9.88%,
2/15/25 1,085
----------
PUBLISHING (0.2%)
500 Time Warner, Inc., 9.15%,
2/1/23 524
----------
RETAIL (0.2%):
500 Dayton Hudson, 6.40%,
2/15/03 474
----------
TOBACCO & TOBACCO PRODUCTS (0.4%):
1,000 Philip Morris, 9.00%, 1/1/01 1,080
----------
UTILITIES -- TELECOMMUNICATIONS (0.1%):
200 U.S. West Capital Funding,
Inc., 8.00%, 10/15/96 202
- ------------------------------------------------------------
TOTAL CORPORATE BONDS 25,301
- ------------------------------------------------------------
- ----------------------------------------------
U.S. GOVERNMENT SECURITIES (13.2%)
FEDERAL HOME LOAN MORTGAGE CORP.:
1,981 6.00%, 2/1/11 $ 1,877
FEDERAL NATIONAL MORTGAGE ASSOC.:
1,981 6.00%, 11/1/08 1,890
2,862 6.00%, 8/1/10 2,714
1,690 7.50%, 3/1/24 1,672
1,122 9.00%, 4/1/25 1,171
1,026 9.00%, 5/1/25 1,071
GOVERNMENT NATIONAL MORTGAGE ASSOC.:
1,635 6.50%, 2/15/09 1,592
198 9.50%, 7/15/09 211
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
51
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
BALANCED FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOC. CONT'D.
$ 1,466 6.00%, 1/15/11 $ 1,399
1,387 9.00%, 10/15/16 1,458
182 9.00%, 11/15/16 191
658 9.00%, 9/15/19 688
634 9.00%, 12/15/19 664
770 9.00%, 1/15/20 809
456 9.00%, 2/15/20 477
1,448 8.50%, 5/15/20 1,494
604 8.50%, 4/15/21 623
763 7.50%, 12/15/22 755
365 8.50%, 3/15/23 376
932 7.50%, 11/15/23 922
2,005 6.50%, 1/15/24 1,874
1,872 7.50%, 1/15/24 1,851
1,388 7.50%, 5/15/24 1,372
2,489 8.50%, 9/15/24 2,571
1,530 6.50%, 4/15/26 1,431
----------
31,153
----------
- ----------------------------------------------
U.S. TREASURY BONDS (2.6%)
1,300 10.38%, 11/15/12 1,651
1,050 7.13%, 2/15/23 1,055
3,275 7.50%, 11/15/24 3,453
----------
6,159
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
U.S. TREASURY NOTES (10.0%)
$ 3,700 7.75%, 1/31/00 $ 3,869
2,600 7.13%, 2/29/00 2,665
6,780 6.13%, 9/30/00 6,705
10,500 6.38%, 8/15/02 10,408
----------
23,647
- ------------------------------------------------------------
TOTAL (COST $207,045)(A) $ 234,156
- ------------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $236,093.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 27,121
Unrealized depreciation (10)
----------
Net unrealized appreciation $ 27,111
==========
</TABLE>
(b) Represents non-income producing securities.
ADR -- American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
52
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (11.4%)
FINANCIAL SERVICES (11.4%):
$ 25,615 General Electric Capital
Corp., 5.35%, 5/1/96 $ 25,615
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 25,615
- ----------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (88.0%)
ADVERTISING (0.1%):
3,120 Interpublic Group Cos., Inc. 146
--------
AEROSPACE/DEFENSE (1.5%):
13,842 Boeing Co. 1,137
2,516 General Dynamics Corp. 159
8,086 Lockheed Martin Corp. 652
4,565 McDonnell Douglas 440
2,000 Northrop Grumman Corp. 124
8,786 Rockwell International Corp. 514
3,473 Textron, Inc. 298
--------
3,324
--------
AIRCRAFT & AIRCRAFT PARTS (0.2%):
5,005 United Technologies Corp. 553
--------
AIR FREIGHT (0.1%):
3,127 AMR Corp. Delaware(b) 279
2,340 U. S. Air Group, Inc.(b) 42
--------
321
--------
AIRLINES (0.1%):
2,049 Delta Air Lines 165
--------
ALUMINUM (0.2%):
7,213 Aluminum Co. of America 450
--------
APPAREL (0.0%):
3,010 Liz Claiborne, Inc. 109
--------
AUTOMOBILES (1.9%):
15,420 Chrysler Corp. 967
44,337 Ford Motor Co. 1,590
30,117 General Motors 1,634
2,802 Navistar International
Corp.(b) 34
1,589 PACCAR, Inc. 79
--------
4,304
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
AUTOMOTIVE PARTS (0.4%):
1,631 Cummins Engine, Inc. $ 76
4,085 Dana Corp. 136
3,162 Eaton Corp. 191
2,441 Echlin, Inc. 84
4,907 Genuine Parts Co. 217
2,663 TRW, Inc. 250
--------
954
--------
BANKS (3.9%):
4,541 Bank of Boston Corp. 220
15,117 BankAmerica Corp. 1,145
3,158 Bankers Trust New York 219
3,901 Barnett Banks, Inc. 247
6,347 Boatmens Bancshares, Inc. 246
17,399 Chase Manhattan Corp. 1,198
4,625 Comerica, Inc. 201
12,760 First Chicago NBD Corp. 526
11,324 First Union Corp. 696
7,544 J.P. Morgan & Co., Inc. 635
11,893 NationsBank Corp. 948
14,262 Norwest Corp. 515
13,682 PNC Bank Corp. 414
4,653 SunTrust Banks, Inc. 328
6,911 Wachovia Corp. 304
3,918 Wells Fargo & Co. 951
--------
8,793
--------
BANKS -- MONEY CENTERS (REGIONAL) (1.0%):
19,537 Citicorp 1,538
8,640 CoreStates Financial Corp. 337
2,407 Golden West Financial Corp.
Delaware 127
5,943 National City Corp. 219
--------
2,221
--------
BANKS -- OUTSIDE MONEY CENTER (0.5%):
18,240 Banc One Corp. 634
4,076 Fifth Third Bancorp 225
5,498 First Bank Systems, Inc. 331
--------
1,190
--------
BEVERAGES (3.3%):
10,328 Anheuser Busch Co., Inc. 693
2,780 Brown Forman Corp., Class B 110
50,862 Coca-Cola Co. 4,145
1,454 Coors Adolph Co., Class B 28
31,814 PepsiCo, Inc. 2,020
15,009 Seagram Co. Limited 509
--------
7,505
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
53
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
BUILDING MATERIALS (0.6%):
1,542 Armstrong World Industries,
Inc. $ 88
1,094 Centex Corp. 30
1,193 Crane Co. 49
1,834 Fleetwood Enterprises, Inc. 48
1,168 Kaufman & Broad Home Corp. 16
6,417 Masco Corp. 175
4,678 Monsanto Co. 709
5,955 Morton International, Inc. 211
2,033 Owens Corning Fiberglas
Corp.(b) 82
1,025 Pulte Corp. 27
--------
1,435
--------
CHEMICALS (0.1%):
2,573 Great Lakes Chemical 176
--------
CHEMICALS -- GENERAL (2.4%):
4,473 Air Products & Chemicals,
Inc. 256
10,858 Dow Chemical Co. 965
22,439 E.I. Du Pont De Nemours Co. 1,804
3,229 Eastman Chemical 217
2,581 Ecolab, Inc. 84
1,522 FMC Corp.(b) 106
4,458 Hercules, Inc. 270
3,046 Mallinckrodt 120
2,756 Nalco Chemical Co. 84
8,123 PPG Industries, Inc. 411
5,577 Praxair, Inc. 215
2,743 Rohm & Haas Co. 182
2,006 Sigma-Aldrich 108
5,520 Union Carbide Corp. 251
3,836 W.R. Grace & Co. 297
--------
5,370
--------
CHEMICALS -- SPECIALTY (0.1%):
2,189 Avery Dennison Corp. 125
--------
COMMERCIAL SERVICES (0.1%):
7,079 CUC International(b) 233
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
COMPUTERS & PERIPHERALS (3.6%):
6,589 3Com Corp.(b) $ 304
4,840 Amdahl Corp.(b) 62
4,885 Apple Computer, Inc.(b) 119
7,319 Bay Networks, Inc.(b) 231
21,957 Cisco Systems(b) 1,139
2,208 Computer Sciences Corp.(b) 163
219 Cray Research, Inc.(b) 6
1,410 Data General Corp.(b) 22
5,933 Digital Equipment Corp.(b) 355
9,000 EMC Corp.(b) 185
20,661 Hewlett Packard Corp. 2,187
1,869 Integraph Corp.(b) 24
22,962 International Business
Machines Corp. 2,468
6,461 Silicon Graphics(b) 191
7,763 Sun Microsystems, Inc.(b) 421
4,705 Tandem Computers, Inc.(b) 60
6,848 Unisys Corp.(b) 41
--------
7,978
--------
CONGLOMERATES (0.6%):
9,218 Corning Glass Works 321
16,977 Minnesota Mining &
Manufacturing Co. 1,116
--------
1,437
--------
CONSTRUCTION (0.2%):
2,925 Case Corp. 148
3,384 Fluor Corp. 224
1,630 Foster Wheeler Corp. 75
--------
447
--------
CONSUMER CREDIT (0.2%):
6,859 Dean Witter Discover & Co. 374
--------
CONSUMER GOODS (0.1%):
2,975 American Greetings Corp. 82
1,555 Jostens, Inc. 35
--------
117
--------
CONTAINERS -- METAL, GLASS, PAPER, PLASTIC
(0.3%):
1,173 Ball Corp. 37
2,077 Bemis, Inc. 67
5,006 Crown Cork & Seal, Inc. 236
6,383 Newell Co. 182
6,334 Rubbermaid, Inc. 179
3,838 Stone Container Corp. 65
--------
766
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
54
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
COSMETICS & RELATED (0.7%):
1,052 Alberto Culver Co. $ 40
2,802 Avon Products 249
3,720 Dial Corp. 104
17,869 Gillette Co. 965
4,494 International Flavor &
Fragrance, Inc. 221
--------
1,579
--------
DEPARTMENT STORES (0.3%):
4,560 Dillard Department Stores,
Inc., Class A 183
9,167 J. C. Penney 454
1,442 Mercantile Stores, Inc. 90
--------
727
--------
DIVERSIFIED -- CONGLOMERATES, HOLDINGS
(0.0%):
1,910 National Service Industries,
Inc. 71
--------
DRUG STORES (0.1%):
854 Longs Drug Stores Corp. 39
3,363 Rite Aid Corp. 99
--------
138
--------
ELECTRICAL EQUIPMENT (3.0%):
1,760 Bally Manufacturing Corp.(b) 37
4,636 DSC Communications Corp.(b) 146
9,020 Emerson Electric Co. 754
67,258 General Electric Co. 5,212
2,200 General Instrument Corp.(b) 72
1,615 Johnson Controls, Inc. 115
1,666 Thomas & Betts Corp. 66
2,072 W.W. Grainger, Inc. 143
15,880 Westinghouse Electric Corp. 300
--------
6,845
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
ELECTRICAL SERVICES (0.1%):
4,708 General Public Utilities
Corp. $ 149
--------
ELECTRONIC COMPUTING EQUIPMENT (0.3%):
2,882 Cabletron Systems(b) 217
10,648 Compaq Computer Corp.(b) 497
--------
714
--------
ELECTRONIC & ELECTRICAL -- GENERAL (1.7%):
5,239 Advanced Micro Devices(b) 98
8,810 AMP, Inc. 394
2,373 Andrew Corp.(b) 114
4,339 Cooper Industries 184
2,129 EG&G, Inc. 47
1,966 General Signal Corp. 75
1,599 Harris Corp. 99
5,090 Honeywell, Inc. 268
23,749 Motorola, Inc. 1,455
5,058 National Semiconductor
Corp.(b) 80
9,842 Raytheon Co. 498
2,651 Tandy Corp. 137
1,318 Tektronix, Inc. 52
7,580 Texas Instruments, Inc. 428
--------
3,929
--------
ENTERTAINMENT (1.1%):
3,878 Brunswick Corp. 85
4,161 Harrahs Entertainment(b) 143
3,494 Hasbro, Inc. 128
1,441 King World Productions(b) 63
4,768 Loews Corp. 364
26,512 Walt Disney Co. 1,644
--------
2,427
--------
ENVIRONMENTAL CONTROL (0.1%):
11,879 Laidlaw, Inc., Class B 125
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
55
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
FINANCIAL SERVICES (3.7%):
19,589 American Express Co. $ 950
11,684 Automatic Data Processing,
Inc. 454
7,775 Bank of New York Co., Inc. 377
2,106 Beneficial Corp. 116
2,652 Ceridian Corp.(b) 127
7,290 Federal Home Loan Mortgage
Corp. 608
44,004 Federal National Mortgage
Assoc. 1,348
10,374 Fleet Financial Group 446
5,533 Great Western Financial
Corp. 127
6,179 Green Tree Financial Corp. 209
4,771 H.F. Ahmanson & Co. 113
3,965 Household International,
Inc. 274
8,531 Keycorp 330
8,990 MBNA Corp. 255
5,897 Mellon Bank Corp. 317
7,136 Merrill Lynch & Co., Inc. 431
6,204 Morgan Stanley Group, Inc. 312
4,271 Salomon, Inc. 173
2,800 Transamerica Corp. 213
12,866 Travelers, Inc. 791
6,078 U.S. Bancorp 197
--------
8,168
--------
FOOD DISTRIBUTORS (0.2%):
10,257 Albertsons, Inc. 395
--------
FOOD DISTRIBUTORS (SUPERMARKETS &
WHOLESALERS) (0.4%):
413 Earthgrains, Inc. 13
1,462 Fleming Cos., Inc. 20
1,476 Great Atlantic & Pacific
Tea, Inc. 51
4,952 Kroger Co.(b) 204
2,704 Supervalu, Inc. 86
7,397 Sysco Corp. 238
6,079 Winn Dixie Stores, Inc. 201
--------
813
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
FOOD PROCESSING & PACKAGING (2.2%):
21,819 Archer Daniels Midland Co. $ 412
5,920 CPC International, Inc. 409
10,012 Campbell Soup Co. 626
9,896 ConAgra, Inc. 382
6,441 General Mills 358
14,727 H.J. Heinz Co. 499
3,152 Hershey Foods Corp. 239
8,829 Kellogg Co. 630
3,392 Pioneer Hi-Bred
International, Inc. 189
5,392 Quaker Oats Co. 185
4,165 Ralston-Purina Group 243
19,321 Sara Lee Corp. 599
4,651 Wm. Wrigley Jr. Co. 245
--------
5,016
--------
FOREST PRODUCTS -- LUMBER & PAPER (1.6%):
4,510 Alco Standard Corp. 261
1,953 Boise Cascade Corp. 91
3,947 Champion International Corp. 190
3,661 Georgia Pacific Corp. 285
12,187 International Paper Co. 486
3,359 James River Corp. Virginia 90
11,202 Kimberly Clark Corp. 814
4,390 Louisiana Pacific Corp. 110
2,192 Mead Corp. 122
4,065 Moore Corp., Ltd. 74
1,164 Potlatch Corp. 50
2,271 Temple-Inland, Inc. 110
2,796 Union Camp Corp. 152
4,075 Westvaco Corp. 126
8,240 Weyerhauser Co. 408
2,199 Willamette Industries, Inc. 135
--------
3,504
--------
FUNERAL SERVICES (0.1%):
4,204 Service Corp. International 223
--------
GOLD & SILVER MINING (0.0%):
5,273 Santa Fe Pacific Gold
Corp.(b) 78
--------
HEALTH CARE (0.5%):
17,909 Columbia HCA Healthcare 952
6,546 Humana, Inc.(b) 161
--------
1,113
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
56
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
HEAVY MACHINERY (0.8%):
5,691 Baker Hughes, Inc. $ 181
8,064 Caterpillar Tractor, Inc. 516
10,512 Deere & Co. 409
1,956 Harnischfeger Industries,
Inc. 79
4,307 Ingersoll Rand Co. 167
2,199 McDermott International,
Inc. 46
6,208 Tyco Laboratories, Inc. 240
1,648 Varity Corp.(b) 70
--------
1,708
--------
HOLDING COMPANIES (0.4%):
4,698 ITT Hartford Group, Inc. 230
4,691 ITT Corp. 129
4,690 ITT Corp. 285
2,257 Republic New York Corp. 134
--------
778
--------
HOSPITAL & NURSING EQUIPMENT (1.1%):
2,213 Bard C.R., Inc. 81
26,805 Johnson & Johnson, Inc. 2,479
--------
2,560
--------
HOTELS & MOTELS (0.2%):
1,990 Hilton Hotels Corp. 210
5,015 Marriott International, Inc. 244
--------
454
--------
HOUSEHOLD GOODS -- APPLIANCES &
FURNISHINGS (0.2%):
4,351 Maytag Corp. 94
2,540 Premark International, Inc. 131
3,030 Whirlpool Corp. 182
--------
407
--------
INDUSTRIAL SERVICES (0.7%):
12,571 American Home Products Corp. 1,326
4,586 Dover Corp. 236
--------
1,562
--------
INSURANCE -- LIFE (0.5%):
2,885 Jefferson Pilot Corp. 152
3,852 Providian Corp. 178
2,852 Torchmark Corp. 123
6,978 United Healthcare 408
6,218 U. S. Healthcare, Inc. 324
1,425 USLIFE Corp. 40
--------
1,225
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
INSURANCE -- MULTI-LINE (1.8%):
4,540 Aetna Life & Casualty Co. $ 324
1,759 Alexander & Alexander
Services, Inc. 33
8,231 American General Corp. 289
19,101 American International
Group, Inc. 1,745
2,946 Cigna Corp. 334
3,309 General Re Corp. 473
4,219 Lincoln National Corp. 204
2,961 Marsh & McLennan Cos., Inc. 278
5,047 SafeCo Corp. 167
3,429 St. Paul Cos., Inc. 182
4,557 USF&G Corp. 72
--------
4,101
--------
INSURANCE -- PROPERTY, CASUALTY, HEALTH (0.5%):
18,108 Allstate 704
3,488 Chubb Corp. 330
2,885 UNUM Corp. 172
--------
1,206
--------
LEISURE -- RECREATION, GAMING (0.0%):
408 Bally Health & Tennis(b) 2
--------
MACHINE TOOLS (0.0%):
1,365 Cincinnati Milacron, Inc. 36
1,284 Giddings & Lewis, Inc. 24
--------
60
--------
MANUFACURING-CAPITAL GOODS (0.2%):
4,702 Illinois Tool Works, Inc. 316
1,142 Trinova Corp. 40
--------
356
--------
MANUFACTURING-CONSUMER GOODS (0.1%):
755 Outboard Marine Corp. 15
2,268 Teledyne, Inc.(b) 84
2,088 Western Atlas(b) 125
--------
224
--------
MANUFACTURING-MISCELLANEOUS (0.9%):
11,398 Allied Signal, Inc. 662
1,167 Briggs & Stratton Corp. 53
1,779 Millipore Corp. 74
4,633 Pall Corp. 130
2,933 Parker-Hannifin Corp. 124
6,451 Unilever N. V. 881
4,223 Whitman Corp. 107
--------
2,031
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
57
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
MEDICAL SERVICES (0.1%):
4,010 Beverly Enterprises, Inc.(b) $ 49
1,678 Community Psychiatric
Centers, Inc.(b) 15
2,556 Manor Care, Inc. 103
8,094 Tenet Healthcare Corp.(b) 166
--------
333
--------
MEDICAL SUPPLIES (0.8%):
2,339 Bausch & Lomb, Inc. 93
11,172 Baxter International, Inc. 494
2,638 Becton Dickinson & Co. 213
4,627 Biomet, Inc.(b) 68
6,999 Boston Scientific Corp.(b) 302
9,295 Medtronic, Inc. 494
2,839 St. Jude Medical, Inc. 104
2,280 United States Surgical Corp. 84
--------
1,852
--------
METALS -- FABRICATION (0.6%):
9,106 Alcan Aluminum Ltd. 290
1,744 Asarco, Inc. 58
3,750 Cyprus Amax Minerals 102
8,179 Freeport McMoran Copper,
Class B(b) 269
5,520 Homestake Mining Co. 111
1,920 Inland Steel Industries,
Inc. 47
3,452 Newmont Mining Corp. 200
2,792 Phelps Dodge Corp. 205
2,586 Reynolds Metals Co. 139
--------
1,421
--------
PRIMARY METAL & MINERAL PRODUCTION (0.5%):
3,985 Armco, Inc.(b) 23
14,244 Barrick Gold Corp. 436
4,453 Bethlehem Steel Corp.(b) 61
4,587 Echo Bay Mines Ltd. 60
5,733 Englehard Corp. 144
4,767 Inco Ltd. 160
3,570 Nucor Corp. 201
3,278 USX U.S. Steel Group 108
--------
1,193
--------
NEWSPAPERS (0.5%):
5,677 Gannett Co., Inc. 388
1,992 Knight-Ridder, Inc. 144
3,939 New York Times Co., Class A 128
4,495 Times Mirror Co., Class A 192
2,593 Tribune Co. 181
--------
1,033
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
OFFICE EQUIPMENT & SUPPLIES (0.4%):
6,139 Pitney Bowes, Inc. $ 299
4,284 Xerox Corp. 628
--------
927
--------
OIL & GAS EXPLORATION & PRODUCTION (1.6%):
3,712 Amerada Hess Corp. 210
2,591 Ashland, Inc. 107
4,274 Coastal Corp. 169
2,047 Columbia Gas System(b) 100
793 Eastern Enterprises 28
10,123 Enron Corp. 407
2,726 Enserch Corp. 59
970 Helmerich & Payne, Inc. 36
2,118 Kerr-Mcgee Corp. 135
1,355 Louisana Land & Exploration
Co. 73
4,987 Noram Energy Corp. 55
12,852 Occidental Petroleum Corp. 331
1,008 Oneok, Inc. 26
4,156 Oryx Energy Co.(b) 66
6,054 Panenergy Corp. 198
1,837 Pennzoil Co. 81
10,545 Phillips Petroleum Co. 438
3,396 Rowan Cos.(b) 50
3,651 Sante Fe Energy Resources,
Inc.(b) 44
3,453 Sonat, Inc. 151
3,062 Sun Co., Inc. 95
11,965 USX -- Marathon Group 263
9,909 Unocal Corp. 318
4,116 Williams Co., Inc. 210
--------
3,650
--------
OIL & GAS PRODUCTION (1.1%):
5,128 Burlington Resource, Inc. 191
15,943 Mobil Corp. 1,833
7,318 Tenneco, Inc. 402
--------
2,426
--------
OIL -- INTEGRATED COMPANIES (5.3%):
19,988 Amoco Corp. 1,459
6,432 Atlantic Richfield Co. 757
26,288 Chevron Corp. 1,525
50,119 Exxon Corp. 4,260
21,582 Royal Dutch Petroleum Co. 3,092
10,500 Texaco, Inc. 898
--------
11,991
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
58
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
OILFIELD EQUIPMENT & SERVICES (0.6%):
7,394 Dresser Industries, Inc. $ 236
4,590 Halliburton Co. 263
9,783 Schlumberger Limited 863
--------
1,362
--------
PAINT, VARNISHES & ENAMELS (0.1%):
3,392 Sherwin Williams Co. 159
--------
PHARMACEUTICALS (5.4%):
31,978 Abbott Laboratories 1,299
2,592 Allergan, Inc. 92
3,279 Alza Corp., Class A(b) 93
10,716 Amgen, Inc.(b) 616
20,507 Bristol-Myers Squibb Co. 1,687
22,237 Eli Lilly & Co. 1,312
49,866 Merck & Co., Inc. 3,017
25,548 Pfizer, Inc. 1,760
20,292 Pharmacia & Upjohn Co. 776
15,030 Schering-Plough 862
5,481 Warner-Lambert Co. 612
--------
12,126
--------
PHOTOGRAPHY (0.5%):
13,763 Eastman Kodak Co. 1,053
1,844 Polaroid Corp. 83
--------
1,136
--------
POLLUTION CONTROL SERVICES & EQUIPMENT (0.4%):
8,548 Browning-Ferris Industries,
Inc. 275
2,317 Safety Kleen 35
19,592 WMX Technologies, Inc. 681
--------
991
--------
PRECISION INSTRUMENTS & RELATED (0.0%):
1,679 Perkin Elmer 92
--------
PUBLISHING, EXCEPT NEWSPAPER (0.8%):
3,378 Deluxe Corp. 118
3,943 Dow Jones & Co., Inc. 147
6,887 Dun & Bradstreet Corp. 419
1,215 John H. Harland Co. 32
4,050 McGraw Hill, Inc. 179
1,052 Meredith Corp. 48
6,210 R.R. Donnelley & Sons Co. 223
15,527 Time Warner, Inc. 635
--------
1,801
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
RADIO & TELEVISION (0.7%):
9,638 Comcast, Class A Special
Shares $ 169
300 Comcast Corp., Class A 5
26,351 Tele-Communications, Inc.,
Class A(b) 504
19,006 US West Media Group 371
14,582 Viacom, Class B(b) 598
--------
1,647
--------
RAILROAD & RAILROAD HOLDING COMPANIES (0.8%):
5,676 Burlington Northern/Santa
Fe, Inc. 497
8,529 CSX Corp. 437
3,201 Conrail, Inc. 223
8,243 Union Pacific Corp. 562
--------
1,719
--------
RAILROADS (0.2%):
5,292 Norfolk Southern Corp. 445
--------
RESTAURANTS (0.7%):
6,337 Darden Restaurants, Inc.(b) 87
896 Luby's Cafeterias, Inc. 22
27,987 McDonald's Corp. 1,340
2,009 Ryans Family Steak House(b) 19
1,522 Shoney's, Inc.(b) 17
4,125 Wendy's International 79
--------
1,564
--------
RETAIL (2.5%):
5,959 American Stores Co. 199
3,834 Charming Shoppes, Inc.(b) 25
2,929 Dayton Hudson Corp. 280
8,164 Federated Department Stores,
Inc.(b) 273
2,915 Harcourt General, Inc. 128
18,398 K-Mart Corp.(b) 186
6,439 Lowes Companies, Inc. 208
10,059 May Department Stores 513
3,271 Nordstrom, Inc. 166
7,892 Price/Costco, Inc.(b) 150
15,704 Sears & Roebuck Co. 783
92,550 Wal Mart Stores, Inc. 2,210
9,906 Walgreen Co. 317
5,288 Woolworth Corp.(b) 101
--------
5,539
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
59
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
RETAIL -- SPECIALTY STORES (1.0%):
3,891 Circuit City Stores, Inc. $ 124
11,592 The Gap 349
2,357 Giant Food, Inc. 75
19,214 Home Depot, Inc. 910
11,842 The Limited, Inc. 246
4,188 Melville Corp. 163
2,498 Pep Boys -- Manny, Moe &
Jack 83
2,953 TJX Cos., Inc. 87
11,122 Toys R Us, Inc.(b) 310
--------
2,347
--------
RUBBER & RUBBER PRODUCTS (0.2%):
2,160 B.F. Goodrich, Inc. 86
3,401 Cooper Tire & Rubber Co. 83
6,171 Goodyear Tire & Rubber Co. 322
--------
491
--------
SEMICONDUCTORS (1.3%):
7,172 Applied Materials, Inc.(b) 287
33,206 Intel Corp. 2,250
5,167 LSI Logic Corp.(b) 186
8,284 Micron Technology, Inc. 301
--------
3,024
--------
SERVICES (NON-FINANCIAL) (0.3%):
8,952 First Data Corp. 681
1,939 Ogden Corp. 39
--------
720
--------
SHOES, LEATHER GOODS & CLOTHING ACCESSORIES (0.3%):
698 Brown Group, Inc. 11
5,775 Nike, Inc. 505
3,196 Reebok International Ltd. 93
1,838 Stride Rite Corp. 18
--------
627
--------
SOAPS & CLEANING AGENTS (1.3%):
2,123 Clorox Co. 175
5,864 Colgate Palmolive, Inc. 449
27,782 Procter & Gamble Co. 2,348
--------
2,972
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
SOFTWARE & COMPUTER SERVICES (2.1%):
1,881 Autodesk, Inc. $ 77
9,672 Computer Associates
International, Inc. 710
23,716 Microsoft Corp.(b) 2,689
14,919 Novell, Inc.(b) 216
26,241 Oracle Systems Corp.(b) 885
919 Shared Medical Systems 63
--------
4,640
--------
STEEL (0.0%):
3,671 Worthington Industries, Inc. 75
--------
TAX RETURN PREPARATION (0.1%):
4,200 H & R Block 148
--------
TELECOMMUNICATIONS (2.2%):
19,904 Airtouch Communications(b) 622
7,650 Alltel Corp. 251
17,626 Bell Atlantic Corp. 1,146
10,217 Northern Telecom Ltd. 526
17,275 Pacific Telesis Group 592
3,072 Scientific-Atlanta, Inc. 57
14,105 Sprint Corp. 594
3,595 Tellabs, Inc.(b) 199
4,382 360 Communications Co. 103
19,054 U. S. West, Inc. 624
4,000 Worldcom, Inc.(b) 188
--------
4,902
--------
TEXTILES -- MANUFACTURING (0.1%):
3,062 Fruit of the Loom(b) 81
1,618 Russell Corp. 42
815 Springs Industries, Inc.,
Class A 37
2,547 V. F. Corp. 145
--------
305
--------
TOBACCO & TOBACCO PRODUCTS (1.6%):
7,569 American Brands, Inc. 315
33,972 Philip Morris Cos., Inc. 3,062
7,847 UST, Inc. 251
--------
3,628
--------
TOOLS & HARDWARE -- MANUFACTURING (0.2%):
3,421 Black & Decker Corp. 138
1,651 Snap On Tools, Inc. 79
1,822 Stanley Works 114
1,199 Timken Co. 48
--------
379
--------
TOYS & BICYCLES -- MANUFACTURING (0.1%):
11,128 Mattel, Inc. 289
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
60
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
STOCK INDEX FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
TRANSPORTATION -- AIR (0.1%):
5,815 Southwest Airlines Co. $ 173
--------
TRANSPORTATION LEASING & TRUCKING (0.2%):
1,581 Caliber Systems, Inc. 63
1,675 Consolidated Freightways,
Inc. 44
2,258 Federal Express Corp.(b) 182
3,150 Ryder Systems, Inc. 92
1,035 Yellow Corp.(b) 13
--------
394
--------
TRUCKS -- MANUFACTURING (0.1%):
409 Nacco Industries, Inc. 26
9,621 Placer Dome, Inc. 267
--------
293
--------
UTILITIES -- ELECTRIC (2.6%):
7,514 American Electric Power 305
6,308 Carolina Power & Light 227
7,759 Central & South West Corp. 211
6,309 Cinergy Corp. 183
9,427 Consolidated Edison Co. NY,
Inc. 277
5,945 Detroit Edison Co. 184
7,042 Dominion Resources 271
8,255 Duke Power Co. 388
17,989 Edison International 288
9,217 Entergy Corp 244
7,437 FPL Group, Inc. 321
10,638 Houston Industries 227
5,838 Niagara Mohawk Power
Corp.(b) 44
2,724 Northern States Power Co.
Minnesota 127
6,174 Ohio Edison 129
11,526 PacifiCorp 231
8,949 Peco Energy Co. 223
6,438 PP&L Resources, Inc. 146
9,831 Public Service Enterprise 257
1,758 Raychem Corp. 137
26,839 Southern Co. 590
9,097 Texas Utilities Co. 366
8,675 Unicom Corp. 239
4,129 Union Electric Co. 159
--------
5,774
--------
UTILITIES -- ELECTRIC & GAS (0.3%):
5,926 Baltimore Gas & Electric 156
17,080 Pacific Gas & Electric Co. 389
1,387 Peoples Energy Corp. 44
--------
589
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UTILITIES -- NATURAL GAS (0.1%):
3,710 Consolidated Natural Gas $ 173
2,026 Nicor, Inc. 56
3,412 Pacific Enterprises 88
--------
317
--------
UTILITIES -- TELECOMMUNICATIONS (5.2%):
64,114 A T & T Corp 3,927
22,339 Ameritech Corp. 1,304
40,095 Bellsouth Corp. 1,604
39,131 GTE Corp. 1,697
27,400 MCI Telecommunications Corp. 807
17,248 Nynex Corp. 847
24,625 SBC Communications, Inc. 1,231
--------
11,417
- ----------------------------------------------------------
TOTAL COMMON STOCKS 198,092
- ----------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY BILLS (0.5%)
$ 1,130 5.22%, 6/20/96 1,123
- ----------------------------------------------------------
TOTAL (COST $183,374)(A) $224,830
- ----------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $225,016.
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows (amount in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 43,910
Unrealized depreciation $ (2,454)
--------
Net unrealized appreciation $ 41,456
=========
</TABLE>
(b) Represents non-income producing securities.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------
FUTURES CONTRACTS
<CAPTION>
MARKET
NUMBER OF VALUE
CONTRACTS (000)
<S> <C> <C> <C>
Long, Standard & Poor's 500
Index Futures Contract,
face amount $26,351,
expiring June 17, 1996 81 $26,521
-------
$26,521
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
61
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
DIVERSIFIED STOCK FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (2.9%):
$ 14,239 General Electric Capital
Corp.,
5.35%, 5/1/96 $ 14,239
--------
Total Commercial Paper 14,239
--------
- ----------------------------------------------
COMMON STOCKS (97.0%)
AEROSPACE/DEFENSE (3.4%):
128,500 Boeing Co. 10,553
77,000 Textron, Inc. 6,603
--------
17,156
--------
AIRLINES (1.0%):
60,000 Delta Air Lines 4,823
--------
AUTOMOTIVE PARTS (2.5%):
120,000 Autozone (b) 4,380
90,000 AMR Corp. Delaware (b) 8,033
--------
12,413
--------
BANKS (5.4%):
50,800 BankAmerica Corp. 3,848
70,000 Citicorp 5,513
100,000 First Union Corp. 6,150
144,400 Norwest Corp. 5,216
195,000 PNC Bank Corp. 5,899
--------
26,626
--------
CHEMICALS (5.5%):
175,000 Air Products & Chemicals,
Inc. 9,997
90,200 Dow Chemical Co. 8,017
150,000 Lubrizol Corp. 4,350
326,750 RPM Inc., Ohio 5,024
--------
27,388
--------
COMPUTERS & PERIPHERALS (6.0%):
200,000 Bay Networks (b) 6,300
50,000 Compaq Computer Corp. (b) 2,331
100,000 Hewlett Packard Co. 10,588
75,000 I.B.M. Corp. 8,063
50,000 Sun Microsystems, Inc. (b) 2,713
--------
29,995
--------
CONGLOMERATES (1.4%):
107,500 Minnesota Mining &
Manufacturing Co. 7,068
--------
ELECTRICAL EQUIPMENT (3.6%):
150,800 General Electric Co. 11,687
86,800 W.W. Grainger, Inc. 5,989
--------
17,676
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
ELECTRONIC & ELECTRICAL -- GENERAL (2.5%):
150,000 Motorola, Inc. $ 9,188
52,800 Texas Instruments, Inc. 2,983
--------
12,171
--------
ENGINEERING & CONSTRUCTION (0.5%):
38,700 Fluor Corp. 2,559
--------
ENTERTAINMENT (1.2%):
100,000 Walt Disney Co. 6,200
--------
FINANCIAL SERVICES (2.5%):
260,000 Bear Stearns Cos., Inc. 6,533
100,000 Travelers, Inc. (b) 6,150
--------
12,683
--------
FOOD PROCESSING & PACKAGING (2.9%):
182,700 Conagra, Inc. 7,057
135,000 Pioneer Hi-Bred
International, Inc. 7,526
--------
14,583
--------
FOREST PRODUCTS (2.1%):
100,000 International Paper Co. 3,988
90,000 Kimberly Clark Corp. 6,536
--------
10,524
--------
HEALTH CARE (1.7%):
160,000 Columbia HCA Healthcare 8,500
--------
HOTELS & MOTELS (0.7%):
70,000 Mirage Resorts, Inc. (b) 3,666
--------
HOUSEHOLD GOODS -- APPLIANCES, FURNISHINGS
(2.6%):
206,000 Newell Co. 5,871
115,000 Whirlpool Corp. 6,914
--------
12,785
INSURANCE -- LIFE (0.1%): --------
10,000 Jefferson Pilot Corp. 528
--------
INSURANCE -- MULTI-LINE (3.0%):
50,000 Aetna Life & Casualty Co. 3,563
65,350 American International,
Group, Inc. 5,971
105,000 St. Paul Companies, Inc. 5,578
--------
15,112
--------
INSURANCE -- PROPERTY & CASUALTY (0.8%):
147,000 Travelers/Aetna Property
Casualty Corp. 4,061
--------
MANUFACTURING -- MISCELLANEOUS (0.7%):
61,100 Allied Signal, Inc. 3,551
--------
MEDICAL SUPPLIES (0.6%):
202,500 Biomet, Inc. (b) 2,987
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
62
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
DIVERSIFIED STOCK FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
NATURAL GAS (2.2%):
275,700 Enron Corp. $ 11,097
--------
OIL & GAS PRODUCTION (1.5%):
140,000 Tenneco, Inc. 7,683
--------
OIL -- INTEGRATED COMPANIES (6.7%):
40,400 Atlantic Richfield Co. 4,757
110,500 Exxon Corp. 9,393
159,500 Phillips Petroleum Co. 6,619
40,000 Royal Dutch Petroleum Co. 5,730
80,500 Texaco, Inc. 6,883
--------
33,382
--------
OILFIELD EQUIPMENT & SERVICES (5.0%):
270,000 Baker Hughes, Inc. 8,573
300,600 Dresser Industries, Inc. 9,582
80,000 Schlumberger, Ltd. 7,060
--------
25,215
--------
PHARMACEUTICALS (8.0%):
175,000 Abbott Laboratories 7,109
130,000 Amgen, Inc. (b) 7,475
175,000 Eli Lilly & Co. 10,325
130,000 Merck & Co., Inc. 7,865
100,000 Pfizer, Inc. 6,888
--------
39,662
--------
PRIMARY METAL & MINERAL PRODUCTION (0.8%):
125,200 Barrick Gold Corp. 3,834
--------
RADIO & TELEVISION (1.4%):
170,000 Viacom, Class B (b) 6,970
--------
RETAIL (4.7%):
119,200 Dayton Hudson Corp. 11,384
170,000 Nordstrom, Inc. 8,649
100,000 Walgreen Co. 3,200
--------
23,233
--------
RETAIL -- SPECIALTY STORES (0.3%):
40,000 Pep Boys-Manny, Moe & Jack 1,335
--------
SEMICONDUCTORS (3.5%):
120,000 Intel Corp. 8,129
250,000 LSI Logic Corp. (b) 9,000
--------
17,129
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
SOAPS & CLEANING AGENTS (1.9%):
26,300 Colgate Palmolive, Inc. $ 2,015
90,000 Procter & Gamble Co. 7,604
--------
9,619
--------
TAX RETURN PREPARATION (1.1%):
160,000 H&R Block 5,619
--------
TOBACCO & TOBACCO RELATED (1.4%):
80,000 Philip Morris Cos., Inc. 7,210
--------
TRUCKING (0.9%):
195,550 TNT Freightways Corp. 4,423
--------
UTILITIES -- ELECTRIC (4.6%):
143,200 Consolidated Edison Co. NY,
Inc. 4,207
439,300 Houston Industries 9,390
150,000 Southern Co. 3,300
153,500 Texas Utilities Co. 6,177
--------
23,074
--------
UTILITIES -- TELECOMMUNICATIONS (2.2%):
90,000 AT&T Corp. 5,513
180,000 MCI Telecommunications Corp. 5,298
--------
10,811
- ----------------------------------------------------------
TOTAL COMMON STOCKS 483,351
- ----------------------------------------------------------
TOTAL (COST--$427,536)(A) $497,590
- ----------------------------------------------------------
</TABLE>
- ---------------
Percentages are based on net assets of $498,401.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 74,114
Unrealized depreciation (4,060)
--------
Net unrealized appreciation $ 70,054
=========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
63
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (3.5%)
$ 12,000 General Electric Capital
Corp., 5.35%, 5/1/96 $ 12,000
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 12,100
- ----------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (96.4%)
AEROSPACE/DEFENSE (3.8%):
72,000 Boeing Co. 5,913
57,200 Litton Industries, Inc. (b) 2,595
92,900 Raytheon Co. 4,703
--------
13,211
--------
AUTOMOTIVE (2.0%):
52,500 Chrysler Corp. 3,294
98,000 Ford Motor Co. 3,516
--------
6,810
--------
AUTOMOTIVE PARTS (0.3%):
29,300 Autozone 1,069
--------
BANKS (6.4%):
92,000 BankAmerica Corp. 6,969
52,200 Chase Manhatten Corp. 3,595
22,000 Comerica, Inc. 957
54,000 CoreStates Financial Corp. 2,106
71,000 First Union Corp. 4,367
51,100 J.P. Morgan & Co., Inc. 4,299
--------
22,293
--------
BEVERAGES (1.0%):
52,000 Anheuser Busch Co., Inc. 3,491
--------
CHEMICALS (2.5%):
47,400 Air Products & Chemicals,
Inc. 2,708
31,000 Dow Chemical Co. 2,755
67,000 Lubrizol Corp. 1,943
90,000 RPM, Inc., Ohio 1,384
--------
8,790
--------
COMPUTERS & OFFICE EQUIPMENT (1.1%):
26,000 I.B.M. Corp. 2,795
20,000 Pitney Bowes, Inc. 975
--------
3,770
--------
COMPUTER SOFTWARE (2.3%):
53,000 Bay Networks 1,670
28,000 Microsoft (b) 3,175
92,000 Novell, Inc. (b) 1,334
52,350 Oracle Systems Corp. (b) 1,766
--------
7,945
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
CONTAINERS & PACKAGING (1.4%):
117,000 Newell Co. $ 3,335
50,000 Sonoco Products Co. 1,419
--------
4,754
--------
COSMETICS & RELATED (1.1%):
41,000 Avon Products 3,644
--------
ELECTRICAL EQUIPMENT (3.0%):
43,000 Emerson Electric Co. 3,596
86,000 General Electric Co. 6,665
--------
10,261
--------
ELECTRONICS (2.9%):
32,900 Hewlett Packard Co. 3,483
60,000 Intel Corp. 4,065
72,200 LSI Logic Corp. (b) 2,598
--------
10,146
--------
FINANCIAL SERVICES (3.8%):
70,000 American Express Co. 3,395
116,000 Federal National Mortgage
Assoc. 3,553
52,000 H & R Block 1,827
62,400 Household International,
Inc. 4,313
--------
13,088
--------
FOOD PROCESSING & PACKAGING (2.8%):
79,000 ConAgra, Inc. 3,051
54,000 Pioneer Hi-Bred
International, Inc. 3,011
116,900 Sara Lee Corp. 3,624
--------
9,686
--------
HEALTH CARE (1.0%):
62,800 Columbia HCA Healthcare 3,336
--------
HOME PRODUCTS (0.6%):
48,000 Sherwin Williams Co. 2,244
--------
INDUSTRIAL -- MISCELLANEOUS (3.3%):
49,000 Allied Signal, Inc. 2,848
34,000 Minnesota Mining &
Manufacturing Co. 2,236
45,000 Textron, Inc. 3,859
68,000 WMX Technologies, Inc. 2,363
--------
11,306
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
64
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
INSURANCE (5.3%):
53,000 Aetna Life & Casualty Co. $ 3,776
146,000 Allstate 5,676
114,000 American General Corp. 4,004
84,000 St. Paul Cos., Inc. 4,463
30,000 Travelers/Aetna (b) 829
--------
18,748
--------
MACHINERY & MANUFACTURING (1.2%):
72,000 Cooper Industries 3,060
26,000 Deere & Co. 1,011
--------
4,071
--------
MEDIA (2.5%):
55,000 Cox Communications, Inc. 1,128
47,000 Dow Jones & Co., Inc. 1,757
40,000 Dun & Bradstreet Corp. 2,435
43,000 Time Warner, Inc. 1,758
38,800 Viacom Class B (b) 1,590
--------
8,668
--------
MEDICAL SUPPLIES (0.9%):
50,000 Biomet, Inc. 738
46,800 Medtronic, Inc. 2,486
--------
3,224
--------
METALS & MINING (2.5%):
55,000 Aluminum Co. of America 3,431
83,000 Cyprus Amax Minerals 2,251
92,000 USX U.S. Steel Group 3,036
--------
8,718
--------
OIL -- INTEGRATED (DOMESTIC) (3.2%):
34,600 Atlantic Richfield Co. 4,074
167,800 Phillips Petroleum Co. 6,964
--------
11,038
--------
OIL -- INTEGRATED (INTERNATIONAL) (8.7%):
80,000 Chevron Corp. 4,640
46,000 Exxon Corp. 3,910
73,000 Mobil Corp. 8,395
32,000 Royal Dutch Petroleum Co. 4,584
105,200 Texaco, Inc. 8,994
--------
30,523
--------
OILFIELD WELL EQUIPMENT & SERVICES (2.1%):
135,000 Baker Hughes, Inc. 4,286
32,200 Schlumberger Ltd. 2,842
--------
7,128
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
PAPER & FOREST PRODUCTS (2.4%):
145,000 International Paper Co. $ 5,782
46,000 Mead Corp. 2,559
--------
8,341
--------
PHARMACEUTICALS (6.1%):
89,000 Abbott Laboratories 3,616
35,000 American Home Products Corp. 3,693
48,300 Merck & Co., Inc. 2,922
101,800 Pfizer, Inc. 7,011
70,200 Schering-Plough 4,028
--------
21,270
--------
RETAIL -- FOOD & DRUGS (1.5%):
80,200 Supervalu, Inc. 2,566
78,000 Walgreen Co. 2,495
--------
5,061
--------
RETAIL -- SPECIALTY STORES (0.7%):
71,000 Pep Boys-Manny, Moe & Jack 2,370
--------
RETAIL -- TRADE (3.5%):
62,000 Dayton Hudson Corp. 5,921
81,000 Sears & Roebuck Co. 4,040
95,000 Wal Mart Stores, Inc. 2,268
--------
12,229
--------
SOAPS & PERSONAL CARE (0.2%):
10,800 Colgate Palmolive, Inc. 828
--------
TOBACCO (1.4%):
52,000 Philip Morris Cos., Inc. 4,687
--------
TRANSPORTATION (0.9%):
35,500 Caliber System, Inc. 1,424
19,800 Norfolk Southern Corp. 1,662
10,000 Roadway Express, Inc. 149
--------
3,235
--------
UTILITIES -- ELECTRIC (5.2%):
136,000 Consolidated Edison Co. NY,
Inc. 3,995
90,000 DQE Light Co. 2,385
191,300 Houston Industries 4,089
65,000 Public Service Co. of
Colorado 2,153
135,400 Texas Utilities Co. 5,449
--------
18,071
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
65
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UTILITIES -- NATURAL GAS (2.2%):
80,000 Consolidated Natural Gas $ 3,740
65,000 Enron Corp. 2,616
40,000 Peoples Energy Corp. 1,259
--------
7,615
--------
UTILITIES -- TELECOMMUNICATIONS (6.6%):
112,000 AT&T Corp 6,860
76,400 Ameritech Corp. 4,460
156,000 GTE Corp. 6,767
98,000 MCI Telecommunications Corp. 2,885
36,000 Nynex Corp. 1,768
--------
22,740
- ----------------------------------------------------------
TOTAL COMMON STOCKS 334,409
- ----------------------------------------------------------
TOTAL (COST $274,120) (A) $346,509
- ----------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $346,959.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 74,833
Unrealized depreciation (2,444)
--------
Net unrealized appreciation $ 72,389
=========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
66
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
COMMERCIAL PAPER/
MASTER DEMAND NOTES (2.3%)
FINANCIAL SERVICES (2.3%):
$ 2,939 General Electric Capital
Corp., 5.35%, 5/1/96 $ 2,939
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER/MASTER DEMAND NOTES 2,939
- ----------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (97.7%)
AEROSPACE/DEFENSE (0.8%):
12,500 Boeing Co. 1,027
--------
ALUMINUM (0.5%):
10,000 Aluminum Co. of America 624
--------
AUTOMOTIVE PARTS (0.7%):
10,000 Autozone (b) 365
15,000 Pep Boys-Manny, Moe & Jack 501
--------
866
--------
BANKS (4.2%):
30,000 BankAmerica Corp. 2,273
10,000 J.P. Morgan & Co., Inc. 841
60,000 Norwest Corp. 2,167
--------
5,281
--------
BEVERAGES (4.7%):
25,000 Anheuser Busch Co., Inc. 1,678
45,000 Coca-Cola Co. 3,668
10,000 PepsiCo, Inc. 635
--------
5,981
--------
CHEMICALS -- GENERAL (3.2%):
25,000 Air Products & Chemicals,
Inc. 1,428
20,000 Dow Chemical Co. 1,777
55,000 RPM, Inc. 846
--------
4,051
--------
COMPUTERS & PERIPHERALS (3.0%):
17,500 Bay Networks (b) 551
10,000 Cisco Systems (b) 519
17,500 Hewlett Packard Co. 1,853
20,000 3Com Corp. (b) 922
--------
3,845
--------
CONTAINERS -- METAL, GLASS, PAPER & PLASTIC (2.1%):
70,000 Newell Co. 1,995
25,000 Sonoco Products Co. 709
--------
2,704
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
COSMETICS & RELATED (1.5%):
35,000 Gillette Co. $ 1,890
--------
ELECTRICAL EQUIPMENT (7.9%):
35,000 Emerson Electric Co. 2,927
72,000 General Electric Co. 5,580
22,500 W.W. Grainger, Inc. 1,552
--------
10,059
--------
ELECTRONIC COMPUTING EQUIPMENT (0.7%):
20,000 Compaq Computer Corp. (b) 933
--------
ELECTRONIC & ELECTRICAL GENERAL (2.0%):
42,000 Motorola, Inc. 2,573
--------
ENTERTAINMENT (1.5%):
30,000 Walt Disney Co. 1,860
--------
FINANCIAL SERVICES (2.3%):
30,000 Automatic Data Processing,
Inc. 1,166
58,400 Federal National Mortgage
Assoc. 1,789
--------
2,955
--------
FOOD PROCESSING & PACKAGING (2.4%):
35,000 ConAgra, Inc. 1,352
55,000 Sara Lee Corp. 1,705
--------
3,057
--------
FOREST PRODUCTS -- LUMBER, PAPER (1.4%):
30,000 International Paper Co. 1,197
10,000 Mead Corp. 556
--------
1,753
--------
HEALTH CARE (3.4%):
47,500 Columbia HCA Healthcare 2,523
23,500 Health Management Assoc.,
Inc. (b) 752
20,000 Medtronic, Inc. 1,063
--------
4,338
--------
HOSPITAL & NURSING EQUIPMENT & SUPPLIES (1.5%):
20,000 Johnson & Johnson, Inc. 1,850
--------
INDUSTRIAL SERVICES (2.1%):
25,000 American Home Products Corp. 2,638
--------
INSURANCE (3.0%):
30,000 American International
Group, Inc. 2,741
20,000 St. Paul Cos., Inc. 1,063
--------
3,804
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
67
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
MANUFACTURING -- MISCELLANEOUS (2.6%):
30,000 Allied Signal, Inc. $ 1,744
23,000 Minnesota Mining &
Manufacturing Co. 1,512
--------
3,256
--------
OFFICE EQUIPMENT & SUPPLIES (0.8%):
20,000 Pitney Bowes, Inc. 975
--------
OIL -- DOMESTIC INTEGRATED (3.5%):
17,500 Atlantic Richfield Co. 2,061
40,000 Enron Corp. 1,610
20,000 Phillips Petroleum Co. 830
--------
4,501
--------
OIL -- INTEGRATED COMPANIES (3.6%):
40,000 Chevron Corp. 2,320
19,700 Mobil Corp. 2,266
--------
4,586
--------
OILFIELD EQUIPMENT & SERVICES (1.3%):
40,000 Baker Hughes, Inc. 1,270
5,000 Schlumberger Ltd. 441
--------
1,711
--------
PHARMACEUTICALS (8.7%):
60,000 Abbott Laboratories 2,437
20,000 Alza Corp., Class A (b) 570
30,000 Merck & Co., Inc. 1,815
52,000 Pfizer, Inc. 3,582
45,000 ScheringPlough 2,582
--------
10,986
--------
RADIO & TELEVISION (1.0%):
30,000 Viacom, Class B (b) 1,230
--------
RETAIL -- SPECIALTY STORES (6.2%):
60,000 The Gap 1,807
60,000 Home Depot, Inc. 2,843
70,000 Wal Mart Stores, Inc. 1,671
50,000 Walgreen Co. 1,600
--------
7,921
--------
SEMICONDUCTORS (3.5%):
50,000 Intel Corp. 3,388
30,000 LSI Logic Corp. (b) 1,080
--------
4,468
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
SERVICES (NON-FINANCIAL) (0.9%):
20,000 Amgen, Inc. (b) $ 1,150
--------
SOAPS & CLEANING AGENTS (3.0%):
5,000 Colgate Palmolive, Inc. 383
40,000 Procter & Gamble Co. 3,380
--------
3,763
--------
SOFTWARE & COMPUTER SERVICES (4.0%):
32,000 Microsoft (b) 3,628
42,500 Oracle Systems Corp. (b) 1,434
--------
5,062
--------
TOBACCO & TOBACCO PRODUCTS (3.7%):
42,500 Philip Morris Cos., Inc. 3,830
25,000 UST, Inc. 800
--------
4,630
--------
TRANSPORTATION -- AIR (0.5%):
20,000 Southwest Airlines Co. 596
--------
UTILITIES -- TELECOMMUNICATIONS (5.5%):
55,000 AT&T Corp. 3,369
40,000 MCI Telecommunications Corp. 1,177
48,000 SBC Communications 2,400
--------
6,946
- ----------------------------------------------------------
TOTAL COMMON STOCKS 123,867
- ----------------------------------------------------------
TOTAL (COST $98,921) (A) $126,806
- ---
</TABLE>
- ---------------
Percentages indicated are based on net assets of $126,785.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 28,658
Unrealized depreciation (773)
--------
Net unrealized appreciation $ 27,885
=========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
68
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (2.1%)
$ 5,099 General Electric Capital
Corp., 5.35%, 5/1/96 $ 5,099
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 5,099
- ----------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (96.9%)
AEROSPACE/DEFENSE (2.8%):
113,400 GenCorp, Inc. 1,517
61,200 Litton Industries, Inc. (b) 2,777
58,000 Thiokol Corp. Delaware 2,480
--------
6,774
--------
AIRLINES (1.4%):
55,500 Atlantic Southeast Airlines 1,388
25,400 Delta Airlines 2,042
--------
3,430
--------
AUTOMOTIVE PARTS (3.7%):
63,500 Echlin, Inc. 2,183
46,200 Genuine Parts Co. 2,044
71,300 ITT Corp. 1,961
131,597 Mark IV Industries 2,731
--------
8,919
--------
BANKS (3.6%):
44,300 Bank Of Boston Corp. 2,143
30,100 Central Fidelity Banks, Inc. 1,038
62,700 First American Bank Corp. 2,837
71,600 Summit Bancorp 2,542
--------
8,560
--------
BEVERAGES (1.4%):
116,000 Coca-Cola Enterprises, Inc. 3,422
--------
BROADCASTING (1.1%):
67,100 Evergreen Media Corp. (b) 2,634
--------
CHEMICALS (2.8%):
74,000 Arcadian Corp. 1,480
33,700 Avery Dennison Corp. 1,921
150,000 RPM, Inc. 2,306
21,900 WD 40 Co. 1,018
--------
6,725
--------
COMMERCIAL SERVICES (0.6%):
52,000 Loewen Group, Inc. 1,554
--------
CONSTRUCTION (1.4%):
73,100 Foster Wheeler Corp. 3,381
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
CONSUMER GOODS (2.1%):
74,000 Jostens, Inc. $ 1,665
120,200 Newell Co. 3,426
--------
5,091
--------
CONTAINERS (1.3%):
107,550 Sonoco Products Co. 3,052
--------
ELECTRICAL EQUIPMENT (6.3%):
55,800 Arrow Electronics, Inc. (b) 2,797
42,500 Harris Corp. 2,624
33,700 Lam Research Corp. (b) 1,365
61,625 Molex Corp. 2,003
31,000 Varian Associates, Inc. 1,771
100,000 Vishay Intertechnology,
Inc. (b) 3,000
23,700 W.W. Grainger, Inc. 1,635
--------
15,195
--------
ENVIRONMENTAL CONTROL (0.9%):
207,650 Laidlaw, Inc., Class B 2,180
--------
FINANCIAL SERVICES (5.6%):
108,500 Bear Stearns Cos., Inc. 2,726
45,400 Donaldson, Lufkin & Jenrette 1,532
110,300 Equifax, Inc. 2,702
85,300 H & R Block 2,996
60,600 Northern Trust Corp. 3,409
--------
13,365
--------
FOOD & DRUG DISTRIBUTORS (0.3%):
27,000 Rite Aid Corp. 800
--------
FOOD PROCESSING & PACKAGING (2.3%):
75,100 Dean Foods Co. 1,755
26,000 Dole Food, Inc. 1,040
98,500 IBP, Inc. 2,635
--------
5,430
--------
FOREST PRODUCTS (0.8%):
76,100 Louisiana Pacific Corp. 1,912
--------
FURNITURE (0.8%):
70,600 Leggett & Platt, Inc. 1,818
--------
HOTELS & MOTELS (1.0%):
45,000 Mirage Resorts, Inc. (b) 2,357
--------
HOUSEHOLD GOODS -- APPLIANCES,
FURNISHING & ELECTRONICS (0.6%):
100,000 Sunbeam Corp. 1,388
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
69
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
INSURANCE (7.5%):
67,900 American Financial Group,
Inc. $ 2,079
38,600 American Re Corp. 1,602
66,000 Amerin Corp. (b) 1,493
57,700 Horace Mann Educators 1,897
72,600 PMI Group, Inc. 3,086
46,000 Progressive Corp. 2,145
133,000 Prudential Reinsurance
Holdings, Inc. 3,026
19,300 Transatlantic Holdings 1,264
87,000 USF&G Corp. 1,381
--------
17,973
--------
LEISURE -- RECREATION, GAMING (0.9%):
144,000 International Game
Technology 2,232
--------
MACHINE TOOLS (1.7%):
84,000 Albany International Corp. 1,806
63,200 Kennametal, Inc. 2,394
--------
4,200
--------
MANUFACURING (6.3%):
40,000 Briggs & Stratton Corp. 1,815
84,533 Federal Signal Corp. 2,208
43,500 Hillenbrand 1,653
74,500 Kaydon Corp. 2,961
56,466 Pall Corp. 1,581
73,324 Pentair, Inc. 1,998
73,500 Tyco Laboratories, Inc. 2,839
--------
15,055
--------
MEDICAL SERVICES (3.7%):
97,200 Coventry Corp. (b) 1,883
54,200 Integrated Health Services,
Inc. 1,491
139,000 Quorum Health Group (b) 3,527
66,655 Vivra, Inc. (b) 2,108
--------
9,009
--------
MEDICAL SUPPLIES (0.8%):
130,000 Biomet, Inc. (b) 1,918
--------
MERCHANDISING (0.7%):
81,300 Lands' End, Inc. 1,606
--------
METALS (2.9%):
56,800 Minerals Technologies, Inc. 2,187
119,400 Ucar Intl. (b) 4,895
--------
7,082
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
NEWSPAPERS (1.8%):
22,900 New York Times Co., Class A $ 744
50,400 Tribune Co. 3,515
--------
4,259
--------
OFFICE EQUIPMENT & SERVICES (0.8%):
51,050 Diebold, Inc. 1,965
82,100 Anadarko Petroleum 4,782
186,100 ENSERCH Exploration (b) 2,024
--------
6,806
--------
OIL & GAS PRODUCTION (1.2%):
41,000 Diamond Shamrock, Inc. 1,389
42,500 Vastar Resources, Inc. 1,546
--------
2,935
--------
OILFIELD EQUIPMENT & SERVICES (1.8%):
136,000 Baker Hughes, Inc. 4,318
--------
RADIO & TELEVISION (0.6%):
43,400 American Radio System (b) 1,465
--------
RAILROADS (0.9%):
115,000 Canadian National
Railway Co. 2,185
--------
REAL ESTATE INVESTMENT TRUSTS (3.7%):
97,200 Equity Residential
Properties Trust 3,135
110,000 Meditrust Corp. 3,726
92,000 Merry Land & Investment Co.,
Inc. 1,932
--------
8,793
--------
RESTAURANTS (1.0%):
128,800 Wendy's International 2,463
--------
RETAIL (3.3%):
70,900 Borders Group, Inc. (b) 2,269
113,900 Hannaford Brothers 3,189
65,400 MSC Industrial Direct, Class
A (b) 2,379
--------
7,837
--------
RUBBER (0.6%):
25,100 Bandag, Inc. 1,258
4,500 Bandag, Inc., Class A 218
--------
1,476
--------
SEMICONDUCTORS (1.7%):
111,100 LSI Logic Corp. (b) 4,000
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<PAGE>
70
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL VALUE FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
SOFTWARE & COMPUTER SERVICES (0.6%):
3,700 Policy Management
Systems (b) $ 174
83,000 Symantec Corp. (b) 1,338
--------
1,512
--------
STEEL (0.9%):
103,870 Worthington Industries, Inc. 2,116
--------
TRANSPORTATION LEASING & TRUCKING (3.0%):
65,650 GATX Corp. 2,954
77,675 Illinois Central Corp. 2,330
66,000 Pittston Brinks Group 1,839
--------
7,123
--------
UTILITIES -- ELECTRIC (6.9%):
35,300 Brooklyn Union Gas Co. 927
43,030 DQE, Inc. 1,140
121,600 Florida Progress Corp. 4,013
159,300 Northeast Utilities 2,529
128,600 PP&L Resources, Inc. 2,910
81,900 Public Service Co. of
Colorado 2,713
75,300 Public Service Co. of New
Mexico 1,317
59,400 Washington Gas Light Co. 1,247
--------
16,796
- ----------------------------------------------------------
TOTAL COMMON STOCKS 233,111
- ----------------------------------------------------------
TOTAL (COST $201,944) (A) $238,210
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $240,687.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 40,103
Unrealized depreciation (3,837)
--------
Net unrealized appreciation $ 36,266
=========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
69
<PAGE>
71
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (1.2%)
UTILITIES (1.2%):
$ 196 Nicor, Inc., 5.28%, 5/23/96 $ 195
740 Northern States Power,
5.32%,
5/21/96 738
- ------------------------------------------------------------
TOTAL COMMERCIAL PAPER 933
- ------------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (98.8%)
ADVERTISING (0.4%):
4,400 Catalina Marketing Group
Corp. (b) 343
----------
AEROSPACE/DEFENSE (0.8%):
2,500 Alliant Techsystems, Inc.
(b) 118
6,400 Oea, Inc. 251
7,000 Precision Castparts 304
----------
673
----------
AGRICULTURE & LIVESTOCK (0.5%):
9,500 Delta & Pine Land Co. 424
----------
AUTOMOTIVE PARTS (1.1%):
8,000 Exide Corp. 225
6,200 Gentex Corp. (b) 245
10,100 Intermet Corp. (b) 149
7,600 Kaydon Corp. 302
----------
921
----------
BANKS (0.3%):
13,300 Peoples Heritage Financial
Group 278
----------
BROADCASTING (2.2%):
6,000 Emmis Broadcasting, Inc.,
Class A (b) 258
5,500 Evergreen Media Corp. (b) 216
8,600 Heartland Wireless
Communications, Inc. (b) 240
8,500 Heritage Media Corp.,
Class A (b) 326
11,000 TCA Cable TV, Inc. 322
11,000 United International
Holdings (b) 158
13,000 Westwood One, Inc. (b) 227
----------
1,747
----------
BUILDING MATERIALS (0.7%):
7,600 Medusa Corp. 222
7,300 Oakwood Homes Corp. 326
----------
548
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
CHEMICALS (2.2%):
10,700 Church & Dwight Co., Inc. $ 235
5,500 First Mississippi Corp. 128
7,500 Learonal, Inc. 195
27,200 Lilly Industries, Inc.,
Class A 394
6,200 Om Group, Inc. 236
7,300 Synalloy Corp. 140
10,000 WD 40 Co. 465
----------
1,793
----------
COMMERCIAL SERVICES (4.8%):
3,800 Affiliated Computer
Services, Inc. (b) 181
8,275 Apollo Group, Class A (b) 364
5,000 Career Horizons, Inc. (b) 176
10,750 Concord EFS, Inc. (b) 360
8,000 Corrections Corp.
of America (b) 510
10,600 Health Management Systems,
Inc. (b) 273
8,250 ITT Educational Services (b) 256
1,000 Integrated Systems
Consulting Group (b) 18
6,000 Primark Corp. (b) 213
6,400 Quintiles Transnational
Corp. (b) 469
8,900 Robert Half International,
Inc. (b) 512
21,900 Sothebys Holdings, Class A 309
7,000 Sylvan Learning Center (b) 271
----------
3,912
----------
COMPUTERS & PERIPHERALS (6.2%):
5,500 Chesapeake Corp. 159
10,000 Cheyenne Software, Inc. (b) 227
13,200 Cognex Corp. (b) 353
7,600 Davidson & Associates (b) 205
4,000 FileNet Corp. (b) 224
7,400 Henry (Jack) & Associates 232
7,700 In Focus Systems, Inc. (b) 389
5,300 McAfee Associates, Inc. (b) 325
5,200 Minnesota Educational
Computing Corp. (b) 163
8,000 Network General Corp. (b) 353
3,000 Oak Technology, Inc. (b) 54
6,000 Safeguard Scientifics, Inc.
(b) 402
8,400 Shiva Corp. (b) 502
5,200 Sterling Commerce, Inc. (b) 404
6,600 Sungard Data Systems,
Inc. (b) 219
9,300 VeriFone, Inc. (b) 391
7,000 Wonderware Corp. (b) 157
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<PAGE>
72
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
6,200 Zilog, Inc. (b) $ 233
----------
4,992
----------
CONSUMER GOODS (1.0%):
14,000 Bell Industries (b) 310
4,000 Sola International, Inc. (b) 131
10,710 Tootsie Roll Industries 380
----------
821
----------
ELECTRICAL EQUIPMENT (4.9%):
12,000 Belden, Inc. 357
7,600 C-Cube Microsystems,
Inc. (b) 376
9,750 Cable Design
Technologies (b) 322
13,000 Checkpoint Systems, Inc. (b) 388
4,000 CIDCO, Inc. (b) 143
1,800 Electro Scientific, Inc. (b) 43
8,500 FORE Systems, Inc. (b) 671
13,000 Input/Output, Inc. (b) 452
4,600 ITI Technologies, Inc. (b) 127
5,000 Littelfuse, Inc. (b) 187
11,750 Methode Electronics, Inc. 197
6,000 Pioneer-Standard
Electronics, Inc. 97
9,800 SCI Systems, Inc. (b) 420
11,500 Tech Data Corp. (b) 224
----------
4,004
----------
ELECTRICAL & ELECTRONICS (4.2%):
7,000 Allen Group 173
11,500 AMETECK, Inc. 221
5,250 Harman International 248
14,000 Kent Electronics Corp. (b) 590
5,000 Lam Research Corp. (b) 202
8,000 Lattice Semiconductor (b) 262
12,000 Rexel, Inc. (b) 160
14,800 Sanmina Corp. (b) 525
6,000 Teleflex, Inc. 278
9,000 Thermedics, Inc. (b) 272
5,500 Thermotrex Corp. (b) 288
7,200 Ultratech Stepper, Inc. (b) 188
----------
3,407
----------
ENTERTAINMENT (0.3%):
10,000 Carmike Cinemas, Inc.,
Class A (b) 266
----------
ENVIRONMENTAL CONTROL (2.4%):
5,200 Donaldson Co, Inc. 137
9,900 Sanifill, Inc. (b) 429
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
10,500 U.S.A. Waste Services,
Inc. (b) $ 273
9,700 United States Filter Corp.
(b) 298
7,800 United Waste Systems,
Inc. (b) 429
8,800 Western Waste Industries (b) 342
----------
1,908
----------
FINANCIAL SERVICES (3.7%):
8,300 Aames Financial Corp. 366
9,200 Eaton Vance Corp. 281
1,167 Investors Financial
Services (b) 25
6,000 JSB Financial, Inc. (b) 203
8,000 The Money Store, Inc. 202
10,500 North American Mortgage Co. 177
10,200 Pioneer Group, Inc. 273
11,950 Quick & Reilly Group 364
5,900 Silicon Valley Bancshares
(b) 137
5,500 U.S. Trust Corp. 301
12,100 Value Line, Inc. 405
7,250 Waterhouse Investor Services 262
----------
2,996
----------
FOOD PROCESSING & PACKAGING (0.2%):
10,200 Goodmark Foods 164
----------
FURNITURE (0.2%):
4,900 La Z Boy Chair Co. 145
----------
HEALTH CARE SERVICES (0.5%):
7,000 Genesis Health Ventures,
Inc. (b) 207
7,000 Res-Care, Inc. (b) 200
----------
407
----------
HOSPITAL & NURSING EQUIPMENT & SUPPLIES (1.1%):
11,000 Invacare Corp. 286
6,800 Omnicare, Inc. 408
7,500 Vital Signs, Inc. 158
----------
852
----------
HOTELS & MOTELS (0.4%):
6,200 Doubletree Corp. (b) 200
4,900 Marcus Corp. 137
----------
337
----------
HOUSEHOLD GOODS -- APPLIANCES, FURNISHINGS
& ELECTRONICS (0.3%):
8,500 Williams-Sonoma Co. (b) 213
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
73
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
INDUSTRIAL SERVICES (0.8%):
6,000 Peak Technologies Group,
Inc. (b) $ 146
16,900 Unitog Co. 469
----------
615
----------
INSURANCE (1.3%):
5,800 CMAC Investment Corp. 325
8,900 Gallagher (Arthur J.) & Co. 289
300 Maxicare Health Plans,
Inc. (b) 6
3,900 Reliastar Financial Corp. 170
8,850 Vesta Insurance Group 284
----------
1,074
----------
LEISURE -- RECREATION, GAMING (0.4%):
7,200 Sturm Ruger & Co. 291
----------
MACHINERY & ENGINEERING (1.5%):
11,000 Alamo Group, Inc. 217
5,600 Applied Power, Inc., Class A 176
5,500 Credence Systems Corp. (b) 119
5,100 Helix Technology Corp. 192
7,500 IDEX Corp. 294
4,600 JLG Industries, Inc. 251
----------
1,249
----------
MACHINE TOOLS (1.2%):
7,000 Cascade Corp. 114
3,000 FSI International, Inc. (b) 44
7,900 Greenfield Industries 300
6,300 Roper Industries, Inc. 293
11,200 Telxon Corp. 258
----------
1,009
----------
MANUFACTURING -- MISCELLANEOUS (0.9%):
6,500 AptarGroup, Inc. 245
7,000 Fisher Scientific
International 262
5,500 Plantronics, Inc. (b) 221
----------
728
----------
MEDICAL -- BIOTECHNOLOGY (1.5%):
10,800 Alliance Pharmaceutical (b) 196
15,500 Liposome Co., Inc. (b) 380
10,000 Mentor Corp. 236
10,700 Protein Design Labs, Inc.
(b) 284
8,800 Somatogen, Inc. (b) 144
----------
1,240
----------
MEDICAL SERVICES (7.9%):
4,000 ABR Information Services,
Inc. (b) 250
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
2,000 American Oncology
Resources (b) $ 96
14,000 Apria Healthcare Group,
Inc. (b) 476
3,300 Coherent, Inc. (b) 177
8,900 Community Health Systems,
Inc. (b) 386
6,400 Express Scripts, Inc.,
Class A (b) 317
10,000 Gelman Sciences, Inc. (b) 266
12,500 Lincare Holdings (b) 485
9,000 Living Centers of America
(b) 333
8,000 Magellan Health Services (b) 172
7,398 Medpartners/Mullikin, Inc. 214
10,000 Mid-Atlantic Medical
Services, Inc. (b) 195
7,400 Nellcor Puritan Bennett,
Inc. (b) 363
12,800 OrNda Healthcorp (b) 352
16,800 Orthodontic Centers of
America (b) 664
10,200 PhyCor, Inc. (b) 502
3,900 Physician Health Services
(b) 128
11,200 Renal Treatment Centers,
Inc. (b) 325
9,200 Sierra Health Services (b) 304
11,300 Vivra, Inc. (b) 357
----------
6,362
----------
MEDICAL SUPPLIES (3.5%):
5,300 AMSCO International,
Inc. (b) 77
9,100 American Medical Response,
Inc. (b) 337
9,200 Diagnostic Products Corp. 385
2,800 Fresenius USA, Inc. (b) 56
6,200 Haemonetics Corp. (b) 119
7,500 IDEXX Laboratories, Inc. 334
8,200 Life Technologies 234
7,000 MediSense, Inc. (b) 315
4,500 PLC Systems, Inc. (b) 134
8,000 Sofamor Danek Group,
Inc. (b) 262
4,500 STERIS Corp. (b) 146
13,300 Summit Technology, Inc. (b) 238
4,000 Target Therapeutics, Inc.
(b) 217
----------
2,854
----------
MERCHANDISING (0.3%):
12,000 Lands' End, Inc. 237
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
74
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
METALS -- FABRICATION (1.1%):
6,000 Kennametal, Inc. $ 227
8,900 Mueller Industries, Inc. (b) 358
7,000 Quanex Corp. 154
5,000 Wolverine Tube, Inc. (b) 184
----------
923
----------
MINING (0.9%):
12,000 Addington Resources, Inc.
(b) 165
8,100 Coeur D'Alene Mines Corp. 161
3,896 Firstmiss Gold, Inc. (b) 120
6,500 Minerals Technologies, Inc. 250
----------
696
----------
OFFICE EQUIPMENT & SUPPLIES
(NON-COMPUTER REL) (0.3%):
10,800 American Business Products 235
----------
OIL & GAS EXPLORATION, PRODUCTION & SERVICES (2.7%):
7,000 Barrett Resources Corp. (b) 194
8,000 Camco International, Inc. 285
14,000 Devon Energy Corp. 357
12,200 Newfield Exploration (b) 418
14,300 Smith International, Inc.
(b) 425
13,000 United Meridian Corp. (b) 403
2,000 Weatherford Enterra, Inc.
(b) 71
----------
2,153
----------
OILFIELD EQUIPMENT & SERVICES (0.9%):
11,200 BJ Services Co. (b) 430
17,200 Pride Petroleum Services (b) 282
----------
712
----------
PHARMACEUTICALS (4.4%):
9,100 Alpharma, Inc., Class A 223
12,000 Amylin Pharmaceuticals (b) 114
9,900 Centocor (b) 396
4,900 Dura Pharmaceuticals (b) 262
13,600 Gilead Sciences, Inc. (b) 415
8,300 Human Genome Sciences,
Inc. (b) 330
20,200 Immunex Corp. (b) 316
10,200 INCYTE Pharmaceuticals,
Inc. (b) 328
14,000 ISIS Pharmaceuticals,
Inc. (b) 179
11,400 Matrix Pharmaceutical (b) 296
3,000 Neurogen Corp. (b) 86
11,300 Theratech, Inc. (b) 260
8,000 Watson Pharmaceutical (b) 380
----------
3,585
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
PRECISION INSTRUMENTS & RELATED (0.4%):
8,000 Dionex Corp. (b) $ 293
----------
PRINTING (0.3%):
9,200 Banta Corp. 225
----------
PUBLISHING (1.9%):
5,700 A.H. Belo Corp., Series A 212
8,100 Edmark Corp. 237
11,200 Harte-Hawks 265
5,000 Houghton Mifflin Co. 232
9,200 Meredith Corp. 417
10,800 Valassis Communications (b) 170
----------
1,533
----------
RADIO & TELEVISION (0.5%):
13,250 Renaissance Communications
Corp. (b) 366
----------
REAL ESTATE INVESTMENT TRUSTS (3.6%):
8,000 Beacon Corp. 205
7,200 Cali Realty Corp. 165
4,500 Chelsea GCA Realty, Inc. 128
6,500 Crescent Real Estate
Equities, Inc. 220
8,000 DeBartolo Realty Corp. 124
3,900 Developers Divers Realty 114
8,000 Federal Realty Investment
Trust 174
6,500 General Growth Properties 152
5,500 Liberty Property Trust 113
6,000 National Health Investors,
Inc. 200
12,000 Nationwide Health
Properties, Inc. 239
5,900 Post Properties, Inc. 198
4,800 Reckson Associates Realty
Corp. 143
8,500 Saul Centers, Inc. 122
7,000 Spieker Properties, Inc. 182
5,000 Starwood Lodging Trust 166
6,500 Summit Properties, Inc. 124
7,000 Weeks Corp. 171
----------
2,940
----------
RECREATION & OTHER CONSUMER GOODS (0.2%):
5,700 IHOP Corp. (b) 162
----------
RESTAURANTS (0.9%):
8,800 Apple South, Inc. 229
8,000 Applebees International,
Inc. 212
9,800 Sbarro, Inc. 257
----------
698
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE>
75
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
RETAIL (1.3%):
6,000 Circle K Corp. (b) $ 188
8,300 Gymboree Corp. (b) 215
5,000 Micro Warehouse, Inc. (b) 215
10,200 Nautica Enterprises, Inc.
(b) 474
----------
1,092
----------
RETAIL -- SPECIALTY STORES (3.2%):
4,000 Boise Cascade Products
Corp. (b) 313
8,500 Borders Group, Inc. (b) 272
5,700 CDW Computer Centers,
Inc. (b) 441
14,000 CompUSA, Inc. (b) 485
9,300 Men's Wearhouse (b) 344
7,100 Tiffany & Co. 463
13,800 Zale Corp. (b) 257
----------
2,575
----------
SAVINGS & LOAN COMPANIES (0.2%):
7,400 FirstBank Puerto Rico 170
----------
SEMICONDUCTORS (1.4%):
9,600 Actel Corp. (b) 178
18,000 International Rectifier
Corp. (b) 405
3,200 Linear Technology 110
17,400 S-3, Inc. (b) 246
10,000 Sierra Semiconductor (b) 164
----------
1,103
----------
SERVICES (NON-FINANCIAL) (0.4%):
9,000 Structural Dynamics Research
Corp. (b) 287
----------
SHOES, LEATHER GOODS & CLOTHING ACCESSORIES (0.4%):
9,200 Wolverine World Wide 284
----------
SOAPS & CLEANING AGENTS (0.2%):
7,600 Control Data Systems,
Inc. (b) 179
----------
SOFTWARE & COMPUTER SERVICES (8.3%):
12,400 Acxiom Corp. (b) 341
12,900 American Management
Systems, Inc. 343
8,000 Analysts International Corp. 302
8,400 Applix, Inc. (b) 328
4,600 BBN Corp. (b) 130
12,000 Commercial Metals Co. 360
9,900 Continuum Co., Inc. (b) 564
9,000 Electronics For Imaging,
Inc. (b) 549
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
3,000 Epic Design Technology,
Inc. (b) $ 182
4,500 Expert Software, Inc. (b) 59
4,246 HCIA, Inc. (b) 229
10,600 Macromedia, Inc. (b) 399
3,200 Medic Computer (b) 299
12,300 National Data Corp. 434
6,800 ParGain Technologies,
Inc. (b) 649
4,800 Project Software &
Development, Inc. (b) 168
6,000 Security Dynamics
Technologies (b) 507
9,400 Sierra On-Line, Inc. (b) 369
17,000 Symantec Corp. (b) 274
4,500 Wallace Computer Services,
Inc. 266
----------
6,752
----------
STEEL (0.2%):
3,500 Carpenter Technology 132
----------
TEXTILE MANUFACTURING (0.3%):
10,700 Authentic Fitness Corp. 255
----------
TOBACCO & TOBACCO PRODUCTS (0.2%):
9,100 Dimon, Inc. 155
----------
TRANSPORTATION (1.7%):
8,000 Air Express International 224
10,500 Comair Holding, Inc. 389
4,000 Fritz Cos. (b) 147
14,000 Landstar System, Inc. (b) 385
10,700 Railtex, Inc. (b) 262
----------
1,407
----------
UTILITIES -- TELECOMMUNICATIONS (4.9%):
12,200 Aspect Telecommunications
(b) 702
8,000 BroadBand Technologies,
Inc. (b) 204
6,000 Cellular Communications,
Class A (b) 315
5,000 Cellular Communication of
Puerto Rico (b) 134
13,100 Centennial Cellular (b) 215
9,100 Coherent Communications
Systems Corp. (b) 175
5,800 CommNet Celular, Inc. (b) 191
15,000 Digi International, Inc. (b) 424
4,500 DSP Communications,
Inc. (b) 179
9,200 Lincoln Communications 156
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
76
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
SPECIAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
7,100 Network Equipment
Technologies, Inc. (b) $ 181
11,800 Picturetel Corp. (b) 401
5,900 Premisys Communications,
Inc. (b) 258
18,000 U.S. Long Distance Corp. (b) 464
----------
3,999
----------
WINE & SPIRITS (0.3%):
8,100 Robert Mondavi Corp. (b) 223
- ------------------------------------------------------------
TOTAL COMMON STOCKS 79,944
- ------------------------------------------------------------
- ----------------------------------------------
U.S. TREASURY BILLS (0.2%)
$ 123 4.91%, 6/6/96 122
- ------------------------------------------------------------
TOTAL U.S. TREASURY BILLS 122
- ------------------------------------------------------------
TOTAL (COST $64,861)(A) $ 80,999
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $80,948.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 18,188
Unrealized depreciation (2,050)
----------
Net unrealized appreciation $ 16,138
==========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
77
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO REGIONAL STOCK FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ---------------------------------------------------------
COMMERCIAL PAPER/
MASTER DEMAND NOTES (3.4%):
FINANCIAL SERVICES (3.4%):
$ 1,500 General Electric Credit
Corp.,
5.35%, 5/1/96 $ 1,501
- ------------------------------------------------------------
TOTAL COMMERCIAL PAPER/MASTER DEMAND NOTES 1,501
- ------------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (96.6%)
AMUSEMENT & RECREATION SERVICES (0.6%):
7,000 Cedar Fair L.P. 250
----------
AUTOMOTIVE PARTS (5.8%):
24,000 Dana Corp. 798
19,800 Myers Industries, Inc. 359
15,000 TRW, Inc. 1,408
----------
2,565
----------
BANKS (8.1%):
24,000 Charter One Financial, Inc. 837
19,000 First Merit Corp. 575
9,843 Huntington Bancshares, Inc. 239
20,000 National City Corp. 737
15,000 Provident Bancorp 765
2,000 Second Bancorp 60
6,000 Star Bank 395
----------
3,608
----------
BUILDING MATERIALS (1.5%):
10,000 Medusa Corp. 293
10,000 Owens Corning
Fiberglass Corp. (b) 403
----------
696
----------
CHEMICALS (5.8%):
12,500 A. Schulman, Inc. 272
15,000 Chemed Corp. 564
10,500 Chempower, Inc. (b) 40
20,000 Ferro Corp. 555
9,000 Lubrizol Corp. 261
10,000 OM Group, Inc. 381
32,812 RPM, Inc. 504
----------
2,577
----------
COMPUTERS & PERIPHERALS (0.0%):
1,000 Lanvision (b) 18
----------
CONSUMER GOODS (2.4%):
14,000 American Greetings Corp. 387
15,000 Cincinnati Microwave,
Inc.(b) 50
43,000 Gibson Greetings, Inc. (b) 607
----------
1,044
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
ELECTRICAL EQUIPMENT (4.6%):
78,500 Pioneer-Standard
Electronics, Inc. $ 1,276
20,000 Robbins & Myers, Inc. 770
----------
2,046
----------
ENGINEERING, INDUSTRIAL CONSTRUCTION (0.2%):
10,000 Corrpro (b) 79
----------
FINANCIAL SERVICES (3.0%):
16,500 Haverfield Corp. 297
18,000 McDonald & Co. Investments 369
27,000 State Auto Financial 655
----------
1,321
----------
FOOD DISTRIBUTORS (1.0%):
10,000 Chiquita Brands
International 146
7,000 Kroger Co. (b) 288
----------
434
----------
FOOD PROCESSING & PACKAGING (0.2%):
5,000 Smuckers, Class A 106
----------
FOREST PRODUCTS (3.1%):
12,000 Mead Corp. 667
15,000 Reynolds & Reynolds Co. 694
----------
1,361
----------
HEALTH CARE (0.2%):
9,000 Health Power, Inc. (b) 85
----------
HOSPITAL & NURSING EQUIPMENT (6.7%):
38,000 Invacare Corp. 988
33,000 Omnicare, Inc. 1,980
----------
2,968
----------
HOUSEHOLD GOODS (2.1%):
25,000 Lancaster Colony Corp. 844
20,000 Sun Television & Appliance 79
----------
923
----------
INDUSTRIAL SERVICES (2.7%):
26,000 ACME Cleveland Corp. 783
22,000 Amcast Industrial Corp. 423
----------
1,206
----------
INSURANCE (3.4%):
3,150 Cincinnati Financial Corp. 186
18,000 Ohio Casualty 621
15,000 Progressive Corp. 699
----------
1,506
----------
MACHINE TOOLS (8.1%):
23,625 Bearings, Inc. 756
17,000 Cincinnati Milacron, Inc. 448
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
78
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO REGIONAL STOCK FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
37,050 Commercial Intertech Corp. $ 704
46,500 Gorman Rupp Co. 686
14,000 Lincoln Electric Co. 392
5,000 Monarch Machine Tool Co. 54
24,000 Telxon Corp. 552
----------
3,592
----------
MANUFACTURING (1.4%):
15,000 Parker-Hannifin Corp. 634
----------
MEDICAL -- BIOTECHNOLOGY (0.2%):
5,000 Gliatech, Inc. (b) 67
----------
MEDICAL SUPPLIES (0.2%):
10,000 Meridian Diagnostics 95
----------
METALS (0.9%):
10,000 Brush Wellman, Inc. 187
7,000 Cold Metal Products, Inc.
(b) 39
10,000 Park-Ohio Industries, Inc.
(b) 186
----------
412
----------
OFFICE EQUIPMENT & SUPPLIES (3.0%):
34,500 Diebold, Inc. 1,328
----------
OIL & GAS EXPLORATION (3.4%):
68,000 USX -- Marathon Group 1,496
----------
PAINT, VARNISHES & ENAMELS (1.5%):
14,000 Sherwin Williams Co. 654
----------
POLLUTION CONTROL SERVICES (0.2%):
51,100 Mid American Waste
Systems (b) 70
----------
PRECISION INSTRUMENTS (1.8%):
60,000 Keithley Instruments, Inc. 795
----------
PUBLISHING (3.3%):
35,000 Scripps (E.W.) Co. 1,488
----------
REAL ESTATE INVESTMENT TRUSTS (0.8%):
16,000 Health Care Reit, Inc. 368
----------
RESTAURANTS (2.2%):
29,500 Bob Evans Farms, Inc. 465
10,800 Frisch's Restaurants 108
22,000 Wendy's International 421
----------
994
----------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
RETAIL (1.7%):
17,000 Fabri-Centers of America,
Inc. (b) $ 174
17,000 Fabri-Centers of
America-- B (b) 170
15,000 The Limited, Inc. 311
10,000 Value City Department
Stores, Inc. (b) 90
----------
745
----------
RUBBER & RUBBER PRODUCTS (1.7%):
5,000 Cooper Tire & Rubber Co. 123
12,000 Goodyear Tire & Rubber Co. 626
----------
749
----------
SAVINGS & LOAN COMPANIES (0.2%):
2,550 Mahoning National
Bancorp (b) 106
----------
SERVICES (NON-FINANCIAL) (0.3%):
4,200 Roto Rooter, Inc. 131
----------
SHIPPING (0.3%):
3,000 Oglebay Norton Co. 124
----------
STEEL (2.3%):
35,000 Shiloh (b) 503
25,000 Worthington Industries, Inc. 509
----------
1,012
----------
TEXTILE MANUFACTURING (0.8%):
25,000 Essef Corp. (b) 372
----------
TOOLS & HARDWARE MANUFACTURING (0.8%):
9,000 Timken Co. 357
----------
TRANSPORTATION (3.3%):
6,000 Caliber System, Inc. 241
31,500 Comair Holding, Inc. 1,166
3,000 Roadway Express, Inc. (b) 45
----------
1,452
----------
TRUCKS (0.9%):
20,000 Thor Industries, Inc. 383
----------
UTILITIES -- ELECTRIC (2.7%):
14,000 American Electric Power 569
22,500 D.P.L., Inc. 515
5,000 Ohio Edison 104
----------
1,188
----------
UTILITIES -- TELECOMMUNICATIONS (3.2%):
29,000 Cincinnati Bell 1,428
- ------------------------------------------------------------
TOTAL COMMON STOCKS 42,833
- ------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE>
79
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
OHIO REGIONAL STOCK FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
RIGHTS & WARRANTS (0.0%)
10,000 Cincinnati Microwave Inc.,
Warrants (b) $ 20
- ------------------------------------------------------------
TOTAL RIGHTS & WARRANTS 20
- ------------------------------------------------------------
TOTAL (COST $26,471)(A) $ 44,353
- ------------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $44,334.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C> <C> <C>
Unrealized appreciation $ 19,366
Unrealized depreciation (1,484)
----------
Net unrealized appreciation $ 17,882
==========
</TABLE>
(b) Represents non-income producing securities.
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
80
Schedule of Investments
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
INTERNATIONAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
- ----------------------------------------------
COMMERCIAL PAPER (2.3%)
FINANCIAL SERVICES (2.3%):
$ 2,742 General Electric Capital
Corp., 5.35%, 5/1/96 $ 2,742
- ----------------------------------------------------------
TOTAL COMMERCIAL PAPER 2,742
- ----------------------------------------------------------
- ----------------------------------------------
COMMON STOCKS (94.8%)
AUSTRALIA (1.4%):
ENERGY SOURCES (1.0%):
80,211 The Broken Hill Properietary
Co. Ltd. 1,236
--------
METALS (0.2%):
234,000 Australian National
Industries Ltd. 213
--------
OIL & GAS PRODUCTION (0.2%):
43,000 Australian Gas Light Co. 179
- ----------------------------------------------------------
TOTAL AUSTRALIA 1,628
- ----------------------------------------------------------
AUSTRIA (0.5%):
BANKS (0.5%):
8,100 Creditanstalt Bankverein 549
- ----------------------------------------------------------
TOTAL AUSTRIA 549
- ----------------------------------------------------------
BELGIUM (1.7%):
CHEMICALS (0.8%):
1,600 Solvay SA 939
--------
OIL & GAS PRODUCTION (0.9%):
3,790 Petrofina SA 1,121
- ----------------------------------------------------------
TOTAL BELGIUM 2,060
- ----------------------------------------------------------
BRITAIN (15.6%):
BANKS (2.3%):
232,000 Allied Irish Bank 1,215
93,000 National Westminster Bank 855
75,400 Standard Chartered Bank 704
--------
2,774
--------
BUSINESS & PUBLIC SERVICES (1.0%):
164,500 Carlton Communications PLC 1,150
--------
CHEMICALS (0.9%):
82,900 Imperial Chemical Industries
PLC 1,120
--------
CONGLOMERATES (0.2%):
64,000 Tomkins PLC 265
--------
ELECTRICAL EQUIPMENT (0.7%):
150,000 BICC Group 781
--------
FOOD PROCESSING & PACKAGING (1.0%):
175,000 Grand Metropolitan PLC 1,148
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
HOTELS & MOTELS (0.6%):
75,000 Greenalls Group PLC $ 702
--------
INSURANCE (0.6%):
100,000 Guardian Royal Exchange PLC 338
178,200 Willis Corron Group 414
--------
752
--------
MANUFACTURING (0.2%):
100,000 Ladbroke 293
--------
METALS (0.6%):
254,000 British Steel PLC 757
--------
OIL & GAS PRODUCTION (1.1%):
145,749 British Petroleum 1,311
--------
PHARMACEUTICALS (1.3%):
120,000 Glaxo Wellcome PLC 1,451
--------
RETAIL (0.6%):
500,000 Sears PLC 754
--------
TELECOMMUNICATIONS SERVICES (1.4%):
120,000 British Telecom PLC 656
83,500 Cable Wireless 653
100,000 Orange PLC 359
--------
1,668
--------
TOBACCO & TOBACCO PRODUCTS (0.6%):
99,732 B.A.T. Industries PLC 752
--------
UTILITIES -- ELECTRIC (1.3%):
44,600 London Electric 554
102,100 Northern Electric 1,004
--------
1,558
--------
UTILITIES -- WATER (1.2%):
117,000 Hyder PLC 1,287
- ----------------------------------------------------------
TOTAL BRITAIN 18,523
- ----------------------------------------------------------
DENMARK (0.7%):
BANKS (0.4%):
7,500 Den Danske Banking 488
--------
MEDICAL SUPPLIES (0.3%):
5,000 Radiometer, Class B 375
- ----------------------------------------------------------
TOTAL DENMARK 863
- ----------------------------------------------------------
FINLAND (0.8%):
METAL -- FABRICATION (0.8%):
56,400 Outokumpu 982
- ----------------------------------------------------------
TOTAL FINLAND 982
- ----------------------------------------------------------
FRANCE (6.1%):
AUTOMOTIVE PARTS (0.5%):
9,700 Valeo 537
--------
BANKS (0.6%):
6,000 Societe Generale 695
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
81
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
INTERNATIONAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
BUILDING MATERIAL (0.4%):
4,150 Saint Gobain $ 496
--------
BUSINESS SERVICES (0.9%):
5,000 Ecco Commerical Services 1,121
--------
DIVERSIFIED (0.8%):
17,600 Lagardere 472
14,780 Nord-EST 401
--------
873
--------
ENERGY SOURCES (0.7%):
11,200 Elf Aquitaine 832
--------
FOREST PRODUCTS & PAPER (0.4%):
1,500 St. Louis 436
--------
FOOD PROCESSING & PACKAGING (1.3%):
10,500 Groupe Danone 1,584
--------
INSURANCE (0.5%):
10,800 Axa 642
- ----------------------------------------------------------
TOTAL FRANCE 7,216
- ----------------------------------------------------------
GERMANY (6.3%):
BANKS (0.9%):
4,920 Commerzbank AG 1,066
--------
CHEMICALS (2.3%):
7,200 BASF AG 1,957
2,000 Henkel KGAA 768
--------
2,725
--------
INSURANCE (0.7%):
500 Allianz Holdings 852
--------
MACHINERY & ENGINEERING (1.1%):
2,300 Siemens AG 1,255
--------
PUBLISHING -- NEWSPAPER (0.1%):
257 Axel Springer 165
--------
UTILITIES -- ELECTRIC (1.2%):
28,750 Veba 1,418
- ----------------------------------------------------------
TOTAL GERMANY 7,481
- ----------------------------------------------------------
HOLLAND (1.3%):
FINANCIAL SERVICES (1.3%):
20,500 Internationale Nederlanden 1,581
- ----------------------------------------------------------
TOTAL HOLLAND 1,581
- ----------------------------------------------------------
HONG KONG (3.0%):
BANKS (0.5%):
53,000 Hang Seng Bank 538
--------
DIVERSIFIED (0.8%):
162,000 Hutchinson Whampoa 1,005
--------
REAL ESTATE (1.3%):
79,000 Sun Hung Kai Properties 753
914,000 Tai Cheung Holdings 809
--------
1,562
--------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
TRANSPORTATION -- MARINE (0.4%):
700,000 Shun Tak Holdings Ltd. $ 507
- ----------------------------------------------------------
TOTAL HONG KONG 3,612
- ----------------------------------------------------------
ITALY (3.1%):
AUTOMOTIVE (0.6%):
370,000 Fiat 673
--------
BANKS (0.8%):
4,720 Banco Ambrosiano 905
--------
INSURANCE (0.7%):
33,000 Assicurazioni Generali 822
--------
UTILITIES -- TELECOMMUNICATIONS (1.0%):
2,590 Telecom Italia 1,324
- ----------------------------------------------------------
TOTAL ITALY 3,724
- ----------------------------------------------------------
JAPAN (38.8%):
AEROSPACE/DEFENSE (1.0%):
140,000 Mitsubishi Heavy Industry 1,248
--------
AUTOMOBILES (1.8%):
66,000 Honda Motor Co. 1,506
30,000 Toyota Motor Co. 684
--------
2,190
--------
BANKS (7.8%):
218,000 Ashikaga Bank 1,471
77,000 Dai-Ichi Kangyo Bank 1,566
97,000 Daito Trust 1,435
88,000 Hachijuni Bank 1,016
164,000 Higo Bank 1,425
353,000 Yasuda Trust & Banking 2,339
--------
9,252
--------
BREWERIES (1.0%):
95,000 Kirin Brewery Co. 1,233
--------
BUILDING MATERIALS (0.8%):
31,000 Tostem Corp. 962
--------
CHEMICALS (1.6%):
47,250 Shin Etsu Chemical 1,033
48,000 Takeda Chemical Industries 829
--------
1,862
--------
ELECTRICAL EQUIPMENT (4.9%):
134,000 Hitachi Ltd. 1,445
40,000 Kansai Electric 970
17,000 Kyocera 1,279
96,000 Matsushita Electric Works 1,091
16,000 Sony Corp. 1,039
--------
5,824
--------
ENGINEERING/INDUSTRIAL CONSTRUCTION (1.2%):
150,000 Aida Engineering 1,432
--------
FINANCE (2.3%):
430,000 Orient Corp. 2,709
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
82
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
INTERNATIONAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
FOOD PROCESSING (2.1%):
100,000 Katokichi $ 2,492
--------
HOUSING CONSTRUCTION (2.6%):
250,000 Sekisui House 3,102
--------
INSURANCE (1.1%):
95,000 Tokio Marine & Fire
Insurance 1,306
--------
PHARMACEUTICALS (2.0%):
53,000 Taisho Pharmaceutical 1,159
51,000 Yamanouchi Pharmaceutical 1,207
--------
2,366
--------
PRINTING (0.9%):
73,000 Toppan Printing Co., Ltd. 1,073
--------
RETAIL (4.3%):
46,000 Aoyama Trading 1,445
19,000 Ito-Yokada Co. Ltd. 1,119
61,000 Marui 1,345
68,000 Nichii Co. 1,091
1,100 Seven-Eleven Japan 78
--------
5,078
--------
STEEL (1.0%):
315,000 Nippon Steel 1,137
--------
TELECOMMUNICATIONS (0.7%):
66,000 Nippon Comsys Corp. 851
--------
TRANSPORTATION (0.7%):
77,000 Nippon Express Co. 801
--------
WHOLESALE & INTERNATIONAL TRADE (1.0%):
43,000 Canon Sales 1,203
- ----------------------------------------------------------
TOTAL JAPAN 46,121
- ----------------------------------------------------------
MALAYSIA (0.1%):
ENTERTAINMENT (0.1%):
16,000 Genting Berhad 144
- ----------------------------------------------------------
TOTAL MALAYSIA 144
- ----------------------------------------------------------
NEW ZEALAND (0.6%):
BUILDING MATERIALS (0.2%):
84,500 Fletcher Building 200
--------
FOREST PRODUCTS & PAPER (0.3%):
169,000 Fletcher Challenge Paper 348
--------
INVESTMENT HOLDING COMPANIES (0.0%):
42,000 Brierley Investments 40
--------
OIL & GAS EXPLORATION (0.1%):
84,500 Fletcher Energy 181
- ----------------------------------------------------------
TOTAL NEW ZEALAND 769
- ----------------------------------------------------------
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
NORWAY (0.3%):
CHEMICALS (0.3%):
7,550 Norsk Hydro $ 344
- ----------------------------------------------------------
TOTAL NORWAY 344
- ----------------------------------------------------------
SINGAPORE (2.6%):
AIRLINES (0.8%):
100,000 Singapore Airlines 1,010
--------
BANKS (0.4%):
43,320 United Overseas Bank 422
--------
PUBLISHING (0.6%):
250,000 Times Publishing 668
--------
REAL ESTATE (0.8%):
450,000 United Overseas 938
- ----------------------------------------------------------
TOTAL SINGAPORE 3,038
- ----------------------------------------------------------
SPAIN (1.9%):
BANKS (0.4%):
11,000 Banco Bilbao 418
--------
OIL & GAS PRODUCTION (0.3%):
11,000 Repsol SA 403
--------
UTILITIES -- ELECTRIC (0.6%):
70,000 Iberdrola I 684
--------
UTILITIES -- TELECOMMUNICATIONS (0.6%):
42,000 Telefonica De Espania 747
- ----------------------------------------------------------
TOTAL SPAIN 2,252
- ----------------------------------------------------------
SWEDEN (2.0%):
AUTOMOBILES (0.4%):
23,200 Volvo AB 531
--------
CONSUMER GOODS (0.6%):
23,200 Electrolux, B Shares 770
--------
PHARMACEUTICALS (1.0%):
21,000 Astra AB, A Free 931
2,900 Astra AB, B Shares 128
--------
1,059
- ----------------------------------------------------------
TOTAL SWEDEN 2,360
- ----------------------------------------------------------
SWITZERLAND (5.5%):
BANKS (0.7%):
9,330 CS Holding 845
--------
FOOD PROCESSING (1.0%):
1,050 Nestle Registered 1,165
--------
INSURANCE (0.4%):
850 Winterthur Schweiz 532
--------
PHARMACEUTICALS (3.4%):
2,645 Ciba Geigy AG 3,062
119 Roche Holding AG 934
--------
3,996
- ----------------------------------------------------------
TOTAL SWITZERLAND 6,538
- ----------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
83
Schedule of Investments -- Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Amounts in Thousands, except shares)
INTERNATIONAL GROWTH FUND (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET
AMOUNT SECURITY DESCRIPTION VALUE
<S> <C> <C> <C>
UNITED STATES (2.5%):
CONSUMER PRODUCTS (1.2%):
9,500 Unilever NV $ 1,297
--------
CHEMICALS (0.1%):
3,700 Norsk Hydro-ADR 170
--------
CLOSED-END INVESTMENT COMPANIES (0.2%):
8,700 Brazilian Investment Co. 296
--------
OIL (0.6%):
35,000 YPF S.A. Sponsored-ADR 766
--------
TELECOMMUNICATIONS EQUIPMENT (0.4%):
5,000 Cia Telecomunicacion-ADR 456
- ----------------------------------------------------------
TOTAL UNITED STATES 2,985
- ----------------------------------------------------------
TOTAL COMMON STOCKS 112,770
- ----------------------------------------------------------
- ----------------------------------------------------------
CONVERTIBLE BONDS (2.5%)
BANKS (0.9%):
$ 943,000 Mitsubishi Bank
International
Finance -- Bermuda, 3.00%,
11/30/02 1,098
ELECTRONICS (0.8%):
935,000 United Electronics, 1.25%,
6/8/04 904
TELECOMMUNICATIONS (0.8%):
935,000 Telekom Malaysia, 4.00%,
10/3/04 996
- ----------------------------------------------------------
TOTAL CONVERTIBLE BONDS 2,998
- ----------------------------------------------------------
TOTAL (COST $108,239)(A) $118,510
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
- ---------------
Percentages indicated are based on net assets of $118,906.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows (amounts in thousands):
<TABLE>
<S> <C>
Unrealized appreciation $10,481
Unrealized depreciation (210)
-------
Net unrealized
appreciation $10,271
========
</TABLE>
(b) Represents non-income producing securities.
ADR - American Depository Receipts
SEE NOTES TO FINANCIAL STATEMENTS.
82
<PAGE>
84
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
GOVERNMENT PRIME FINANCIAL
OBLIGATIONS OBLIGATIONS RESERVES
FUND (A) FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 261,667 $ 423,603 $ 786,174
Repurchase agreements 921,688 38,326 73,500
- -----------------------------------------------------------------------------------------------------------
1,183,355 461,929 859,674
Interest receivable 6,018 2,495 4,500
Receivable from brokers for investments sold -- 320 --
Prepaid expenses and other assets 91 96 77
- -----------------------------------------------------------------------------------------------------------
Total Assets 1,189,464 464,840 864,251
- -----------------------------------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 4,552 1,735 3,219
Payable to brokers for investments purchased -- 15,815 26,020
Accrued expenses and other payables:
Investment advisory fees 335 132 294
Administration fees 144 57 102
Accounting and transfer agent fees 46 26 20
Shareholder service fees 28 85 --
Other 45 19 34
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 5,150 17,869 29,689
- -----------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 1,184,404 446,959 834,368
Undistributed net investment income -- -- 217
Accumulated undistributed net realized gains (losses) from
investment transactions (90) 12 (23)
- -----------------------------------------------------------------------------------------------------------
Net Assets $1,184,314 $ 446,971 $ 834,562
===========================================================================================================
Outstanding units of beneficial interest (shares) 1,184,427 446,959 762,846
===========================================================================================================
Net asset value -- offering and redemption price per share $ 1.00 $ 1.00 $ 1.00
===========================================================================================================
Investments, at cost $1,183,355 $ 461,929 $ 859,674
===========================================================================================================
</TABLE>
(a) Select Shares. Investor Shares have not commenced operations as of April 30,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE>
85
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO
INSTITUTIONAL TAX-FREE MUNICIPAL
MONEY MONEY MONEY
MARKET FUND MARKET FUND MARKET FUND
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments, at value $ 643,400 $ 298,228 $ 574,057
Repurchase agreements 29,004 -- --
- -----------------------------------------------------------------------------------------------------------
672,404 298,228 574,057
Interest receivable 3,321 2,877 5,004
Prepaid expenses and other assets 26 19 60
- -----------------------------------------------------------------------------------------------------------
Total Assets 675,751 301,124 579,121
- -----------------------------------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 2,922 788 1,534
Payable to brokers for investment purchased 25,000 -- --
Accrued expenses and other payables:
Investment advisory fees 69 90 85
Administration fees 34 40 75
Accounting and transfer agent fees 17 15 13
Shareholder service fees -- 47 52
Shareholder service fees -- Select Shares 13 -- --
Other 41 15 30
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 28,096 995 1,789
- -----------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 647,585 300,125 577,143
Undistributed net investment income 76 -- 187
Accumulated undistributed net realized gains (losses) from
investment transactions (6) 4 2
- -----------------------------------------------------------------------------------------------------------
Net Assets $ 647,655 $ 300,129 $ 577,332
===========================================================================================================
Net Assets
Investor Shares $ 579,232
Select Shares 68,423
- -----------------------------------------------------------------------------------------------------------
Total $ 647,655
===========================================================================================================
Outstanding units of beneficial interest (shares)
Investor Shares 579,225
Select Shares 68,427
- -----------------------------------------------------------------------------------------------------------
Total 647,652 300,126 577,143
===========================================================================================================
Net asset value
Offering and redemption price per share $ 1.00 $ 1.00
===========================================================================================================
Offering and redemption price per share -- Investor Shares $ 1.00
===========================================================================================================
Offering and redemption price per share -- Select Shares 1.00
===========================================================================================================
Investments, at cost $ 672,404 $ 298,228 $ 574,057
===========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
84
<PAGE>
86
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED INVESTMENT GOVERNMENT
TERM INCOME INTERMEDIATE QUALITY GOVERNMENT MORTGAGE
FUND INCOME FUND BOND FUND BOND FUND FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 175,815 $ 188,230 $ 129,696 $ 25,913 $ 129,078
Cash -- -- 921 -- --
Interest receivable 3,027 2,744 1,825 482 901
Receivable for capital shares issued 63 28 167 -- --
Receivable from brokers for investments
sold -- 2,159 959 -- 5,059
Prepaid expenses and other assets 15 6 6 11 --
- --------------------------------------------------------------------------------------------------------------
Total Assets 178,920 193,167 133,574 26,406 135,038
==============================================================================================================
LIABILITIES:
Dividends payable -- -- -- 14 --
Payable to brokers for investments
purchased 8,935 1,896 -- -- 4,467
Payable for capital shares redeemed -- -- 20 2 --
Accrued expenses and other payables:
Investment advisory fees 66 90 67 6 54
Administration fees 21 23 16 3 16
Accounting and transfer agent fees 20 12 16 17 6
Shareholder service fees 14 16 10 -- 11
Shareholder service fees -- Class A -- -- -- 2 --
Shareholder service fees -- Class B -- -- -- 2 --
Other 49 87 29 6 48
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 9,105 2,124 158 52 4,602
- --------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 171,661 197,454 144,546 33,807 135,476
Undistributed net investment income 169 170 124 92 358
Net unrealized depreciation from
investments (1,028) (2,439) (3,386) (850) (2,788)
Accumulated undistributed net realized
(losses) from investment transactions (987) (4,142) (7,868) (6,695) (2,610)
- --------------------------------------------------------------------------------------------------------------
Net Assets $ 169,815 $ 191,043 $ 133,416 $ 26,354 $ 130,436
==============================================================================================================
Net Assets
Class A $ 25,163
Class B 1,191
- --------------------------------------------------------------------------------------------------------------
Total $ 26,354
==============================================================================================================
Outstanding units of beneficial interest
(shares)
Class A 2,647
Class B 125
- --------------------------------------------------------------------------------------------------------------
Total 16,944 20,174 14,062 2,772 12,248
==============================================================================================================
Net asset value
Redemption price per share $ 10.02 $ 9.47 $ 9.49 $ 10.65
Redemption price per share -- Class A $ 9.87
Offering and redemption price per
share -- Class B $ 9.85
- --------------------------------------------------------------------------------------------------------------
Maximum sales charge 2.00% 4.75% 4.75% 4.75% 4.75%
- --------------------------------------------------------------------------------------------------------------
Maximum offering price (100%/(100%- maximum sales charge) of net asset value
adjusted to nearest cent) per
share $ 10.22 $ 9.94 $ 9.96 $ 11.18
- --------------------------------------------------------------------------------------------------------------
Maximum offering price (100%/(100%- maximum sales charge) of net asset value
adjusted to nearest cent) per
share -- Class A $ 10.36
- --------------------------------------------------------------------------------------------------------------
Investments, at cost $ 176,844 $ 190,669 $ 133,082 $ 26,763 $ 131,866
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
85
<PAGE>
87
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL NEW YORK OHIO
FUND FOR MUNICIPAL TAX-FREE MUNICIPAL
INCOME BOND FUND FUND BOND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value $21,839 $51,413 $15,779 $66,474
Cash -- -- -- --
Interest receivable 357 668 328 1,290
Receivable for capital shares issued 15 10 -- --
Receivable from brokers for investments sold 2 481 -- 2,150
Prepaid expenses and other assets 10 9 8 --
- -------------------------------------------------------------------------------------------------------------
Total Assets 22,223 52,581 16,115 69,914
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable to brokers for investments purchased -- 4,498 -- 2,841
Payable for capital shares redeemed 13 39 3 --
Accrued expenses and other payables:
Investment advisory fees 4 -- 2 24
Administration fees 1 2 1 8
Accounting and transfer agent fees 6 4 8 8
Shareholder service fees 2 -- -- 6
Shareholder service fees -- Class A -- 8 1 --
Shareholder service fees -- Class B -- 1 1 --
Other 2 30 2 45
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 28 4,582 18 2,932
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 23,321 48,670 15,018 65,885
Undistributed (distributions in excess of) net
investment income (16) 40 69 47
Net unrealized appreciation (depreciation) from
investments 619 (723) 957 1,154
Accumulated undistributed net realized gains (losses)
from investment transactions (1,729) 12 53 (104)
- -------------------------------------------------------------------------------------------------------------
Net Assets $22,195 $47,999 $16,097 $66,982
=============================================================================================================
Net Assets
Class A $46,799 $13,808
Class B 1,200 2,289
- -------------------------------------------------------------------------------------------------------------
Total $47,999 $16,097
=============================================================================================================
Outstanding units of beneficial interest (shares)
Class A 4,667 1,095
Class B 120 181
- -------------------------------------------------------------------------------------------------------------
Total 2,289 4,787 1,276 5,302
=============================================================================================================
Net asset value
Redemption price per share $ 9.70 $ 12.63
Redemption price per share -- Class A $ 10.03 $ 12.61
Offering and redemption price per share -- Class B $ 10.07 $ 12.62
=============================================================================================================
Maximum sales charge 2.00% 4.75% 4.75% 4.75%
=============================================================================================================
Maximum offering price (100%/(100%-maximum sales
charge) of net asset value adjusted to nearest cent)
per share $ 9.90 $ 13.26
=============================================================================================================
Maximum offering price (100%/(100%-maximum sales
charge) of net asset value adjusted to nearest cent)
per share -- Class A $ 10.53 $ 13.24
=============================================================================================================
Investments, at cost $21,220 $52,136 $14,822 $65,320
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE>
88
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED STOCK INDEX DIVERSIFIED
FUND FUND STOCK FUND VALUE FUND GROWTH FUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 234,156 $ 224,830 $ 497,590 $ 346,509 $ 126,806
Interest and dividends receivable 1,283 294 368 422 126
Receivable for capital shares issued 56 -- 187 -- --
Receivable from brokers for investments
sold 901 -- 5,342 863 --
Prepaid expenses and other assets 17 6 37 22 12
- --------------------------------------------------------------------------------------------------------------
Total Assets 236,413 225,130 503,524 347,816 126,944
- --------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 64 -- 56 -- --
Payable to brokers for investments
purchased -- -- 4,677 464 --
Accrued expenses and other payables:
Investment advisory fees 164 77 257 282 102
Administration fees 29 -- 60 42 15
Accounting and transfer agent fees 8 9 9 18 17
Shareholder service fees -- -- -- 25 9
Shareholder service fees -- Class A 21 -- 43 -- --
Other 34 28 21 26 16
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 320 114 5,123 857 159
- --------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 205,226 182,178 386,547 264,874 96,356
Undistributed (distributions in excess
of) net investment income 84 304 123 104 (17)
Net unrealized appreciation from
investments 27,253 41,626 70,053 72,389 27,885
Net unrealized depreciation from
translation of assets and liabilities
in foreign currencies (140) -- -- -- --
Accumulated undistributed net realized
gains from investment transactions 3,884 908 41,678 9,592 2,561
Accumulated undistributed net realized
gains (losses) from foreign currency
transactions (214) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Assets $ 236,093 $ 225,016 $ 498,401 $ 346,959 $ 126,785
==============================================================================================================
Net Assets
Class A $ 235,476 $ 497,380
Class B 617 1,021
- --------------------------------------------------------------------------------------------------------------
Total $ 236,093 $ 498,401
- --------------------------------------------------------------------------------------------------------------
Outstanding units of beneficial interest
(shares)
Class A 20,185 33,875
Class B 53 70
- --------------------------------------------------------------------------------------------------------------
Total 20,238 16,311 33,945 26,240 9,693
==============================================================================================================
Net asset value
Redemption price per share $ 13.80 $ 13.22 $ 13.08
Redemption price per share -- Class A $ 11.67 $ 14.68
Offering and redemption price per
share -- Class B $ 11.64 $ 14.59
==============================================================================================================
Maximum sales charge 4.75% 4.75% 4.75% 4.75% 4.75%
==============================================================================================================
Maximum offering price (100%/(100%- maximum sales charge) of net asset value
adjusted to nearest cent) per
share $ 14.49 $ 13.88 $ 13.73
==============================================================================================================
Maximum offering price (100%/(100%- maximum sales Charge) of net asset value
adjusted to nearest cent) per
share -- Class A $ 12.25 $ 15.41
==============================================================================================================
Investments, at cost $ 207,045 $ 183,374 $ 427,536 $ 274,120 $ 98,921
==============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE>
89
Statements of Assets and Liabilities
April 30, 1996
(Amounts in Thousands, except per share amounts)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO
SPECIAL SPECIAL REGIONAL INTERNATIONAL
VALUE GROWTH STOCK GROWTH
FUND FUND FUND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value $ 238,210 $80,999 $44,353 $ 118,510
Foreign currency (cost $14) -- -- -- 14
Interest and dividends receivable 314 41 28 525
Receivable for capital shares issued 91 2 5 12
Receivable from brokers for investments sold 2,322 379 -- 29
Prepaid expenses and other assets 18 11 -- 16
- -------------------------------------------------------------------------------------------------------------
Total Assets 240,955 81,432 44,386 119,106
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for capital shares redeemed 6 -- -- --
Payable to brokers for investments purchased -- 394 -- --
Accrued expenses and other payables:
Investment advisory fees 191 63 27 104
Administration fees 29 9 5 14
Accounting and transfer agent fees 6 5 7 31
Shareholder service fees -- 6 -- --
Shareholder service fees -- Class A 20 -- 4 10
Other 16 7 9 41
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 268 484 52 200
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital 192,758 65,312 26,008 105,694
Undistributed (distributions in excess of) net
investment income 75 (177) (25) (152)
Net unrealized appreciation from investments 36,267 16,139 17,881 11,693
Net unrealized depreciation from translation of assets
and liabilities in foreign currencies -- -- -- (1,437)
Accumulated undistributed net realized gains (losses)
from investment transactions 11,587 (326) 470 (1,212)
Accumulated undistributed net realized gains from
foreign currency transactions -- -- -- 4,320
- -------------------------------------------------------------------------------------------------------------
Net Assets $ 240,687 $80,948 $44,334 $ 118,906
=============================================================================================================
Net Assets
Class A $ 240,600 $44,165 $ 118,842
Class B 87 169 64
- -------------------------------------------------------------------------------------------------------------
Total $ 240,687 $44,334 $ 118,906
=============================================================================================================
Outstanding units of beneficial interest (shares)
Class A 17,978 2,517 8,909
Class B 7 10 5
- -------------------------------------------------------------------------------------------------------------
Total 17,985 5,633 2,527 8,914
=============================================================================================================
Net asset value
Redemption price per share $ 14.37
Redemption price per share -- Class A $ 13.38 $ 17.55 $ 13.34
Offering and redemption price per share -- Class B $ 13.38 $ 16.90 $ 12.80
=============================================================================================================
Maximum sales charge 4.75% 4.75% 4.75% 4.75%
=============================================================================================================
Maximum offering price (100%/(100%-maximum sales
charge) of net asset value adjusted to nearest cent)
per share $ 15.09
=============================================================================================================
Maximum offering price (100%/(100%-maximum sales
charge) of net asset value adjusted to nearest cent)
per share -- Class A $ 14.05 $ 18.42 $ 14.00
=============================================================================================================
Investments, at cost $ 201,944 $64,861 $26,471 $ 108,239
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
88
<PAGE>
90
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
GOVERNMENT PRIME FINANCIAL
OBLIGATIONS OBLIGATIONS RESERVES
FUND (A) FUND FUND
---------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 31,108 $ 13,130 $ 23,258
- ----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 1,955 810 2,058
Administration fees 838 347 618
Shareholder service fees 111 531 --
Accounting fees 44 44 40
Custodian fees 109 48 80
Legal and audit fees 78 33 47
Trustees' fees and expenses 24 10 18
Transfer agent fees 16 27 15
Registration and filing fees 90 22 63
Printing fees 83 61 18
Other 8 2 76
Expenses voluntarily reduced -- -- (320)
- ----------------------------------------------------------------------------------------------------------
Total Expenses 3,356 1,935 2,713
- ----------------------------------------------------------------------------------------------------------
Net Investment Income 27,752 11,195 20,545
- ----------------------------------------------------------------------------------------------------------
REALIZED GAINS FROM INVESTMENTS:
Net realized gains from investment transactions 64 12 5
- ----------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $ 27,816 $ 11,207 $ 20,550
==========================================================================================================
</TABLE>
(a) Select Shares. Investor Shares have not commenced operations as of April 30,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
89
<PAGE>
91
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO
INSTITUTIONAL TAX-FREE MUNICIPAL
MONEY MONEY MONEY
MARKET MARKET MARKET
FUND FUND FUND
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income $18,581 $ 6,028 $10,411
Dividend income -- 197 99
- -----------------------------------------------------------------------------------------------------------
Total Income 18,581 6,225 10,510
- -----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 831 578 1,399
Administration fees 499 248 420
Shareholder service fees 284 581
Shareholder service fees -- Select Shares 60 -- --
Accounting fees 45 37 23
Custodian fees 65 35 56
Legal and audit fees 51 23 42
Trustees' fees and expenses 15 7 12
Transfer agent fees 12 10 12
Registration and filing fees 35 29 66
Printing fees 25 24 53
Other 4 3 5
Expenses voluntarily reduced (701) (19) (850)
- -----------------------------------------------------------------------------------------------------------
Total Expenses 941 1,259 1,819
- -----------------------------------------------------------------------------------------------------------
Net Investment Income 17,640 4,966 8,691
- -----------------------------------------------------------------------------------------------------------
REALIZED GAINS FROM INVESTMENTS:
Net realized gains from investment transactions -- 1 --
- -----------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $17,640 $ 4,967 $ 8,691
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
90
<PAGE>
92
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED INVESTMENT
TERM INTERMEDIATE QUALITY GOVERNMENT GOVERNMENT
INCOME INCOME BOND BOND MORTGAGE
FUND FUND FUND FUND FUND
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 5,492 $ 5,685 $ 4,390 $ 947 $ 4,777
Dividend income 64 70 73 10 41
- ----------------------------------------------------------------------------------------------------------
Total Income 5,556 5,755 4,463 957 4,818
- ----------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 428 656 481 77 333
Administration fees 129 131 97 21 100
Shareholder service fees 87 88 64 -- 69
Shareholder service
fees -- Class A -- -- -- 14 --
Shareholder service fees and
12b-1 fees -- Class B 5
Accounting fees 28 29 28 20 27
Custodian fees 18 18 16 5 17
Legal and audit fees 12 13 8 3 9
Trustees' fees and expenses 4 4 3 1 3
Transfer agent fees 9 9 8 10 15
Registration and filing fees 25 19 17 12 13
Printing fees 14 14 12 1 13
Other 1 2 -- -- 1
Expenses voluntarily reduced (31) (158) (91) (34) (3)
- ----------------------------------------------------------------------------------------------------------
Total Expenses 724 825 643 135 597
- ----------------------------------------------------------------------------------------------------------
Net Investment Income 4,832 4,930 3,820 822 4,221
- ----------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from
investment transactions 698 (193) 744 614 436
Change in unrealized
appreciation (depreciation)
from investments (2,799) (3,990) (4,516) (1,620) (2,965)
- ----------------------------------------------------------------------------------------------------------
Net realized/unrealized losses
from investments (2,101) (4,183) (3,772) (1,006) (2,529)
- ----------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations $ 2,731 $ 747 $ 48 $ (184) $ 1,692
==========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
91
<PAGE>
93
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL NEW YORK OHIO
FUND FOR MUNICIPAL TAX-FREE MUNICIPAL
INCOME BOND FUND FUND BOND FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 938 $ 634 $ 508 $ 1,749
Dividend income -- 22 6 19
- -------------------------------------------------------------------------------------------------------------
Total Income 938 656 514 1,768
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 57 80 46 189
Administration fees 17 22 13 47
Shareholder service fees 27 35
Shareholder service fees -- Class A 23 8
Shareholder service fees and 12b-1 fees -- Class B 3 9
Accounting fees 27 30 26 26
Custodian fees 7 5 3 8
Legal and audit fees 3 2 3 5
Trustees' fees and expenses -- 1 -- 1
Transfer agent fees 19 8 10 10
Registration and filing fees 12 13 4 2
Printing fees 14 7 9 11
Other -- 1 -- --
Expenses voluntarily reduced (44) (102) (48) (49)
- -------------------------------------------------------------------------------------------------------------
Expenses before reimbursement by the distributor 139 93 83 285
Expenses reimbursed by the distributor (25) (90)
- -------------------------------------------------------------------------------------------------------------
Total Expenses 114 3 83 285
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 824 653 431 1,483
- -------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains from investment transactions 36 12 53 434
Change in unrealized depreciation from investments (426) (1,218) (355) (1,259)
- -------------------------------------------------------------------------------------------------------------
Net realized/unrealized losses from investments (390) (1,206) (302) (825)
- -------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $ 434 $ (553) $ 129 $ 658
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
92
<PAGE>
94
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED STOCK INDEX DIVERSIFIED
FUND FUND STOCK FUND VALUE FUND GROWTH FUND
----------- ----------- ----------- ----------- -----------
INVESTMENT INCOME:
<S> <C> <C> <C> <C> <C>
Interest income $ 3,169 $ 342 $ 89 $ 89 $ 14
Dividend income 1,722 2,045 5,678 4,734 1,161
Foreign tax withholding (2) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Income 4,889 2,387 5,767 4,823 1,175
- --------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 1,099 572 1,475 1,628 579
Administration fees 165 143 284 244 73
Shareholder service fees 157 57
Shareholder service fees--Class A 117 244
Shareholder service fees and 12b-1
fees--Class B 1 1
Accounting fees 44 40 103 38 36
Custodian fees 26 37 47 32 13
Legal and audit fees 15 15 32 23 8
Amortization of organization costs 1 1 -- 2 --
Trustees' fees and expenses 5 4 10 7 2
Transfer agent fees 39 10 98 10 17
Registration and filing fees 25 20 33 18 10
Printing fees 18 16 33 20 13
Other 2 1 4 3 1
Expenses voluntarily reduced (195) (313) (54) (62) (70)
- --------------------------------------------------------------------------------------------------------------
Total Expenses 1,362 546 2,310 2,120 739
- --------------------------------------------------------------------------------------------------------------
Net Investment Income 3,527 1,841 3,457 2,703 436
- --------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains from investment
transactions 4,363 1,864 41,945 9,615 2,551
Net realized losses from foreign currency
transactions (3) -- -- -- --
Net change in unrealized appreciation
from investments 9,263 19,210 28,355 33,624 10,615
- --------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains from
investments and foreign currencies 13,623 21,074 70,300 43,239 13,166
- --------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations $17,150 $22,915 $73,757 $45,942 $13,602
==============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
93
<PAGE>
95
Statements of Operations
For the Six Months Ended April 30, 1996
(Amounts in Thousands)
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO
SPECIAL SPECIAL REGIONAL INTERNATIONAL
VALUE FUND GROWTH FUND STOCK FUND GROWTH FUND
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 40 $ 44 $ 5 $ 22
Dividend income 2,461 239 438 858
Foreign tax withholding -- -- -- (98)
- -------------------------------------------------------------------------------------------------------------
Total Income 2,501 283 443 782
- -------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 1,079 320 154 603
Administration fees 162 49 31 82
Shareholder service fees 31
Shareholder service fees--Class A 111 24 56
Accounting fees 36 30 23 48
Custodian fees 25 17 5 93
Legal and audit fees 15 6 4 8
Amortization of organization costs 1 1 -- --
Trustees' fees and expenses 5 2 1 2
Transfer agent fees 23 11 23 30
Registration and filing fees 20 15 13 17
Printing fees 17 10 10 14
Other 3 1 -- 1
Expenses voluntarily reduced (68) (33) (4) (28)
- -------------------------------------------------------------------------------------------------------------
Total Expenses 1,429 460 284 926
- -------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) 1,072 (177) 159 (144)
- -------------------------------------------------------------------------------------------------------------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains (losses) from investment
transactions 11,618 (41) 469 6,125
Net realized gains from foreign currency transactions -- -- -- 139
Net change in unrealized appreciation from investments 15,070 13,487 5,046 6,178
Change in unrealized depreciation from translation of
assets and liabilities in foreign currencies -- -- -- (3,685)
- -------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains from investments and
foreign currencies 26,688 13,446 5,515 8,757
- -------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations $27,760 $13,269 $ 5,674 $ 8,613
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
94
<PAGE>
96
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT
OBLIGATIONS FUND PRIME OBLIGATIONS FUND FINANCIAL RESERVES FUND
-------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS YEAR ENDED
ENDED YEAR ENDED ENDED YEAR ENDED ENDED OCTOBER 31,
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, 1995(a)
1996 (b) 1995(a) 1996 1995 1996 -----------
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 27,752 $ 33,876 $ 11,195 $ 27,763 $ 20,545 $ 38,318
Net realized gains (losses) from
investment transactions 64 94 12 -- 5 --
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting
from operations 27,816 33,970 11,207 27,763 20,550 38,318
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (27,752) (33,876) (11,195) (27,763) (20,415) (38,264)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets from
distributions to shareholders (27,752) (33,876) (11,195) (27,763) (20,415) (38,264)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 1,770,785 1,782,085 653,922 1,719,347 1,567,671 4,803,998
Proceeds from shares issued in
connection with acquisition 242,973
Dividends reinvested 4,356 3,962 8,583 15,471 1,445 1,265
Cost of shares redeemed (1,555,820) (1,476,233) (671,812) (2,060,855) (1,497,559) (4,475,713)
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital
transactions 219,321 552,787 (9,307) (326,037) 71,557 329,550
- ---------------------------------------------------------------------------------------------------------------------------
Change in net assets 219,385 552,881 (9,295) (326,037) 71,692 329,604
NET ASSETS:
Beginning of period 964,929 412,048 456,266 782,303 762,870 433,266
- ---------------------------------------------------------------------------------------------------------------------------
End of period $ 1,184,314 $ 964,929 $ 446,971 $ 456,266 $ 834,562 $ 762,870
===========================================================================================================================
SHARE TRANSACTIONS:
Issued 1,770,785 1,782,107 653,922 1,719,347 1,567,671 4,803,998
Issued in connection with
acquisition 242,973
Reinvested 4,356 3,962 8,583 15,471 1,445 1,265
Redeemed (1,555,820) (1,476,233) (671,912) (2,060,755) (1,497,559) (4,475,713)
- ---------------------------------------------------------------------------------------------------------------------------
Change in shares 219,321 552,809 (9,407) (325,937) 71,557 329,550
===========================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory U.S. Treasury Money Market Portfolio
merged into the U.S. Government Obligations Fund. Changes in net assets for
periods prior to June 5, 1995 represents the U.S. Government Obligations
Fund. Also, effective June 5, 1995 the Victory Financial Reserve Portfolio
became the Financial Reserves Fund.
(b) Select Shares. Investor Shares have not commenced operations as of April 30,
1996.
SEE NOTES TO FINANCIAL STATEMENTS.
95
<PAGE>
97
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND OHIO MUNICIPAL MONEY MARKET FUND
-------------------------------------- ---------------------- --------------------------------------
SIX
MONTHS SIX YEAR SIX TWO MONTHS
SIX MONTHS ENDED MONTHS ENDED MONTHS ENDED
ENDED OCTOBER YEAR ENDED ENDED OCTOBER ENDED OCTOBER YEAR ENDED
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, 31, AUGUST 31,
1996 1995(a) 1995(b) 1996 1995 1996 1995 1995
---------- --------- ----------- --------- --------- --------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment
income $ 17,640 $ 14,833 $ 22,107 4,966 $ 8,303 $ 8,691 $ 2,859 $ 13,393
Net realized gains
from investment
transactions -- -- 20 1 62 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets
resulting from
operations 17,640 14,833 22,127 4,967 8,365 8,691 2,859 13,393
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (4,966) (8,303) (8,722) (2,859) (13,175)
Investor Shares (16,431) (14,857) (21,993)
Select Shares (1,209) (22)
From net realized
gains from
investment
transactions (26) -- -- (59) -- (17) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets
from distributions
to shareholders (17,666) (14,879) (21,993) (5,025) (8,303) (8,739) (2,859) (13,175)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued 1,004,619 648,875 1,197,333 318,307 518,760 692,413 363,385 1,872,345
Dividends reinvested 1,072 144 1,508 789 900 3,199 472 945
Cost of shares
redeemed (874,025) (582,772) (1,290,390) (326,635) (410,557) (628,864) (355,896) (1,688,969)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets
from capital
transactions 131,666 66,247 (91,549) (7,539) 109,103 66,748 7,961 184,321
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets 131,640 66,201 (91,415) (7,597) 109,165 66,700 7,961 184,539
NET ASSETS:
Beginning of period 516,015 449,814 541,229 307,726 198,561 510,632 502,671 318,132
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 647,655 $ 516,015 $ 449,814 $ 300,129 $ 307,726 $ 577,332 $ 510,632 $ 502,671
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 1,004,619 648,875 1,197,333 318,307 518,760 692,413 363,385 1,872,345
Reinvested 1,072 144 1,508 789 900 3,199 472 945
Redeemed (874,025) (582,772) (1,290,390) (326,635) (410,557) (628,864) (355,896) (1,688,969)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares 131,666 66,247 (91,549) (7,539) 109,103 66,748 7,961 184,321
=================================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory Institutional Money Market Portfolio and
the Victory Ohio Municipal Money Market Portfolio became the Institutional
Money Market Fund and Ohio Municipal Money Market Fund, respectively.
(b) Audited by other auditors.
SEE NOTES TO FINANCIAL STATEMENTS.
96
<PAGE>
98
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED TERM INTERMEDIATE INVESTMENT QUALITY
INCOME FUND INCOME FUND BOND FUND
------------------------- ------------------------- -------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 (a) 1996 1995 1996 1995 (a)
---------- ----------- ---------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 4,832 $ 8,444 $ 4,930 $ 8,578 $ 3,820 $ 6,906
Net realized gains (losses) from
investment transactions 698 (892) (193) (1,399) 744 (4,593)
Net change in unrealized appreciation
(depreciation) from investments (2,799) 4,613 (3,990) 7,769 (4,516) 6,997
- --------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations 2,731 12,165 747 14,948 48 9,310
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (4,842) (8,403) (4,932) (8,634) (3,829) (6,970)
From net realized gains from investment
transactions (122) (52)
- --------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions to
shareholders (4,964) (8,403) (4,984) (8,634) (3,829) (6,970)
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 17,998 121,860 47,796 73,087 26,958 48,431
Proceeds from shares issued in
connection with acquisition 14,263 27,853
Dividends reinvested 4,944 8,381 4,982 8,632 3,674 6,932
Cost of shares redeemed (22,896) (55,414) (20,779) (37,675) (18,683) (54,993)
- --------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital
transactions 46 89,090 31,999 44,044 11,949 28,223
- --------------------------------------------------------------------------------------------------------------------------------
Change in net assets (2,187) 92,852 27,762 50,358 8,168 30,563
NET ASSETS:
Beginning of period 172,002 79,150 163,281 112,923 125,248 94,685
- --------------------------------------------------------------------------------------------------------------------------------
End of period $169,815 $ 172,002 $191,043 $ 163,281 $133,416 $ 125,248
================================================================================================================================
SHARE TRANSACTIONS:
Issued 4,948 12,215 4,948 7,738 2,763 4,675
Issued in connection with acquisition 1,398 2,849
Reinvested 515 836 515 915 377 735
Redeemed (2,146) (5,518) (2,146) (4,005) (1,905) (5,833)
- --------------------------------------------------------------------------------------------------------------------------------
Change in shares 3,317 8,931 3,317 4,648 1,235 2,426
================================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory Short-Term Government Income Portfolio
merged into the Limited Term Income Fund, and the Victory Corporate Bond
Portfolio merged into the Investment Quality Bond Fund. Changes in net
assets for the periods prior to June 5, 1995 represent the Limited Term
Income Fund and the Investment Quality Bond Fund, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
97
<PAGE>
99
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT
GOVERNMENT BOND FUND MORTGAGE FUND FUND FOR INCOME
------------------------------------ ----------------------- -----------------------
SIX MONTHS
SIX MONTHS ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER YEAR ENDED ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, 31,
1996 1995(a) 1995(b) 1996 1995 1996(a) 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 822 $ 1,716 $ 6,571 4,221 $ 9,792 $ 824 $ 1,894
Net realized gains (losses) from
investment transactions 614 3,139 (7,388) 436 (2,407) 36 (328)
Net change in unrealized appreciation
(depreciation) from investments (1,620) (101) 5,974 (2,965) 11,075 (426) 1,370
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations (184) 4,754 5,157 1,692 18,460 434 2,936
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
From net investment income by class: (4,228) (9,746) (980) (1,704)
Class A (798) (1,750) (6,395)
Class B (30) (14) (1)
From net realized gains from investment
transactions -- -- -- -- (596) -- --
In excess of net realized gains from
investment transactions -- -- -- -- (638) -- --
Tax return of capital -- -- -- -- (218) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions
to shareholders (828) (1,764) (6,396) (4,228) (11,198) (980) (1,704)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 3,636 3,800 13,782 13,295 36,846 3,035 3,698
Dividends reinvested 810 1,292 75 3,900 11,183 685 569
Cost of shares redeemed (5,845) (64,039) (48,532) (20,326) (67,356) (3,735) (12,101)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital
transactions (1,399) (58,947) (34,675) (3,131) (19,327) (15) (7,834)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets (2,411) (55,957) (35,914) (5,667) (12,065) (561) (6,602)
NET ASSETS:
Beginning of period 28,765 84,722 120,636 136,103 148,168 22,756 29,358
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 26,354 $ 28,765 $ 84,722 $130,436 $136,103 $ 22,195 $ 22,756
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 369 390 1,475 1,221 3,517 306 382
Reinvested 82 132 8 359 1,065 70 58
Redeemed (595) (6,585) (5,266) (1,865) (6,399) (378) (1,261)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares (144) (6,063) (3,783) (285) (1,817) (2) (821)
=================================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory Government Bond Portfolio and the
Victory Fund for Income Portfolio became the Government Bond Fund and Fund
for Income, respectively.
(b) Audited by other auditors.
SEE NOTES TO FINANCIAL STATEMENTS.
98
<PAGE>
100
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK OHIO MUNICIPAL
NATIONAL MUNICIPAL BOND FUND TAX-FREE FUND BOND FUND
------------------------------------ ----------------------- -----------------------
SIX MONTHS
SIX MONTHS ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER YEAR ENDED ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, 31,
1996 1995(a) 1995(b) 1996 1995(a) 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 653 $ 242 $ 108 $ 431 $ 940 $ 1,483 $ 2,760
Net realized gains (losses) from
investment transactions 12 35 10 53 10 434 (128)
Net change in unrealized appreciation
(depreciation) from investments (1,218) 326 179 (355) 740 (1,259) 5,317
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations (553) 603 297 129 1,690 658 7,949
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Class A (610) (221) (108) (382) (830) (1,479) (2,801)
Class B (16) (6) (48) (42)
In excess of net investment income (3)
From net realized gains from
investment transactions (45) (10) (60) (11)
In excess of net realized gains from
investment transactions (169)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions
to shareholders (671) (227) (111) (440) (1,101) (1,490) (2,801)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 45,563 6,782 4,792 1,879 5,457 12,588 15,932
Dividends reinvested 633 216 103 323 509 1,452 2,784
Cost of shares redeemed (9,393) (219) (310) (3,121) (7,068) (6,257) (21,537)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital
transactions 36,803 6,779 4,585 (919) (1,102) 7,783 (2,821)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets 35,579 7,155 4,771 (1,230) (513) 6,951 2,327
NET ASSETS:
Beginning of period 12,420 5,265 494 17,327 17,840 60,031 57,704
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 47,999 $ 12,420 $5,265 $ 16,097 $ 17,327 $ 66,982 $ 60,031
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 4,417 685 519 140 443 1,102 1,474
Reinvested 62 21 11 25 39 127 257
Redeemed (927) (21) (33) (237) (574) (547) (2,014)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares 3,552 685 497 (72) (92) 682 (283)
=================================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory National Municipal Bond Portfolio and
Victory New York Tax-Free Portfolio became the National Municipal Bond Fund
and New York Tax-Free Fund, respectively.
(b) Audited by other auditors.
SEE NOTES TO FINANCIAL STATEMENTS.
99
<PAGE>
101
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND STOCK INDEX FUND DIVERSIFIED STOCK FUND
----------------------- ----------------------- -----------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, 31, APRIL 30, 31,
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 3,527 $ 6,680 $ 1,841 $ 2,888 $ 3,457 $ 6,928
Net realized gains from investment transactions 4,363 2,774 1,864 2,091 41,945 32,800
Net realized gains (losses) from foreign currency
transactions (3) 11 -- -- -- --
Net change in unrealized appreciation from
investments 9,263 20,046 19,210 20,860 28,355 29,446
Change in unrealized depreciation from translation
of assets and liabilities in foreign currencies -- (236) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 17,150 29,275 22,915 25,839 73,757 69,174
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (6,753) (1,900) (2,709) (7,205)
From net investment income by class:
Class A (3,527) (3,406)
Class B (1) (1)
From net realized gains from investment transactions (1,361) (3,041) (33,023) (29,668)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions to
shareholders (4,889) (6,753) (4,941) (2,709) (36,430) (36,873)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 45,891 111,470 53,791 74,489 66,049 144,852
Dividends reinvested 4,875 6,726 4,939 2,709 36,283 36,846
Cost of shares redeemed (28,007) (66,930) (12,510) (29,192) (50,807) (67,677)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital transactions 22,759 51,266 46,220 48,006 51,525 114,021
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets 35,020 73,788 64,194 71,136 88,852 146,322
NET ASSETS:
Beginning of period 201,073 127,285 160,822 89,686 409,549 263,227
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $236,093 $201,073 $225,016 $160,822 $498,401 $409,549
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 4,001 11,125 4,023 6,638 4,801 11,560
Reinvested 426 659 379 241 2,805 3,276
Redeemed (2,444) (6,762) (960) (2,815) (3,731) (5,529)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares 1,983 5,022 3,442 4,064 3,875 9,307
=================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
100
<PAGE>
102
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE FUND GROWTH FUND SPECIAL VALUE FUND
------------------------ ------------------------ ------------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, 31, APRIL 30, 31,
1996 1995(a) 1996 1995(a) 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 2,703 $ 6,585 $ 436 $ 746 $ 1,072 $ 2,090
Net realized gains from investment
transactions 9,615 8,481 2,551 4,504 11,618 5,442
Net change in unrealized appreciation from
investments 33,624 39,805 10,615 15,906 15,070 18,049
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from operations 45,942 54,871 13,602 21,156 27,760 25,581
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2,831) (6,666) (466) (783) (2,126)
From net investment income by class:
Class A (1,054)
From net realized gains from investment
transactions (8,483) (3,145) (4,494) (298) (5,473) (588)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions to
shareholders (11,314) (9,811) (4,960) (1,081) (6,527) (2,714)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 36,023 169,271 24,156 10,526 41,226 87,892
Proceeds from shares issued in connection
with acquisition 423 65,632
Dividends reinvested 11,313 9,809 4,951 1,067 6,522 2,712
Cost of shares redeemed (30,876) (116,876) (19,217) (55,968) (22,994) (37,371)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital transactions 16,460 62,627 9,890 21,257 24,754 53,233
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets 51,088 107,687 18,532 41,332 45,987 76,100
NET ASSETS:
Beginning of period 295,871 188,184 108,253 66,921 194,700 118,600
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $346,959 $295,871 $126,785 $108,253 $240,687 $194,700
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 2,835 16,259 1,906 1,655 3,240 7,864
Issued in connection with acquisition 38 5,881
Reinvested 917 940 404 100 528 246
Redeemed (2,439) (10,888) (1,527) (5,267) (1,808) (3,389)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares 1,313 6,349 783 2,369 1,960 4,721
=================================================================================================================================
</TABLE>
(a) Effective June 5, 1995, the Victory Equity Income Portfolio and the Victory
Equity Portfolio merged into the Value Fund and Growth Fund, respectively.
Changes in net assets for periods prior to June 5, 1995 represent the Value
Fund and Growth Fund, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
101
<PAGE>
103
Statements of Changes in Net Assets
THE VICTORY PORTFOLIOS (Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO REGIONAL INTERNATIONAL
SPECIAL GROWTH FUND STOCK FUND GROWTH FUND
------------------------------------ ----------------------- -----------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER YEAR ENDED ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, 31,
1996 1995(b) 1995(a)(b) 1996 1995 1996 1995(b)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ (177) $ (60) $ 49 $ 159 $ 402 $ (144) $ 696
Net realized gains (losses) from
investment transactions (41) 2,326 (2,209) 469 1,485 6,125 (7,848)
Net realized losses from foreign
currency transactions -- -- -- -- -- 139 4,365
Net change in unrealized appreciation
(depreciation) from investments 13,487 (358) 3,557 5,046 3,578 6,178 (1,929)
Change in unrealized appreciation from
translation of assets and liabilities
in foreign currencies -- -- -- -- -- (3,685) 2,233
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations 13,269 1,908 1,397 5,674 5,465 8,613 (2,483)
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (49) (419)
From net investment income by class:
Class A (185) (8)
In excess of net investment income (4)
From net realized gains from investment
transactions (1,485) (1,699)
Tax return of capital (512)
From net realized gains from foreign
currency transactions (3,413)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from distributions
to shareholders (53) (1,670) (2,118) (8) (3,925)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 18,258 16,956 4,996 4,244 9,494 28,765 42,668
Proceeds from shares issued in connection
with acquisition 19,565 21,742
Dividends reinvested -- -- -- 1,654 2,114 8 3,922
Cost of shares redeemed (4,914) (4,890) (16,411) (4,616) (9,872) (24,949) (36,754)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets from capital
transactions 13,344 31,631 (11,415) 1,282 1,736 3,824 31,578
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net assets 26,613 33,539 (10,071) 5,286 5,083 12,429 25,170
NET ASSETS:
Beginning of period 54,335 20,796 30,867 39,048 33,965 106,477 81,307
- ---------------------------------------------------------------------------------------------------------------------------------
End of period $ 80,948 $ 54,335 $ 20,796 $ 44,334 $ 39,048 $118,906 $106,477
=================================================================================================================================
SHARE TRANSACTIONS:
Issued 1,414 1,241 530 256 630 2,255 3,463
Issued in connection with acquisition 1,816 1,797
Reinvested -- -- -- 103 156 1 337
Redeemed (383) (429) (1,701) (281) (670) (1,979) (3,065)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in shares 1,031 2,628 (1,171) 78 116 277 2,532
=================================================================================================================================
</TABLE>
(a) Audited by other auditors.
(b) Effective June 5, 1995, the Victory Aggressive Growth Portfolio and Victory
Foreign Markets Portfolio merged into the Special Growth Fund and
International Growth Fund, respectively. Changes in net assets for periods
prior to June 5, 1995 represent the Aggressive Growth Portfolio and
International Growth Fund, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
102
<PAGE>
104
Notes to Financial Statements
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION:
The Victory Portfolios (collectively, the "Funds" and individually, a "Fund")
were organized on February 5, 1986, and are registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended, as an open-end investment
company established as a Delaware trust. The Funds are authorized to issue an
unlimited number of shares which are units of beneficial interest without par
value. The Funds presently offer shares of the U.S. Government Obligations Fund,
Prime Obligations Fund, Financial Reserves Fund, Institutional Money Market
Fund, Tax-Free Money Market Fund, Ohio Municipal Money Market Fund, Limited Term
Income Fund, Intermediate Income Fund, Investment Quality Bond Fund, Government
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, and International Growth Fund.
The U.S. Government Obligations Fund and Institutional Money Market Fund are
authorized to issue two classes of shares: Investor Shares and Select Shares. As
of April 30, 1996, the U.S. Government Obligations Fund had not yet sold
Investor Shares. The Government Bond Fund, National Municipal Bond Fund, New
York Tax-Free Fund, Balanced Fund, Diversified Stock Fund, Special Value Fund,
Ohio Regional Stock Fund and International Growth Fund, are authorized to issue
two classes of shares: Class A Shares and Class B Shares. Each class of shares
in a Fund 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 shares, and the exchange privilege of each class of shares.
The U.S. Government Obligations Fund, and Prime Obligations Fund seek to provide
current income consistent with liquidity and stability of principal. The
Financial Reserves Fund, and Institutional Money Market Fund seek to obtain as
high a level of current income as is consistent with preserving capital and
providing liquidity. The Tax-Free Money Market Fund seeks to provide current
interest income free from federal income taxes consistent with relative
liquidity and stability of principal. The Ohio Municipal Money Market Fund seeks
to provide current income exempt from federal regular income tax and the
personal income taxes imposed by the State of Ohio and Ohio municipalities
consistent with the stability of principal. The Limited Term Income Fund seeks
to provide income consistent with limited fluctuation of principal. The
Intermediate Income Fund and Investment Quality Bond Fund seek to provide a high
level of income. The Government Bond Fund seeks to provide as high a level of
current income as is consistent with preservation of capital by investing in
U.S. Government securities. The Government Mortgage Fund seeks to provide a high
level of current income consistent with safety of principal. The Fund for Income
seeks to provide a high level of current income consistent with preservation of
shareholders' capital. The National Municipal Bond Fund seeks to provide a high
level of current interest income exempt from federal income tax, as is
consistent with the preservation of capital. The New York Tax-Free Fund seeks to
provide a high level of current income exempt from federal, New York State, and
New York City income taxes, consistent with the preservation of shareholders'
capital. The Ohio Municipal Bond Fund seeks to produce a high level of current
interest income which is exempt from both federal income tax and Ohio personal
income tax. The Balanced Fund seeks to provide income and long-term growth of
capital. The Stock Index Fund seeks to provide long-term capital appreciation by
attempting to match the investment performance of the Standard & Poor's 500
Composite Stock Index. The Diversified Stock Fund seeks to provide long term
growth of capital. The Value Fund seeks to provide long-term growth of capital
and dividend income. The Growth Fund seeks to provide long-term growth of
capital. The Special Value Fund seeks to provide long-term growth of capital and
dividend income. The Special Growth Fund and Ohio Regional Stock Fund seek to
provide capital appreciation. The International Growth Fund seeks to provide
capital growth consistent with reasonable investment risk.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those of estimates.
SECURITIES VALUATION:
- --------------------
Investments of the U.S. Government Obligations Fund, Prime Obligations Fund,
Financial Reserves Fund, Institutional Money Market Fund, Tax-Free Money Market
Fund, and Ohio Municipal Money Market Fund (collectively "the money market
funds") are valued at either amortized cost which approximates market value, or
at original cost which, combined with accrued interest, approximates market
value. Under the amortized cost valuation method, discount or premium is
amortized on a constant basis to the maturity of the security. In addition, the
money market funds may not (a) purchase any instrument with a remaining maturity
greater than 397 days unless such instrument is subject to a demand feature, or
(b) maintain a dollar-weighted-average portfolio maturity which exceeds 90 days.
103
<PAGE>
105
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
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 of the Limited Term Income Fund,
Intermediate Income Fund, Investment Quality Bond Fund, Government 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, and International Growth Fund
(collectively "the variable net asset value funds") 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. Investments in foreign securities, currency holdings and other assets
and liabilities of the Balanced Fund and International Growth Fund are valued
based on quotations from the primary market in which they are traded and are
translated from the local currency into U.S. dollars using current exchange
rates. The differences between the cost and market values of investments held by
the variable net asset value funds are reflected as either unrealized
appreciation or depreciation.
SECURITIES TRANSACTIONS AND RELATED INCOME:
- -------------------------------------------
Securities transactions are accounted for on the date the security is purchased
or sold (trade date). Interest income is recognized on the accrual basis and
includes, where applicable, the pro rata amortization of premium or accretion of
discount. Dividend income is recorded on the ex-dividend date. Dividend income
is recorded net of foreign taxes withheld. Gains or losses realized on sales of
securities are determined by comparing the identified cost of the security lot
sold with the net sales proceeds.
FOREIGN CURRENCY TRANSLATION:
- -----------------------------
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities, other assets and liabilities of the Balanced Fund and the
International Growth Fund denominated in a foreign currency are translated into
U.S. dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at the
exchange rate on the dates of the transactions.
The Funds isolate that portion of the results of operations resulting from
changes in foreign exchange rates from the fluctuation arising from changes in
market prices of securities held.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of securities, sales of foreign currencies, currency exchange
fluctuations between the trade and settlement dates of securities transactions,
and the difference between the amount of assets and liabilities recorded and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities, including investments in securities, resulting from changes in
currency exchange rates.
REPURCHASE AGREEMENTS:
- -----------------------
Each Fund may acquire repurchase agreements from financial institutions such as
banks and broker-dealers which the Funds' investment adviser deems creditworthy
under guidelines approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price generally equals the price paid by a Fund plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying Fund securities. The seller, under a
repurchase agreement, is required to maintain the value of collateral held
pursuant to the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
FORWARD CURRENCY CONTRACTS:
- ----------------------------
A forward currency contract ("forward") is an agreement between two parties to
buy and sell a currency at a set price on a future date. The market value of the
forward fluctuates with changes in currency exchange rates. The forward is
marked-to-market daily and the change in market value is recorded by a Fund as
unrealized appreciation or depreciation. When the forward is closed, the Fund
records a realized gain or loss equal to the fluctuation in value during the
period the forward was opened. A Fund could be exposed to risk if a counterparty
is unable to meet the terms of a forward or if the value of the currency changes
unfavorably.
FUTURES CONTRACTS:
- -----------------
The Balanced Fund, Stock Index Fund, Diversified Stock Fund, Value Fund, Growth
Fund, Special Value Fund, Special Growth Fund, Ohio Regional Stock Fund, and
International Growth Fund may enter into contracts for the future delivery of
104
<PAGE>
106
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
securities or foreign currencies and futures contracts based on a specific
security, class of securities, foreign currency or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index. The Funds may enter into futures contracts in an effort to
hedge against market risks. The acquisition of put and call options on futures
contracts will give the Funds the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercise of the option, at any time during the option period. Futures
transactions involve brokerage costs and require the Funds to segregate assets
to cover contracts that would require it to purchase securities or currencies. A
Fund may lose the expected benefit of futures transactions if interest rates,
exchange rates or securities prices change in an unanticipated manner. Such
unanticipated changes may also result in lower overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities or foreign currencies, limiting a
Fund's ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
SECURITIES PURCHASED ON A WHEN-ISSUED AND DELAYED DELIVERY BASIS:
- ------------------------------------------------------------------
Each Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and/or yield, thereby, involving the risk that the price
and/or yield obtained may be more or less than those available in the market
when delivery takes place. At the time a Fund makes the commitment to purchase a
security on a when-issued basis, the Fund records the transaction and reflects
the value of the security in determining net asset value. Normally, the
settlement date occurs within one month of the purchase. A segregated account is
established and the Funds maintain cash and marketable securities at least equal
in value to commitments for when-issued securities. Securities purchased on a
when-issued basis or delayed delivery basis do not earn income until settlement
date.
DIVIDENDS TO SHAREHOLDERS:
- -------------------------
Dividends from net investment income are declared daily and paid monthly for the
money market funds. Dividends from net investment income are declared and paid
quarterly for the Stock Index Fund, Diversified Stock Fund, Value Fund, Growth
Fund, Special Value Fund, Special Growth Fund, Ohio Regional Stock Fund, and
International Growth Fund. Dividends from net investment income are declared and
paid monthly and for the Limited Term Income Fund, Intermediate Income Fund,
Investment Quality Bond Fund, Government Bond Fund, Government Mortgage Fund,
Fund for Income, National Municipal Bond Fund, New York Tax-Free Fund, Ohio
Municipal Bond Fund, and Balanced Fund. Distributable net realized capital
gains, if any, are declared and distributed at least annually.
Dividends from net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, foreign currency
transactions, expiring capital loss carryforwards and deferrals of certain
losses. Permanent book and tax basis differences are reflected in the components
of net assets.
FEDERAL INCOME TAXES:
- ---------------------
It is the policy of each Fund to continue to qualify as a regulated investment
company by complying with the provisions available to certain investment
companies, as defined in applicable sections of the Internal Revenue Code, and
to make distributions of net investment income and net realized capital gains
sufficient to relieve it from all, or substantially all, federal income taxes.
OTHER:
- ------
Expenses that are directly related to one of the Funds are charged directly to
that Fund. Other operating expenses of the Funds are prorated to each Fund on
the basis of relative net assets or other appropriate basis. Fees paid under a
Fund's shareholder servicing or distribution plans are borne by the specific
class of shares to which they apply.
All expenses in connection with Intermediate Income, Investment Quality Bond,
Balanced, Stock Index, Value, Growth, Special Value, and Special Growth Funds'
organization and registration under the 1940 Act and the Securities Act of 1933
were paid by those Funds. Such expenses are being amortized over a period of two
years commencing with the respective inception dates.
Certain prior year balances have been reclassified to be consistent with current
year presentation.
105
<PAGE>
107
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for the six
months ended April 30, 1996 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Limited Term Income Fund............. $ 247,974 $ 250,452
Intermediate Income Fund............. 229,016 191,414
Investment Quality Bond Fund......... 131,999 112,009
Government Bond Fund................. 51,623 52,868
Government Mortgage Fund............. 89,102 90,523
Fund for Income...................... 3,505 4,109
National Municipal Bond Fund......... 43,194 11,318
New York Tax-Free Fund............... -- 847
Ohio Municipal Bond Fund............. 25,686 22,477
Balanced Fund........................ 118,596 105,386
Stock Index Fund..................... 53,153 1,590
Diversified Stock Fund............... 244,549 219,131
Value Fund........................... 54,247 43,307
Growth Fund.......................... 19,180 15,111
Special Value Fund................... 90,146 60,046
Special Growth Fund.................. 26,826 12,097
Ohio Regional Stock Fund............. 1,244 1,218
International Growth Fund............ 118,498 107,445
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to all the Funds by Key Mutual Fund
Advisers, Inc. ("the Adviser"), a wholly owned subsidiary of KeyCorp Asset
Management Holdings, Inc., which is a wholly owned subsidiary of KeyBank
National Association ("Key"), formerly Society National Bank, a wholly owned
subsidiary of KeyCorp. Under the terms of the investment advisory agreements,
the Adviser is entitled to receive fees based on a percentage of the average
daily net assets of the Funds. KeyTrust Company of Ohio, serving as custodian
for all of the Funds, received custodian fees in addition to reimbursement of
actual out-of-pocket expenses incurred.
Key and its affiliated brokerage and banking companies also serve as Shareholder
Servicing Agents for all the Funds except the U.S. Government Obligations Fund,
Financial Reserves Fund, Institutional Money Market Fund (Investor Shares) and
Stock Index Fund. As such, Key and its affiliates provide support services to
their clients who are shareholders, which may include establishing and
maintaining accounts and records, processing dividend and distribution payments,
providing account information, assisting in processing of purchase, exchange and
redemption requests, and assisting shareholders in changing dividend options,
account designations and addresses. For providing such services, Key and its
affiliates may receive a fee computed daily of up to 0.25% of the average net
assets of the Funds serviced.
Concord Holding Corporation (the "Administrator"), an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. ("BISYS") serves as the administrator of the
Funds, and Victory Broker Dealer Services, Inc. (the "Distributor"), a
wholly-owned subsidiary of BISYS, serves as the distributor to the Funds.
Certain officers of the Funds are affiliated with BISYS. Such officers receive
no direct payments or fees from the Fund for serving as officers of the Funds.
Under the terms of the administration agreement, the Administrator's fee are
computed as 0.15% of the average daily net assets of the Funds. Pursuant to a
12b-1 Plan, the Distributor may receive fees computed as 0.75% of the average
daily net assets of Class B Shares of the Government Bond Fund, National
Municipal Bond Fund, New York Tax-Free Fund, Balanced Fund, Diversified Stock
Fund, Special Value Fund, Ohio Regional Stock Fund and International Growth Fund
for providing distribution services and is entitled to receive commissions on
sales of shares of the variable net asset value funds. For the six months ended
April 30, 1996, the Distributor received approximately $360,000 from commissions
earned on sales of shares of the variable net asset value funds a portion of
which the Distributor reallowed to dealers of the Funds' shares including
approximately $307,000 to affiliates of the Funds. BISYS Fund Services, Ohio,
Inc. (the Company), an affiliate of BISYS, serves the Funds as Mutual Fund
Accountant. Under the terms of the Fund Accounting Agreement, the Company's fee
is based on a percentage of average daily net assets.
Fees may be voluntarily reduced to assist the Funds in maintaining competitive
expense ratios.
Additional information regarding related party transactions is as follows for
the six months ended April 30, 1996:
106
<PAGE>
108
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT MUTUAL FUND
ADVISORY ADMINISTRATION ACCOUNTANT CUSTODIAN
FEES FEES FEES FEES
------------------------------- -------------- ----------- ---------
(PERCENTAGES
OF AVERAGE DAILY
NET ASSETS)
BEFORE VOLUNTARY VOLUNTARY
VOLUNTARY FEE FEE FEE ANNUAL ANNUAL
REDUCTIONS REDUCTIONS REDUCTIONS FEE FEE
---------------- ---------- -------------- ----------- ---------
(000) (000) (000) (000)
<S> <C> <C> <C> <C> <C>
U. S. Government Obligations Fund 0.35% $ -- $ -- $ 44 $ 109
Prime Obligations Fund 0.35% -- -- 44 48
Financial Reserves Fund 0.50% 320 -- 40 80
Institutional Money Market Fund 0.25% 402 299 45 65
Tax-Free Money Market Fund 0.35% 19 -- 37 35
Ohio Municipal Money Market Fund 0.50% 850 -- 23 56
Limited Term Income Fund 0.50% 31 -- 28 18
Intermediate Income Fund 0.75% 158 -- 29 18
Investment Quality Bond Fund 0.75% 91 -- 28 16
Government Bond Fund 0.55% 34 -- 20 5
Government Mortgage Fund 0.50% 3 -- 27 17
Fund for Income 0.50% 34 10 27 7
National Municipal Bond Fund 0.55% 80 22 30 5
New York Tax-Free Fund 0.55% 40 8 26 3
Ohio Municipal Bond Fund 0.60% 49 -- 26 8
Balanced Fund 1.00% 195 -- 44 26
Stock Index Fund 0.60% 170 143 40 37
Diversified Stock Fund 0.65% 54 -- 103 47
Value Fund 1.00% 62 -- 38 32
Growth Fund 1.00% 70 -- 36 13
Special Value Fund 1.00% 68 -- 36 25
Special Growth Fund 1.00% 33 -- 30 17
Ohio Regional Stock Fund 0.75% 4 -- 23 5
International Growth Fund 1.10% 28 -- 48 93
</TABLE>
107
<PAGE>
109
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Funds with multiple share classes were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
INSTITUTIONAL
MONEY MARKET FUND
------------------------------------
SIX MONTHS
SIX MONTHS ENDED
ENDED OCTOBER YEAR ENDED
APRIL 30, 31, APRIL 30,
1996 1995(b) 1995(a)
---------- ---------- ----------
<S> <C> <C> <C>
CAPITAL AND SHARE TRANSACTIONS:
Investor Shares(c):
Issued 667,441 629,396 1,197,333
Reinvested 119 133 1,508
Redeemed (592,842) (574,761) (1,290,390)
- ------------------------------------------------------------------------------
Total 74,718 54,768 91,549
Select Shares(c):
Issued 337,178 19,479
Reinvested 953 11
Redeemed (281,183) (8,011)
- ------------------------------------------------------------------------------
Total 56,948 11,479
</TABLE>
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL
GOVERNMENT BOND FUND BOND FUND NEW YORK TAX-FREE FUND
---------------------------------- ---------------------------------- ----------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
ENDED OCTOBER YEAR ENDED ENDED OCTOBER YEAR ENDED ENDED OCTOBER YEAR ENDED
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30,
1996 1995 1995(a)(d) 1996 1995 1995(a)(d) 1996 1995 1995(a)(d)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL
TRANSACTIONS:
Class A Shares:
Proceeds from
shares issued... 3,243 3,055 13,632 44,799 6,441 4,646 1,282 3,395 6,305
Dividends
reinvested...... 788 1,283 73 1 211 102 281 468 455
Cost of shares
redeemed........ (5,759) (64,259) (48,532) (9) (169) (310) (2,923) (6,784) (15,295)
- ----------------------------------------------------------------------------------------------------------------------------
Total............. (1,728) (59,921) (34,827) 44,791 6,483 4,438 (1,360) (2,921) (8,535)
Class B Shares:
Proceeds from
shares issued... 392 745 150 761 341 146 527 2,132
Dividends
reinvested...... 22 9 2 17 5 1 42 41
Cost of shares
redeemed........ (85) (10) (21) (50) (198) (284)
- ----------------------------------------------------------------------------------------------------------------------------
Total............. 329 744 152 757 296 147 371 1,889
SHARE
TRANSACTIONS:
Class A Shares:
Issued............ 329 314 1,459 4,342 651 504 99 271 482
Reinvested........ 80 131 8 61 21 11 22 37 35
Redeemed.......... (586) (6,584) (5,266) (925) (17) (33) (222) (552) (1,185)
- ----------------------------------------------------------------------------------------------------------------------------
Total............. (177) (6,139) (3,799) 3,478 655 482 (101) (244) (668)
Class B Shares:
Issued............ 40 76 16 75 34 15 41 172
Reinvested........ 2 1 1 -- 3 2
Redeemed.......... (9) (1) (2) (4) (15) (22)
- ----------------------------------------------------------------------------------------------------------------------------
Total............. 33 76 16 74 30 15 29 152
</TABLE>
(a) Audited by other auditors.
(b) Effective June 5, 1995, the Fund designated the existing shares as
Institutional Shares and commenced offering Service Shares.
(c) Effective March 1, 1996, the Fund redesignated Institutional Shares as
Investor Shares and Service Shares as Select Shares.
(d) Effective September 26, 1994, the Fund designated the existing shares as
Class A Shares and commenced offering Class B Shares.
108
<PAGE>
110
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND DIVERSIFIED STOCK FUND SPECIAL VALUE FUND
----------------------- ----------------------- -----------------------
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, 31, APRIL 30, 31,
1996(a) 1995 1996(a) 1995 1996(a) 1995
(000) (000) (000) (000) (000) (000)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares issued............ 45,277 111,470 65,044 144,852 41,142 87,892
Dividends reinvested................... 4,874 6,726 36,282 36,846 6,522 2,712
Cost of shares redeemed................ (28,007) (66,930) (50,800) (67,677) (22,994) (37,371)
- -------------------------------------------------------------------------------------------------------------------
Total.................................. 22,759 51,266 50,526 114,021 24,670 53,233
Class B Shares:
Proceeds from shares issued............ 614 1,005 84
Dividends reinvested................... 1 1 --
Cost of shares redeemed................ -- (7) --
- -------------------------------------------------------------------------------------------------------------------
Total.................................. 615 999 84
SHARE TRANSACTIONS:
Class A Shares:
Issued................................. 3,948 11,125 4,732 11,560 3,234 7,864
Reinvested............................. 426 659 2,805 3,276 528 246
Redeemed............................... (2,444) (6,762) (3,731) (5,529) (1,808) (3,389)
- -------------------------------------------------------------------------------------------------------------------
Total.................................. 1,930 5,022 3,806 9,307 1,954 4,721
Class B Shares:
Issued................................. 53 69 6
Reinvested............................. -- -- --
Redeemed............................... -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total.................................. 53 69 6
</TABLE>
(a) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
109
<PAGE>
111
Notes to Financial Statements--Continued
April 30, 1996
THE VICTORY PORTFOLIOS (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO REGIONAL INTERNATIONAL
STOCK FUND GROWTH FUND
----------------------- -----------------------
SIX MONTHS
SIX MONTHS ENDED SIX MONTHS YEAR ENDED
ENDED OCTOBER ENDED OCTOBER
APRIL 30, 31, APRIL 30, 31,
1996 1995 1996 1995
(000) (000) (000) (000)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares issued.................................. 4,083 9,494 28,704 42,668
Proceeds from shares issued in connection with acquisition... 21,742
Dividends reinvested......................................... 1,654 2,114 8 3,922
Cost of shares redeemed...................................... (4,616) (9,872) (24,949) (36,754)
- ---------------------------------------------------------------------------------------------------------------
Total........................................................ 1,121 1,736 3,763 31,578
Class B Shares:(a)
Proceeds from shares issued.................................. 161 61
Dividends reinvested.........................................
Cost of shares redeemed......................................
- ---------------------------------------------------------------------------------------------------------------
Total........................................................ 161 61
SHARE TRANSACTIONS:
Class A Shares:
Issued....................................................... 246 630 2,250 3,463
Issued in connection with acquisition........................ 1,797
Reinvested................................................... 103 156 1 337
Redeemed..................................................... (281) (670) (1,979) (3,065)
- ---------------------------------------------------------------------------------------------------------------
Total........................................................ 68 116 272 2,532
Class B Shares:(a)
Issued....................................................... 10 5
Reinvested...................................................
Redeemed.....................................................
- ---------------------------------------------------------------------------------------------------------------
Total........................................................ 10 5
</TABLE>
(a) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
6. CONCENTRATION OF CREDIT RISK:
The Ohio Municipal Money Market Fund, New York Tax-Free Fund and Ohio Municipal
Bond Fund invest primarily in debt obligations issued by the respective States
and their political subdivisions, agencies and public authorities to obtain
funds for various public purposes and the Ohio Regional Stock Fund invests
primarily in equity securities issued by organizations domiciled in Ohio. These
Funds are more susceptible to economic and political factors that may adversely
affect companies domiciled in these states and issuers of the States' specific
municipal securities than are municipal bond funds and stock funds that are not
geographically concentrated to the same extent.
110
<PAGE>
112
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS FUND
-------------------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED APRIL 30, -----------------------------------------------
1996(a) 1995(b) 1994 1993 1992
--------------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- -----------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.025 0.052 0.032 0.026 0.036
Distributions
Net investment income (0.025) (0.052) (0.032) (0.026) (0.036)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
=================================================================================================================
Total Return 2.52%(c) 5.38% 3.30% 2.62% 3.66%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 1,184,314 $964,929 $412,048 $515,734 $579,836
Ratio of expenses to average net assets 0.60%(d) 0.58% 0.63% 0.60% 0.60%
Ratio of net investment income to average
net assets 4.97%(d) 5.28% 3.20% 2.57% 3.50%
Ratio of expenses to average net assets* 0.60% 0.80%
Ratio of net investment income to average
net assets* 5.26% 3.03%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Select Shares. Investor Shares have not commenced operations as of April 30, 1996.
(b) Effective June 5, 1995, the Victory U.S. Treasury Money Market Portfolio merged into the U.S. Government
Obligations Fund. Financial highlights for the periods prior to June 5, 1995 represent the U.S. Government
Obligation Fund.
(c) Not annualized.
(d) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
111
<PAGE>
113
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME OBLIGATIONS FUND
-----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------
1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.024 0.051 0.035 0.030 0.037
Net realized losses from investment
transactions -- -- (0.003) -- --
- ----------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.024 0.051 0.032 0.030 0.037
- ----------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.024) (0.051) (0.035) (0.030) (0.037)
- ----------------------------------------------------------------------------------------------------------
Capital transactions 0.003(a)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================================================
Total Return 2.39%(b) 5.26% 3.57% 3.05% 3.77%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $446,971 $ 456,266 $782,303 $720,024 $524,338
Ratio of expenses to average net assets 0.84%(c) 0.74% 0.62% 0.60% 0.61%
Ratio of net investment income to
average net assets 4.84%(c) 5.09% 3.52% 2.96% 3.68%
Ratio of expenses to average net
assets* 0.79% 0.60%
Ratio of net investment income to
average net assets* 3.35% 2.96%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) During 1994, KeyCorp made a capital contribution of approximately
$2,506,000 for losses realized from the disposition of certain securities.
(b) Not annualized.
(c) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
112
<PAGE>
114
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FINANCIAL RESERVES FUND
-----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------
1996 1995(c) 1994(b) 1993(a)(b) 1992(a)(b)
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.025 0.054 0.035 0.030 0.040
Distributions
Net investment income (0.025) (0.054) (0.035) (0.030) (0.040)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------
Total Return 2.51%(d) 5.50% 3.57% 2.81% 3.76%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $834,562 $ 762,835 $433,266 $457,872 $523,889
Ratio of expenses to average net assets 0.66%(e) 0.52% 0.57% 0.55% 0.55%
Ratio of net investment income to
average net assets 4.99%(e) 4.67% 3.48% 2.78% 3.67%
Ratio of expenses to average net
assets* 0.74%(e) 0.74% 0.73% 0.70% 0.70%
Ratio of net investment income to
average net assets* 4.91%(e) 4.45% 3.32% 2.63% 3.52%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(a) Effective May 16, 1991, Ameritrust Company National Association became
investment adviser to the Fund. Effective March 16, 1992 Ameritrust was
acquired by Society Corporation and merged into Society National Bank, a
wholly-owned subsidiary of Society Corporation, on July 13, 1992. On
January 7, 1993, Society Asset Management, Inc., a wholly-owned subsidiary
of Society Corporation, was named investment adviser to the Fund.
(b) Audited by other auditors.
(c) Effective June 5, 1995, the Victory Financial Reserves Portfolio became the Financial Reserves Fund.
(d) Not annualized.
(e) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
113
<PAGE>
115
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL MONEY MARKET FUND
-------------------------------------------------------------------------------------------------------
INVESTOR SHARES(f) SELECT SHARES(f)
------------------------- --------------------------
SIX MONTHS
SIX MONTHS ENDED SIX MONTHS JUNE 5,
ENDED OCTOBER ENDED 1995 TO YEAR ENDED APRIL 30,
APRIL 30, 31, APRIL 30, OCTOBER 31, --------------------------------------------
1996 1995(e) 1996 1995(a)(e) 1995(d) 1994(d) 1993(d) 1992(d)
----------- ---------- ----------- ----------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.027 0.290 0.025 0.012 0.500 0.028 0.032 0.051
Distributions
Net investment income (0.027) (0.290) (0.025) (0.012) (0.500) (0.028) (0.032) (0.051)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.000 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
=================================================================================================================================
Total Return 2.69%(b) 2.90%(b) 2.57%(b) 1.23%(b) 4.91% 2.80% 3.26% 5.21%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000) $ 579,232 $504,536 $ 68,423 $ 11,479 $449,814 $541,229 $155,097 $177,640
Ratio of expenses to
average net assets 0.26%(c) 0.26%(c) 0.52%(c) 0.51%(c) 0.27% 0.55% 0.43% 0.30%
Ratio of net investment
income to average net
assets 5.33%(c) 5.69%(c) 5.00%(c) 5.33%(c) 4.91% 2.78% 3.19% 5.06%
Ratio of expenses to
average net assets* 0.48%(c) 0.49%(c) 0.73%(c) 1.00%(c) 0.51% 0.55% 0.48% 0.42%
Ratio of net investment
income to average net
assets* 5.12%(c) 5.46%(c) 4.79%(c) 4.84%(c) 4.67% 2.78% 3.14% 4.94%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other auditors.
(e) Effective June 5, 1995, the Victory Institutional Money Market Portfolio
became the Institutional Money Market Fund, and the Fund designated the
existing shares as Institutional Shares and commenced offering Service
Shares.
(f) Effective March 1, 1996, the Fund redesignated Institutional Shares as Investor Shares and Service Shares as
Select Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
114
<PAGE>
116
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-FREE MONEY MARKET FUND
----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.015 0.034 0.021 0.020 0.027
Distributions
Net investment income (0.015) (0.034) (0.021) (0.020) (0.027)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
==========================================================================================================
Total Return 1.54%(a) 3.42% 2.17% 2.06% 2.77%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $300,129 $307,726 $198,561 $189,351 $151,012
Ratio of expenses to average net assets 0.76%(b) 0.61% 0.60% 0.59% 0.61%
Ratio of net investment income to
average net assets 3.00%(b) 3.36% 2.14% 2.04% 2.70%
Ratio of expenses to average net assets* 0.77%(b) 0.62% 0.79% 0.60%
Ratio of net investment income to
average net assets* 2.99%(b) 3.35% 1.95% 2.02%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
115
<PAGE>
117
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO MUNICIPAL MONEY MARKET FUND
---------------------------------------------------------------------------------
TWO MONTHS
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
ENDED APRIL OCTOBER 31, -------------------------------------------------
30, 1996 1995 1995(b) 1994(c) 1993(a)(c) 1992(a)(c)
----------- ----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.016 0.006 0.033 0.021 0.021 0.031
Distributions
Net investment income (0.016) (0.006) (0.033) (0.021) (0.021) (0.031)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============================================================================================================
Total Return 1.56%(d) 0.55%(d) 3.33% 2.10% 2.14% 3.18%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000) $ 577,334 $ 510,416 $502,453 $318,132 $262,681 $252,705
Ratio of expenses to
average net assets 0.65%(e) 0.64%(e) 0.63% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets 3.11%(e) 3.31%(e) 3.33% 2.08% 2.12% 3.13%
Ratio of expenses to
average net assets* 0.95%(e) 0.92%(e) 0.94% 0.76% 0.72% 0.68%
Ratio of net investment
income to average net
assets* 2.80%(e) 3.03%(e) 3.02% 1.97% 2.05% 3.10%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(a) Effective February 27, 1991, Ameritrust Company National Association became
investment adviser to the Fund. Effective March 16, 1992, Ameritrust was
acquired by Society Corporation and merged into Society National Bank, a
wholly-owned subsidiary of Society Corporation, on July 13, 1992. Effective
February 3, 1993, Society Asset Management, Inc. a wholly-owned subsidiary
of Society Corporation was named investment adviser to the Fund.
(b) Effective June 5, 1995, the Victory Ohio Municipal Money Market Portfolio became the Ohio Municipal Money Market
Fund.
(c) Audited by other auditors.
(d) Not annualized.
(e) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
116
<PAGE>
118
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED TERM INCOME FUND
----------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL -------------------------------------------------
30, 1996 1995(a) 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.15 $ 9.88 $ 10.53 $ 10.45 $ 10.33
- ----------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.29 0.57 0.54 0.57 0.64
Net realized and unrealized gains
(losses) from investments (0.13) 0.27 (0.61) 0.08 0.13
- ----------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.16 0.84 (0.07) 0.65 0.77
- ----------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.29) (0.57) (0.54) (0.57) (0.64)
Net realized gains -- -- (0.04) -- (0.01)
- ----------------------------------------------------------------------------------------------------------
Total Distributions (0.29) (0.57) (0.58) (0.57) (0.65)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.02 $ 10.15 $ 9.88 $ 10.53 $ 10.45
==========================================================================================================
Total Return (excludes sales charges) 1.62%(b) 8.77% (0.66)% 6.39% 7.77%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $169,815 $172,002 $ 79,150 $ 81,771 $ 55,565
Ratio of expenses to average net assets 0.85%(c) 0.78% 0.79% 0.77% 0.78%
Ratio of net investment income to
average net assets 5.64%(c) 5.77% 5.29% 5.49% 6.18%
Ratio of expenses to average net assets* 0.88%(c) 0.79% 0.97% 0.78%
Ratio of net investment income to
average net assets* 5.61%(c) 5.76% 5.10% 5.48%
Portfolio turnover 149.53% 97.25% 41.26% 50.27% 14.97%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Effective June 5, 1995, the Victory Short-term Government Income Portfolio
merged into the Limited Term Income Fund. Financial highlights for the
periods prior to June 5, 1995 represent the Limited Term Income Fund.
(b) Not annualized.
(c) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
117
<PAGE>
119
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE INCOME FUND INVESTMENT QUALITY BOND FUND
--------------------------------------- ------------------------------------
DECEMBER DECEMBER
SIX MONTHS 10, 1993 SIX MONTHS YEAR ENDED 10, 1993
ENDED YEAR ENDED TO OCTOBER ENDED OCTOBER TO OCTOBER
APRIL 30, OCTOBER 31, 31, APRIL 30, 31, 31,
1996 1995 1994(a) 1996 1995(d) 1994(a)
---------- ------------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.69 $ 9.25 $ 10.00 $ 9.76 $ 9.10 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.27 0.59 0.52 0.28 0.62 0.53
Net realized and
unrealized gains
(losses) from
investments (0.22) 0.45 (0.76) (0.27) 0.67 (0.92)
- ----------------------------------------------------------------------------------------------------------
Total from
Investment
Activities 0.05 1.04 (0.24) 0.01 1.29 (0.39)
- ----------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.27) (0.60) (0.51) (0.28) (0.63) (0.51)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 9.47 $ 9.69 $ 9.25 $ 9.49 $ 9.76 $ 9.10(b)
==========================================================================================================
Total Return(excludes
sales charges) 0.53%(b) 11.65% (2.48)%(b) 0.04%(b) 14.63% (3.92)%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000) $191,043 $ 163,281 $112,923 $133,416 $125,248 $ 94,685
Ratio of expenses to
average net assets 0.94%(c) 0.82% 0.79%(c) 1.00%(c) 0.84% 0.79%(c)
Ratio of net investment
income to average net
assets 5.64%(c) 6.32% 6.23%(c) 5.96%(c) 6.59% 6.33%(c)
Ratio of expenses to
average net assets* 1.12%(c) 1.06% 1.25%(c) 1.15%(c) 1.06% 1.25%(c)
Ratio of net investment
income to average net
assets* 5.46%(c) 6.08% 5.77%(c) 5.81%(c) 6.37% 5.87%(c)
Portfolio turnover 112.61% 98.07% 55.06% 90.86% 160.01% 89.92%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Effective June 5, 1995, the Victory Corporate Bond Portfolio merged into
the Investment Quality Bond Fund. Financial highlights for the periods
prior to June 5, 1995 represent the Investment Quality Bond Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
118
<PAGE>
120
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT BOND FUND
---------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- -----------------------------------------------------
SIX MONTHS SIX MONTHS
SIX MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 26, MAY 3,
ENDED OCTOBER YEAR ENDED ENDED OCTOBER 1994 TO 1993 TO
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, APRIL 30,
1996 1995(e) 1995(d)(f) 1996 1995(e) 1995(a)(d)(f) 1994(a)(d)
----------- ---------- ---------- ----------- ---------- ------------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.87 $ 9.44 $ 9.45 $ 9.85 $ 9.43 $ 9.25 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.29 0.33 0.55 0.25 0.25 0.31 0.45
Net realized and
unrealized gains
(losses) from
investments -- 0.40 (0.02) -- 0.45 0.17 (0.54)
- -------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Activities 0.29 0.73 0.53 0.25 0.70 0.48 (0.09)
- -------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.29) (0.29) (0.54) (0.25) (0.22) (0.30) (0.45)
In excess of net
investment income -- (0.01) -- -- (0.06) --
Net realized gains (0.01)
- -------------------------------------------------------------------------------------------------------------------------
Total
Distributions (0.29) (0.30) (0.54) (0.25) (0.28) (0.30) (0.46)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 9.87 $ 9.87 $ 9.44 $ 9.85 $ 9.85 $ 9.43 $ 9.45
=========================================================================================================================
Total Return
(excludes sales charges) (0.76)%(b) 7.86%(b) 5.87% (5.85)%(b) 7.47%(b) 5.26%(b) (1.06)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
End of Period (000) $25,163 $ 27,856 $ 84,567 $ 1,191 $ 909 $ 155 $120,636
Ratio of expenses to
average net assets 0.93%(c) 0.92%(c) 0.63% 1.70%(c) 1.82%(c) 1.43%(c) 0.38%(c)
Ratio of net investment
income (loss) to average
net assets 5.88%(c) 6.04%(c) 5.97% 5.13%(c) 4.98%(c) 5.03%(c) 4.61%(c)
Ratio of expenses to
average net assets* 1.18%(c) 1.06%(c) 0.98% 1.95%(c) 2.12%(c) 1.60%(c) 0.96%(c)
Ratio of net investment
loss to average net
assets* 5.64%(c) 5.90%(c) 5.62% 4.88%(c) 4.68%(c) 4.86%(c) 4.03%(c)
Portfolio turnover 189.82% 94.84% 127.00% 189.82% 94.84% 127.00% 121.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other Auditors.
(e) Effective June 5, 1995, the Victory Government Bond Portfolio became the Government Bond Fund.
(f) Effective September 26, 1994, the Fund designated the existing shares as Class A Shares and commenced offering
Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
119
<PAGE>
121
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT MORTGAGE FUND
------------------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED APRIL 30, ----------------------------------------------
1996 1995 1994 1993 1992
--------------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.86 $ 10.33 $ 11.36 $ 11.07 $ 10.73
- -----------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.32 0.72 0.68 0.66 0.74
Net realized and unrealized gains(losses)
from investments (0.21) 0.62 (1.02) 0.32 0.34
- -----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.11 1.34 (0.34) 0.98 1.08
- -----------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.32) (0.73) (0.67) (0.66) (0.74)
Net realized gains -- (0.08) (0.02) (0.03) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.32) (0.81) (0.69) (0.69) (0.74)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.65 $ 10.86 $ 10.33 $ 11.36 $ 11.07
=================================================================================================================
Total Return (excludes sales charges) 0.99%(a) 13.55% (3.01)% 9.05% 10.34%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 130,436 $136,103 $148,168 $132,738 $73,660
Ratio of expenses to average net assets 0.90%(b) 0.77% 0.76% 0.75% 0.77%
Ratio of net investment income to average net
assets 6.34%(b) 6.81% 6.38% 5.92% 6.82%
Ratio of expenses to average net assets* 0.90%(b) 0.79% 0.96% 0.76%
Ratio of net investment income to average
net assets* 6.33%(b) 6.80% 6.18% 5.92%
Portfolio turnover 68.37% 59.14% 131.63% 50.18% 11.19%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
120
<PAGE>
122
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND FOR INCOME
------------------------------------------------------------------------------
YEAR ENDED EIGHT MONTHS
SIX MONTHS OCTOBER ENDED YEAR ENDED JANUARY 31,
ENDED APRIL 30, 31, OCTOBER 31, -----------------------------
1996 1995(d) 1994(c) 1994(c) 1993(c) 1992(c)
--------------- ---------- ------------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.93 $ 9.43 $ 10.14 $ 10.57 $ 10.55 $ 10.19
- ------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.42 0.59 0.52 0.80 0.80 0.85
Net realized and unrealized gains
(losses) on investments (0.23) 0.57 (0.71) (0.41) 0.06 0.36
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.19 1.16 (0.19) 0.39 0.86 1.21
- ------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.42) (0.59) (0.52) (0.80) (0.80) (0.85)
In excess of net investment income -- (0.07) -- -- -- --
Net realized gains -- -- -- (0.02) (0.04) --
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.66) (0.52) (0.82) (0.84) (0.85)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.70 $ 9.93 $ 9.43 $ 10.14 $ 10.57 $ 10.55
========================================================================================================================
Total Return (excludes sales charges) 1.95%(a) 12.75% (1.99)%(a) 3.75% 8.45% 12.34%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $22,195 $ 22,756 $ 29,358 $46,632 $55,075 $58,055
Ratio of expenses to average net assets 1.00%(b) 1.17% 1.12%(b) 1.13% 1.12% 0.92%
Ratio of net investment income (loss) to
average net assets 7.24%(b) 7.91% 7.21%(b) 7.65% 7.56% 8.18%
Ratio of expenses to average net assets* 1.61%(b) 1.62% 1.26%(b)
Ratio of net investment loss to average
net assets* 6.63%(b) 7.46% 7.07%(b)
Portfolio turnover 16.09% 80.78% 18.00% 47.00% 23.00% 24.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) Audited by other auditors.
(d) Effective June 5, 1995, the Victory Fund For Income Portfolio became the Fund For Income.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
121
<PAGE>
123
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND FUND
----------------------------------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- ------------------------------------------------------
SIX MONTHS SIX MONTHS
SIX MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 26, FEBRUARY 3,
ENDED OCTOBER YEAR ENDED ENDED OCTOBER 1994 TO 1994 TO
APRIL 30, 31, APRIL 30, APRIL 30, 31, APRIL 30, APRIL 30,
1996 1995(e) 1995(d)(f) 1996 1995(e) 1995(a)(d)(f) 1994(a)(d)
----------- ---------- ---------- ----------- ---------- ------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.06 $ 9.59 $ 9.64 $ 10.07 $ 9.59 $ 9.53 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.22 0.24 0.44 0.18 0.20 0.28 0.08
Net realized and
unrealized gains
(losses) from
investments -- 0.46 (0.05) 0.03 0.47 0.05 (0.36)
- --------------------------------------------------------------------------------------------------------------------------
Total from Investment
Activities 0.22 0.70 0.39 0.21 0.67 0.33 (0.28)
- --------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.22) (0.23) (0.44) (0.18) (0.19) (0.27) (0.08)
Net realized gains (0.03) -- -- (0.03) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (0.23) (0.44) (0.21) (0.19) (0.27) (0.08)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 10.03 $ 10.06 $ 9.59 $ 10.07 $10.07 $ 9.59 $ 9.64
- --------------------------------------------------------------------------------------------------------------------------
Total Return (excludes
sales charges) 2.17%(b) 7.39%(b) 4.21% (3.30)%(b) 6.99%(b) 3.54%(b) (2.82)%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets,
End of Period (000) $46,799 $ 11,964 $5,118 $ 1,200 $ 456 $ 147 $ 494
Ratio of expenses to
average net assets 0.00%(c) 0.02%(c) 0.20% 0.73%(c) 0.96%(c) (0.05)%(c) 0.65%(c)
Ratio of net investment
income (loss) to average
net assets 4.50%(c) 5.11%(c) 5.01% 3.88%(c) 4.15%(c) 4.35%(c) 3.15%(c)
Ratio of expenses to
average net assets* 1.31%(c) 2.57%(c) 3.95% 2.09%(c) 3.67%(c) 2.63%(c) 26.10%(c)
Ratio of net investment
loss to average net
assets* 3.18%(c) 2.56%(c) 1.26% 2.52%(c) 1.44%(c) 1.67%(c) (22.30)%(c)
Portfolio turnover 44.64% 72.46% 52.00% 44.64% 72.46% 52.00% 13.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other auditors.
(e) Effective June 5, 1995, the Victory National Municipal Bond Portfolio became the National Municipal Bond Fund.
(f) Effective September 26, 1994, the Fund designated the existing shares as Class A Shares and commenced offering
Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
122
<PAGE>
124
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEW YORK TAX-FREE FUND
-----------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------- ------------------------------------------------------------
SIX MONTHS YEAR ENDED JANUARY 1, SIX MONTHS YEAR ENDED SEPTEMBER 26, YEARS ENDED
ENDED OCTOBER 1994 TO ENDED OCTOBER 1994 TO DECEMBER 31,
APRIL 30, 31, OCTOBER 31, APRIL 30, 31, OCTOBER 31, -----------------
1996 1995(e) 1994(d)(f) 1996 1995(e) 1994(d)(f) 1993(d) 1992(d)
----------- ---------- ----------- ----------- ---------- ------------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.85 $ 12.39 $ 13.54 $ 12.86 $ 12.39 $ 12.62 $12.76 $12.50
- ----------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment
income 0.34 0.87 0.57 0.28 0.85 0.07 0.70 0.74
Net realized and
unrealized gains
(losses) from
investments (0.24) 0.42 (1.15) (0.23) 0.37 (0.23) 0.84 0.26
- ----------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Activities 0.10 1.29 (0.58) 0.05 1.21 (0.16) 1.54 1.00
- ----------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment
income (0.34) (0.83) (0.57) (0.28) (0.74) (0.07) (0.70) (0.74)
Net realized gains -- -- -- (0.01) -- -- (0.06) --
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.83) (0.57) (0.29) (0.74) (0.07) (0.76) (0.74)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 12.61 $ 12.85 $ 12.39 $ 12.62 $ 12.86 $ 12.39 $13.54 $12.76
============================================================================================================================
Total Return
(excludes sales
charges) 0.79%(b) 10.82% (4.31)%(b) (4.53)%(b) 10.18% (1.25)%(b) 12.34% 8.26%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000) $13,808 15,374 $17,840 $ 2,289 $ 1,953 $ (g) $28,530 $26,034
Ratio of expenses to
average net assets 0.89%(c) 1.16% 0.91%(c) 1.66%(c) 1.31% 0.52%(c) 0.87% 0.66%
Ratio of net
investment income
(loss) to average
net assets 5.22%(c) 5.49% 5.33%(c) 4.45%(c) 3.87% 5.94%(c) 5.28% 5.89%
Ratio of expenses to
average
net assets* 1.46%(c) 1.95% 1.25%(c) 2.22%(c) 1.71% 0.86(c) 0.96% 0.96%
Ratio of net
investment loss to
average net assets* 4.66%(c) 4.70% 4.99%(c) 3.89%(c) 3.47% 5.60%(c) 5.19% 5.59%
Portfolio turnover 0.00% 20.00% 18.00% 0.00% 20.00% 18.00% 12.00% 14.00%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other auditors.
(e) Effective June 5, 1995, the Victory New York Tax-Free Portfolio became the New York Tax-Free Fund.
(f) Effective September 26, 1994, the Fund designated the existing shares as Class A Shares and commenced offering
Class B Shares.
(g) Amount is less than $1,000.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
123
<PAGE>
125
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO MUNICIPAL BOND FUND
---------------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED APRIL 30, -------------------------------------------
1996 1995 1994 1993 1992
--------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.32 $ 10.33 $ 11.52 $ 10.52 $ 10.37
- -----------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.27 0.52 0.49 0.52 0.60
Net realized and unrealized gains (losses)
from investments 0.77 1.00 (0.94) 1.00 0.15
- -----------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.04 1.52 (0.45) 1.52 0.75
- -----------------------------------------------------------------------------------------------------------------
Distributions
Net investment income 0.27 (0.53) (0.49) (0.52) (0.60)
Net realized gains -- -- (0.25) -- --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions 0.27 (0.53) (0.74) (0.52) (0.60)
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.63 $ 11.32 $ 10.33 $ 11.52 $ 10.52
=================================================================================================================
Total Return (excludes sales charges) 1.20%(a) 15.03% (4.08)% 14.75% 7.34%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $66,982 $60,031 $57,704 $50,676 $17,676
Ratio of expenses to average net assets 0.90%(b) 0.66% 0.51% 0.42% 0.09%
Ratio of net investment income to average net
assets 4.71%(b) 4.78% 4.58% 4.77% 5.76%
Ratio of expenses to average net assets* 1.06%(b) 0.94% 1.09% 0.86% 0.84%
Ratio of net investment income to average net
assets* 4.56%(b) 4.49% 4.01% 4.33% 5.01%
Portfolio turnover 37.60% 124.79% 52.59% 150.76% 47.28%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
124
<PAGE>
126
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND STOCK INDEX FUND
----------------------------------------------------------- --------------------------------------
CLASS A SHARES CLASS B SHARES
-------------- --------------
MARCH 1,
SIX MONTHS 1996 YEAR ENDED DECEMBER 10, SIX MONTHS YEAR ENDED DECEMBER 3,
ENDED THROUGH OCTOBER 1993 TO ENDED OCTOBER 1993 TO
APRIL 30, APRIL 30, 31, OCTOBER 31, APRIL 30, 31, OCTOBER 31,
1996(d) 1996(a)(d) 1995 1994(a) 1996 1995 1994(a)
-------------- -------------- ---------- ------------ ----------- ---------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.01 $11.51 $ 9.62 $ 10.00 $ 12.50 $ 10.18 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment
income 0.21 0.04 0.41 0.33 0.13 (0.27) 0.20
Net realized and
unrealized gains
(losses) from
investments and
foreign
currencies 0.73 0.14 1.40 (0.39) 1.53 2.31 0.16
- -------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Activities 0.94 0.18 1.81 (0.06) 1.66 2.58 0.36
- -------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment
income (0.21) (0.05) (0.42) (0.32) (0.13) (0.26) (0.18)
Net realized gains (0.07) -- -- -- (0.23) -- --
- -------------------------------------------------------------------------------------------------------------------------
Total
Distributions (0.28) (0.05) (0.42) (0.32) (0.36) (0.26) (0.18)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF PERIOD $ 11.67 $11.64 $ 11.01 $ 9.62 $ 13.80 $ 12.50 $ 10.18
- -------------------------------------------------------------------------------------------------------------------------
Total Return
(excludes sales
charges) 8.38%(b) (3.31)% 19.24% (0.57)%(b) 13.47%(b) 25.72% 3.66%(b)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000) $235,476 $ 617 $201,073 $127,285 $ 225,016 $160,822 $ 89,686
Ratio of expenses to
average net assets 1.24%(c) 1.89% 0.98% 0.87%(c) 0.57%(c) 0.55% 0.58%(c)
Ratio of net
investment income
to average net
assets 3.21%(c) 1.75% 4.05% 3.97%(c) 1.93%(c) 2.53% 2.35%(c)
Ratio of expenses to
average
net assets* 1.42%(c) 2.08% 1.36% 1.49%(c) 0.90%(c) 0.87% 1.10%(c)
Ratio of net
investment income
to average net
assets* 3.03%(c) 1.56% 3.67% 3.35%(c) 1.60%(c) 2.21% 1.82%(c)
Portfolio turnover 49.95% 49.95% 69.22% 118.49% 0.92% 11.91% 1.44%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
125
<PAGE>
127
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED STOCK FUND
----------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
-------------- --------------
SIX MONTHS MARCH 1, 1996 YEAR ENDED OCTOBER 31,
ENDED APRIL THROUGH APRIL ----------------------------------------------------
30, 1996(e) 30, 1996(a)(e) 1995(d) 1994(d) 1993(d) 1992(d)
-------------- -------------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 13.62 $ 14.18 $ 12.68 $ 13.39 $ 12.16 $ 11.44
- -------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.10 0.02 0.27 0.25 0.18 0.19
Net realized and unrealized
gains from investments 1.13 0.43 2.33 0.64 1.50 1.11
- -------------------------------------------------------------------------------------------------------------------------
Total from Investment
Activities 1.23 0.45 2.60 0.89 1.68 1.30
- -------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.10) (0.04) (0.28) (0.23) (0.21) (0.19)
Net realized gains (0.07) -- (1.38) (1.37) (0.24) (0.39)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.17) (0.04) (1.66) (1.60) (0.45) (0.58)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.68 $ 14.59 $ 13.62 $ 12.68 $ 13.39 $ 12.16
=========================================================================================================================
Total Return (excludes sales
charges) 17.80%(b) (1.24)%(b) 23.54% 7.39% 14.04% 11.57%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period
(000) $497,380 $ 1,021 $409,549 $263,227 $257,405 $227,839
Ratio of expenses to average
net assets 1.02%(c) 1.70%(c) 0.92% 0.89% 0.89% 0.91%
Ratio of net investment income
to average net assets 1.52%(c) (0.40)%(c) 2.11% 2.06% 1.45% 1.63%
Ratio of expenses to average
net assets* 1.04%(c) 1.72%(c) 0.95% 1.10% 0.90%
Ratio of net investment income
to average net assets* 1.50%(c) (0.42)%(c) 2.07% 1.86% 1.43%
Portfolio turnover 50.24% 50.24% 75.05% 103.62% 86.32% 74.83%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Effective June 5, 1995, the Victory Equity Income Portfolio merged into the
Value Fund. Financial highlights for the periods prior to June 5, 1995
represent the Value Fund.
(e) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
126
<PAGE>
128
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE FUND
--------------------------------------------
YEAR ENDED DECEMBER 3,
SIX MONTHS OCTOBER 1993 TO
ENDED APRIL 30, 31, OCTOBER 31,
1996 1995(c) 1994(a)
--------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.87 $ 10.13 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.11 0.27 0.21
Net realized and unrealized gains from investments 1.69 1.92 0.11
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.80 2.19 0.32
- ---------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.11) (0.28) (0.19)
Net realized gains (0.34) (0.17) --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.45) (0.45) (0.19)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.22 $ 11.87 $ 10.13
=====================================================================================================================
Total Return (excludes sales charges) 15.43%(b) 22.28% 3.27%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 346,959 $295,871 $ 188,184
Ratio of expenses to average net assets 1.30%(c) 0.99% 0.92%(c)
Ratio of net investment income to average net assets 1.66%(c) 2.55% 2.32%(c)
Ratio of expenses to average net assets* 1.34%(c) 1.29% 1.48%(c)
Ratio of net investment income to average net assets* 1.62%(c) 2.25% 1.76%(c)
Portfolio turnover 13.95% 23.03% 39.05%
</TABLE>
- ---------------
<TABLE>
<C> <S>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
127
<PAGE>
129
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH FUND SPECIAL VALUE FUND
------------------------------------- -----------------------------------------------------------
DECEMBER CLASS A SHARES CLASS B SHARES DECEMBER
YEAR 3, 1993 -------------- -------------- 3, 1993
ENDED TO SIX MONTHS MARCH 1, 1996 YEAR TO
SIX MONTHS OCTOBER OCTOBER ENDED THROUGH APRIL ENDED OCTOBER
ENDED APRIL 31, 31, APRIL 30, 30, OCTOBER 31,
30, 1996 1995(f) 1994(a)(g) 1996(h) 1996(a)(h) 31, 1995 1994(a)
----------- -------- -------- -------------- -------------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 12.15 $ 10.23 $ 10.00 $ 12.15 $12.89 $ 10.49 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Investment
Activities
Net investment
income (loss) 0.05 0.11 0.10 0.06 0.01 0.15 0.11
Net realized and
unrealized gains
(losses) on
investments 1.44 1.97 0.22 1.57 0.51 1.71 0.48
- ---------------------------------------------------------------------------------------------------------------------------
Total from
Investment
Activities 1.49 2.08 0.32 1.63 0.52 1.86 0.59
- ---------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment
income (0.05) (0.11) (0.09 ) (0.06) (0.03) (0.15) (0.10)
Net realized
gains (0.51) (0.05) -- (0.34) -- (0.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Total
Distributions (0.56) (0.16) (0.09 ) (0.40) (0.03) (0.20) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 13.08 $ 12.15 $ 10.23 $ 13.38 $13.38 $ 12.15 $ 10.49
===========================================================================================================================
Total Return
(excludes sales
charges) 12.56%(b) 20.54% 3.22 %(b) 13.67%(b) (1.00)%(b) 18.01% 5.92%(b)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of
Period (000) $ 126,785 $108,253 $66,921 $240,600 $ 87 $194,700 $118,600
Ratio of expenses
to average net
assets 1.28%(c) 1.07% 0.94 %(c) 1.33%(c) 2.05%(c) 1.04% 1.00%(c)
Ratio of net
investment income
to average net
assets 0.75%(c) 1.00% 1.10 %(c) 0.99%(c) (0.14)%(c) 1.35% 1.23%(c)
Ratio of expenses
to average net
assets* 1.40%(c) 1.42% 1.51 %(c) 1.39%(c) 2.07%(c) 1.30% 1.49%(c)
Ratio of net
investment income
(loss) to average
net assets* 0.63%(c) 0.65% 0.52 %(c) 0.93%(c) (0.16)%(c) 1.09% 0.74%(c)
Portfolio turnover 13.37% 107.13% 28.09 % 29.45% 29.45% 38.57% 17.90%
<CAPTION>
SPECIAL GROWTH FUND
-----------------------------------------------------
SIX
MONTHS YEAR JANUARY
ENDED ENDED 11, 1994
SIX MONTHS OCTOBER APRIL TO APRIL
ENDED APRIL 31, 30, 1995 30, 1994
30, 1996 1995 (d)(e) (a)(d)(e)
----------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 11.81 $ 10.54 $ 9.82 $ 10.00
- -------------------------------------------------------------------------
Investment
Activities
Net investment
income (loss) 0.00 0.00 0.02 (0.01)
Net realized and
unrealized gains
(losses) on
investments 2.56 1.27 0.72 (0.17)
- -------------------------------------------------------------------------
Total from
Investment
Activities 2.56 1.27 0.74 (0.18)
- -------------------------------------------------------------------------
Distributions
Net investment
income -- -- (0.02) --
Net realized
gains -- -- -- --
- -------------------------------------------------------------------------
Total
Distributions (0.02)
- -------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 14.37 $ 11.81 $ 10.54 $ 9.82
=========================================================================
Total Return
(excludes sales
charges) 21.68%(b) 12.05%(b) 7.51% (1.80)%(b)
RATIOS/SUPPLEMENTA
DATA:
Net Assets, End of
Period (000) $80,948 $54,335 $ 20,796 $30,867
Ratio of expenses
to average net
assets 1.44%(c) 0.65%(c) 1.04% 0.82%(c)
Ratio of net
investment income
to average net
assets (0.55)%(c) (0.13)%(c) 0.17% (0.27)%(c)
Ratio of expenses
to average net
assets* 1.54%(c) 1.40%(c) 1.35% 1.47%(c)
Ratio of net
investment income
(loss) to average
net assets* (0.66)%(c) (0.88)%(c) (0.14)% (0.38)%(c)
Portfolio turnover 19.02% 132.09% 102.00% 61.00%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Audited by other auditors.
(e) Effective June 5, 1995, the Victory Aggressive Growth Portfolio merged
into the Special Growth Fund. Financial highlights for the periods prior
to June 5, 1995 represent the Aggressive Growth Portfolio.
(f) Effective June 5, 1995, the Victory Equity Portfolio merged into the
Growth Fund, Financial highlights for the periods prior to June 5, 1995
represent the Growth Fund.
(g) Effective March 17, 1994, the Society Earnings Momentum Fund merged into the Growth Fund. Financial highlights for the
period prior to March 17, 1994 represent the Growth Fund.
(h) Effective March 1, 1996, the Fund designated the existing shares as
Class A Shares and commenced offering Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
128
<PAGE>
130
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OHIO REGIONAL STOCK FUND
-------------------------------------------------------------------------
CLASS B
SHARES
CLASS A SHARES -----------
-------------- MARCH 1,
SIX MONTHS 1996
ENDED THROUGH YEAR ENDED OCTOBER 31,
APRIL 30, APRIL 30, ----------------------------------------
1996(d) 1996(a)(d) 1995 1994 1993 1992
-------------- ----------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.94 $ 16.43 $ 14.56 $ 14.69 $ 12.12 $ 11.15
- -----------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.06 -- 0.17 0.18 0.16 0.20
Net realized and unrealized gains from
investments 2.22 1.13 2.13 0.39 2.63 1.07
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.28 1.13 2.30 0.57 2.79 1.27
- -----------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.06) (0.03) (0.18) (0.17) (0.18) (0.21)
Net realized gains (0.61) -- (0.74) (0.53) (0.04) (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.67) (0.03) (0.92) (0.70) (0.22) (0.30)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.55 $ 17.53 $ 15.94 $ 14.56 $ 14.69 $ 12.12
=======================================================================================================================
Total Return (excludes sales charges) 14.71%(b) 1.86%(b) 16.93% 3.96% 23.16% 11.50%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 44,165 $ 169 $39,048 $33,965 $34,926 $36,115
Ratio of expenses to average net assets 1.38%(c) 2.12%(c) 1.20% 1.04% 1.04% 1.04%
Ratio of net investment income to average
net assets 0.77%(c) (1.11)%(c) 1.13% 1.27% 1.17% 1.73%
Ratio of expenses to average net assets* 1.40%(c) 2.13%(c) 1.24% 1.27% 1.06%
Ratio of net investment income to average
net assets* 0.75%(c) (1.12)%(c) 1.09% 1.04% 1.15%
Portfolio turnover 3.04% 3.04% 11.44% 14.38% 7.25% 7.56%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
129
<PAGE>
131
THE VICTORY PORTFOLIOS Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH FUND
--------------------------------------------------------------------------
CLASS B
CLASS A SHARES SHARES
-------------- -----------
MARCH 1,
SIX MONTHS 1996
ENDED THROUGH YEAR ENDED OCTOBER 31,
APRIL 30, APRIL 30, -----------------------------------------
1996(e) 1996(a)(e) 1995(b) 1994 1993 1992
-------------- ----------- -------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.33 $ 12.79 $ 13.32 $ 11.93 $ 8.93 $ 9.20
- -----------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income (loss) (0.05) -- 0.05 (0.01) (0.03) (0.02)
Net realized and unrealized gains
(losses) from investments and foreign
currencies 1.06 0.54 (0.42) 1.40 3.03 (0.17)
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.01 0.54 (0.37) 1.39 3.00 (0.19)
- -----------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income -- -- -- -- -- (0.01)
Net realized gains -- -- (0.62) -- -- (0.07)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.62) -- -- (0.08)
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.34 $ 13.33 $ 12.33 $ 13.32 $ 11.93 $ 8.93
=======================================================================================================================
Total Return (excludes sales charges) 8.20%(c) (0.78)%(c) (2.50)% 11.65% 33.59% (2.08)%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $118,842 $ 64 $106,477 $81,307 $30,629 $11,091
Ratio of expenses to average net assets 1.69%(d) 2.45%(d) 1.49% 1.48% 1.46% 1.56%
Ratio of net investment income (loss) to
average net assets (0.26)%(d) 0.27%(d) 0.75% (0.51)% (0.74)% (0.20)%
Ratio of expenses to average net assets* 1.74%(d) 3.20%(d) 1.65% 1.83% 1.63% 1.72%
Ratio of net investment loss to average
net assets* (0.31)%(d) (0.49)%(d) 0.59% (0.86)% (0.91)% (0.35)%
Portfolio turnover 101.51% 101.51% 68.09% 50.66% 45.43% 91.92%
</TABLE>
- ---------------
<TABLE>
<S> <C>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Effective June 5, 1995, the Victory Foreign Markets Portfolio merged into
the International Growth Fund. Financial highlights for the periods prior
to June 5, 1995 represent the International Growth Portfolio.
(c) Not annualized.
(d) Annualized.
(e) Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
130
<PAGE>
132
By the time a child born in 1993 turns three, higher-income parents will have
spent $32,000 on him or her versus $15,800 for lower-income parents.
Last fall, according to the Investment Company Institute in Washington, D.C.
there were over 5,710 mutual funds. 100 years ago, on May 26, 1896, the recorded
history of the stock market began with the birth of the Dow Jones Industrial
Average. Created by Charles Dow, and published in "The Wall Street Journal", the
average initially consisted of twelve industrial issues. In 1909 there was a
mutual fund established in England called the "Scottish Investment Trust". The
fund's primary purpose was to invest in an emerging-market country called "The
Unitel States of America". George Marotta, Hoover Institute, Stanford University
The Victory Funds
Managed by KeyCorp
1-800-KEY-FUND
VF/SAR-RP (6/96)
VICTORY FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
BALANCED FUND
ACTUAL(WITH WAIVERS)
(a-b)
---------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)^6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
MAXIMUM FEES (without waivers)
(a-b)
---------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)^6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (without waivers)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
ACTUAL (14 BASIS POINTS WAIVED)
WITHOUT CDSC
( 1,314.03 - 581.34 )
------------------------------
= 2 *{[( +1)^6]-1} = 2.38%
( 31,865.875 * 11.66 )
WITH 5.00% CDSC:
( 1,314.03 - 581.34 )
------------------------------
= 2 *{[( +1)^6]-1} = 2.26%
( 31,865.875 * 12.24 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
FULL FEES (WITHOUT WAIVERS)
WITHOUT CDSC
( 1,314.03 - 624.01 )
------------------------------
= 2 *{[( +1)^6]-1} = 2.24%
( 31,865.875 * 11.66 )
WITH 5.00% CDSC:
( 1,314.03 - 624.01 )
------------------------------
= 2 *{[( +1)^6]-1} = 2.13%
( 31,865.875 * 12.24 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
<PAGE>
VICTORY FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
DIVERSIFIED STOCK FUND
(a-b)
----------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)^6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
WITHOUT CDSC
( 1,459.02 - 1,072.97 )
------------------------------
= 2 *{[( +1)^6]-1} = 0.59%
( 53,458.877 * 14.67 )
( 1,459.02 - 1,072.97 )
------------------------------
= 2 *{[( +1)^6]-1} = 0.56%
( 53,458.877 * 15.40 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
<PAGE>
VICTORY FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
OHIO REGIONAL STOCK FUND
(a-b)
----------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)^6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
WITHOUT CDSC
( 188.26 - 219.21 )
------------------------------
= 2 *{[( +1)^6]-1} = -0.29%
( 7,394.152 * 17.53 )
WITH 5.00% CDSC
( 188.26 - 219.21 )
------------------------------
= 2 *{[( +1)^6]-1} = -0.27%
( 7,394.152 * 18.41 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
<PAGE>
VICTORY FUNDS
EXHIBIT 16
CLASS B SHARES
30-DAY S.E.C. YIELD CALCULATIONS
SPECIAL VALUE FUND
(a-b)
----------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)^6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
WITHOUT CDSC
( 131.76 - 137.07 )
------------------------------
= 2 *{[( +1)^6]-1} = -0.08%
( 6,213.884 * 13.38 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
WITH 5.00% CDSC
( 131.76 - 137.07 )
------------------------------
= 2 *{[( +1)^6]-1} = -0.07%
( 6,213.884 * 14.05 )
The performance was computed based on the thirty day period ending
APRIL 30, 1996
<PAGE>
VICTORY FUNDS
CLASS B SHARES
DISTRIBUTION RATES
EXHIBIT 16
DISTRIBUTION RATE (including capital gains)(CDSC)
----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income and capital gain distributions)
P = The offering price (without CDSC) or the maximum
redemption price (with CDSC) per share at end of 12
month period
EXAMPLES ( 05/01/95 TO 04/30/96)
BALANCED FUND 0.4291 /12.25 = 3.50%
DIVERSIFIED STOCK FUND 1.3223 /15.40 = 8.58%
INTERNATIONAL STOCK FUND 0.0010 /14.00 = 0.01%
OHIO REGIONAL STOCK FUND 0.7583 /18.41 = 4.12%
SPECIAL VALUE FUND 0.4704 /14.05 = 3.35%
DISTRIBUTION RATE (excluding capital gains)(CDSC
----------------------------------------------------
DISTRIBUTION RATE = D/P
WHERE: D = Distributions per share over a 12 month period
(income distributions only)
P = The offering price (without CDSC) or the maximum
redemption price (with CDSC) per share at end of 12
month period
EXAMPLES ( 05/01/95 TO 04/30/96)
BALANCED FUND 0.3573 /12.25 = 2.92%
DIVERSIFIED STOCK FUND 0.2299 /15.40 = 1.49%
INTERNATIONAL STOCK FUND 0.0010 /14.00 = 0.01%
OHIO REGIONAL STOCK FUND 0.1518 /18.41 = 0.82%
SPECIAL VALUE FUND 0.1347 /14.05 = 0.96%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
DIVERSIFIED STOCK FUND
AGGREGATE TOTAL RETURN
----------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96):
( 2,398.4 /1,000) - 1 = 139.84%
YEAR TO DATE: ( 12/31/95 TO 04/30/96):
( 1,093.90 /1,000) - 1 = 9.39%
QUARTERLY: ( 01/31/96 TO 04/30/96):
( 1,063.84 /1,000) - 1 = 6.38%
MONTHLY: ( 03/31/96 TO 04/30/96):
( 1,024.44 /1,000) - 1 = 2.44%
AVERAGE ANNUAL TOTAL RETURN
---------------------------
T = ((ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96):
((2,398.4 /1,00^(1/( 2384 /365))-1) = 14.33%
1 YEAR ( 04/30/95 TO 04/30/96):
((1,311.98 /1,00^(1/( 365 /365))-1) = 31.20%
2 YEAR ( 04/30/94TO 04/30/96):
((1,571.03 /1,00^(1/( 730 /365))-1) = 25.34%
3 YEAR ( 04/30/93 TO 04/30/96):
((1,681.06 /1,00^(1/( 1095 /365))-1) = 18.90%
5 YEAR ( 04/30/91 TO 04/30/96):
((2,030.08 /1,00^(1/( 1825 /365))-1) = 15.21%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
BALANCED FUND
AGGREGATE TOTAL RETURN
----------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96):
( 1,283.5 /1,000) - 1 = 28.35%
YEAR TO DATE: ( 12/31/95 TO 04/30/96):
( 1,031.67 /1,000) - 1 = 3.17%
QUARTERLY: ( 01/31/96 TO 04/30/96):
( 1,010.77 /1,000) - 1 = 1.08%
MONTHLY: ( 03/31/96 TO 04/30/96):
( 1,003.28 /1,000) - 1 = 0.33%
AVERAGE TOTAL RETURN
--------------------
T = ((ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96):
((1,283.5 /1,00^(1/( 879 /365))-1) = 10.92%
1 YEAR ( 04/30/95 TO 04/30/96):
((1,186.74 /1,00^(1/( 365 /365))-1) = 18.67%
2 YEAR ( 04/30/94 TO 04/30/96):
((1,330.22 /1,00^(1/( 730 /365))-1) = 15.34%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
INTERNATIONAL STOCK FUND
AGGREGATE TOTAL RETURN
----------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 05/18/90 TO 04/30/96):
( 1,512.8 /1,000) - 1 = 51.28%
YEAR TO DATE: ( 12/31/95 TO 04/30/96):
( 1,047.96 /1,000) - 1 = 4.80%
QUARTERLY: ( 01/31/96 TO 04/30/96):
( 1,042.22 /1,000) - 1 = 4.22%
MONTHLY: ( 03/31/96 TO 04/30/96):
( 1,028.56 /1,000) - 1 = 2.86%
AVERAGE TOTAL RETURN
--------------------
T = ((ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 05/18/90 TO 04/30/96):
((1,512.8 /1,00^(1/( 2174 /365))-1) = 7.20%
1 YEAR ( 04/30/95 TO 04/30/96):
((1,119.32 /1,00^(1/( 365 /365))-1) = 11.93%
2 YEAR ( 04/30/94 TO 04/30/96):
((1,115.28 /1,00^(1/( 730 /365))-1) = 5.61%
3 YEAR ( 04/30/93 TO 04/30/96):
((1,329.67 /1,00^(1/( 1095 /365))-1) = 9.96%
5 YEAR ( 04/30/91 TO 04/30/96):
((1,504.94 /1,00^(1/( 1825 /365))-1) = 8.52%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
SPECIAL VALUE STOCK FUND
AGGREGATE TOTAL RETURN
----------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96):
( 1,420.3 /1,000) - 1 = 42.03%
YEAR TO DATE: ( 12/31/95 TO 04/30/96):
( 1,074.22 /1,000) - 1 = 7.42%
QUARTERLY: ( 01/31/96 TO 04/30/96):
( 1,060.62 /1,000) - 1 = 6.06%
MONTHLY: ( 03/31/96 TO 04/30/96):
( 1,029.23 /1,000) - 1 = 2.92%
AVERAGE TOTAL RETURN
--------------------
T = ((ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96):
((1,420.3 /1,00^(1/ ( 879 /365))-1) = 15.68%
1 YEAR ( 04/30/95 TO 04/30/96):
((1,234.12 /1,00^(1/( 365 /365))-1) = 23.41%
2 YEAR ( 04/30/94 TO 04/30/96):
((1,401.69 /1,00^(1/( 730 /365))-1) = 18.39%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
OHIO REGIONAL STOCK FUND
AGGREGATE TOTAL RETURN
----------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96):
( 2,238.60 /1,000) - 1 = 123.86%
YEAR TO DATE: ( 12/31/95 TO 04/30/96):
( 1,082.40 /1,000) - 1 = 8.24%
QUARTERLY: ( 01/31/96 TO 04/30/96):
( 1,085.75 /1,000) - 1 = 8.58%
MONTHLY: ( 03/31/96 TO 04/30/96):
( 1,019.19 /1,000) - 1 = 1.92%
AVERAGE TOTAL RETURN
--------------------
T = ((ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96):
((2,238.6 /1,00^(1/( 2384 /365))-1) = 13.13%
1 YEAR ( 04/30/95 TO 04/30/96):
((1,251.83 /1,00^(1/( 365 /365))-1) = 25.18%
2 YEAR ( 04/30/94 TO 04/30/96):
((1,367.31 /1,00^(1/( 730 /365))-1) = 16.93%
3 YEAR ( 04/30/93 TO 04/30/96):
((1,550.59 /1,00^(1/( 1095 /365))-1) = 15.74%
5 YEAR ( 04/30/91 TO 04/30/96):
((2,188.38 /1,00^(1/( 1825 /365))-1) = 16.96%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
DIVERSIFIED STOCK FUND
AGGREGATE TOTAL RETURN
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96 ):
WITH CDSC OF = 0.00% ( 2,398.4/1,000 -1 = 139.84%
YEAR TO DATE: ( 12/31/95 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 1,043.90/1,000-1 = 4.39%
QUARTERLY: ( 01/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 1,013.84/1,000-1 = 1.38%
MONTHLY: ( 03/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 974.44/1,000) -1 = -2.56%
AVERAGE TOTAL RETURN
T = (ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96 ):
WITH CDSC OF = 0.00% ( 2,398.4/1,000 ^(1 = 2384 /365))-1) = 14.33%
1 YEAR ( 04/30/95 TO 04/30/96 ):
WITH CDSC OF = 4.00% ( 1,271.98/1,000 ^(1 = 365 /365)) -1) = 27.20%
2 YEAR ( 04/30/94 TO 04/30/96 ):
WITH CDSC OF = 3.00% ( 1,541.03/1,000 ^(1 = 730 /365)) -1) = 24.14%
3 YEAR ( 04/30/93 TO 04/30/96 ):
WITH CDSC OF = 3.00% ( 1,651.06/1,000)^(1 = 1095 /365))-1) = 18.19%
5 YEAR ( 04/30/91 TO 04/30/96 ):
WITH CDSC OF = 1.00% ( 2,020.08/1,000)^(1 = 1825 /365))-1) = 15.10%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
BALANCED FUND
AGGREGATE TOTAL RETURN
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96 ):
WITH CDSC OF = 3.00% ( 1,253.5/1,000-1 = 25.35%
YEAR TO DATE: ( 12/31/95 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 981.67/1,000-1 = -1.83%
QUARTERLY: ( 01/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 960.77/1,000-1 = -3.92%
MONTHLY: ( 03/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 953.28/1,000)-1 = -4.67%
AVERAGE TOTAL RETURN
T = (ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96 ):
WITH CDSC OF = 3.00% ( 1,253.5/1,000^(1 = 879 /365))-1) = 9.84%
1 YEAR ( 04/30/95 TO 04/30/96 ):
WITH CDSC OF = 4.00% ( 1,146.74/1,000^(1 = 365 /365))-1) = 14.67%
2 YEAR ( 04/30/94 TO 04/30/96 ):
WITH CDSC OF = 3.00% ( 1,300.22/1,000^(1 = 730 /365))-1) = 14.03%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
INTERNATIONAL FUND
AGGREGATE TOTAL RETURN
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 05/18/90 TO 04/30/96 ):
WITH CDSC OF = 0.00% ( 1,502.8/1,000-1 = 50.28%
YEAR TO DATE: ( 12/31/95 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 997.96/1,000-1 = -0.20%
QUARTERLY: ( 01/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 992.22/1,000-1 = -0.78%
MONTHLY: ( 03/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 978.56/1,000)-1 = -2.14%
AVERAGE TOTAL RETURN
T = (ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 05/18/89 TO 04/30/96 ):
WITH CDSC OF = 0.00% (( 1,502.8/1,000^(1 = 2174 /365))-1) = 7.08%
1 YEAR ( 04/30/95 TO 04/30/96 ):
WITH CDSC OF = 4.00% (( 1,079.32/1,000^(1 = 365 /365))-1) = 7.93%
2 YEAR ( 04/30/94 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,085.28/1,000^(1 = 730 /365))-1) = 4.18%
3 YEAR ( 04/30/93 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,299.67/1,000)^(1 = 1095 /365))-1) = 8.13%
5 YEAR ( 04/30/91 TO 04/30/96 ):
WITH CDSC OF = 1.00% (( 1,494.94/1,000)^(1 = 1825 /365))-1) = 8.37%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
SPECIAL VALUE FUND
AGGREGATE TOTAL RETURN
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 12/03/89 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,390.3/1,000-1 = 39.03%
YEAR TO DATE: ( 12/31/95 TO 04/30/96 ):
WITH CDSC OF = 5.00% (( 1,024.22/1,000-1 = 2.42%
QUARTERLY: ( 01/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% (( 1,010.62/1,000-1 = 1.06%
MONTHLY: ( 03/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% (( 979.23/1,000)-1 = -2.08%
AVERAGE TOTAL RETURN
T = (ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 12/03/93 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,390.3/1,000^(1 = 879 /365))-1) = 14.66%
1 YEAR ( 04/30/95 TO 04/30/96 ):
WITH CDSC OF = 4.00% (( 1,194.12/1,000^(1 = 365 /365))-1) = 19.41%
2 YEAR ( 04/30/94 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,371.69/1,000^(1 = 730 /365))-1) = 17.12%
<PAGE>
VICTORY FUNDS
EXHIBIT 16
TOTAL RETURN
CLASS B SHARES
CDSC LOAD CALCULATIONS
OHIO REGIONAL STOCK FUND
AGGREGATE TOTAL RETURN
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96 ):
WITH CDSC OF = 0.00% ( 2,238.60/1,000-1 = 123.86%
YEAR TO DATE: ( 12/31/95 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 1,032.40/1,000-1 = 3.24%
QUARTERLY: ( 01/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 1,035.75/1,000-1 = 3.58%
MONTHLY: ( 03/31/96 TO 04/30/96 ):
WITH CDSC OF = 5.00% ( 969.19/1,000)-1 = -3.08%
AVERAGE TOTAL RETURN
T = (ERV/P)^(1/N)) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 10/20/89 TO 04/30/96 ):
WITH CDSC OF = 0.00% (( 2,238.6/1,000^(1 = 2384 /365))-1) = 13.13%
1 YEAR ( 04/30/95 TO 04/30/96 ):
WITH CDSC OF = 4.00% (( 1,211.83/1,000^(1 = 365 /365))-1) = 21.18%
2 YEAR ( 04/30/94 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,337.31/1,000^(1 = 730 /365))-1) = 15.64%
3 YEAR ( 04/30/93 TO 04/30/96 ):
WITH CDSC OF = 3.00% (( 1,520.59/1,000)^(1 = 1095 /365))-1) = 14.99%
5 YEAR ( 04/30/91 TO 04/30/96 ):
WITH CDSC OF = 1.00% (( 2,178.38/1,000)^(1 = 1825 /365))-1) = 16.85%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 041
<NAME> VICTORY OHIO REGIONAL STOCK FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 26471
<INVESTMENTS-AT-VALUE> 44353
<RECEIVABLES> 33
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26008
<SHARES-COMMON-STOCK> 2517<F1>
<SHARES-COMMON-PRIOR> 2449<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 25
<ACCUMULATED-NET-GAINS> 470
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17881
<NET-ASSETS> 44334
<DIVIDEND-INCOME> 438
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 284
<NET-INVESTMENT-INCOME> 159
<REALIZED-GAINS-CURRENT> 469
<APPREC-INCREASE-CURRENT> 5046
<NET-CHANGE-FROM-OPS> 5674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 185
<DISTRIBUTIONS-OF-GAINS> 1485
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 246<F1>
<NUMBER-OF-SHARES-REDEEMED> 281<F1>
<SHARES-REINVESTED> 103<F1>
<NET-CHANGE-IN-ASSETS> 5286
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 1486
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288
<AVERAGE-NET-ASSETS> 41276<F1>
<PER-SHARE-NAV-BEGIN> 15.940<F1>
<PER-SHARE-NII> .060<F1>
<PER-SHARE-GAIN-APPREC> 2.220<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .670<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 17.550<F1>
<EXPENSE-RATIO> 1.380<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 042
<NAME> VICTORY OHIO REGIONAL STOCK FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 26471
<INVESTMENTS-AT-VALUE> 44353
<RECEIVABLES> 33
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52
<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26008
<SHARES-COMMON-STOCK> 10<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 25
<ACCUMULATED-NET-GAINS> 470
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17881
<NET-ASSETS> 44334
<DIVIDEND-INCOME> 438
<INTEREST-INCOME> 5
<OTHER-INCOME> 0
<EXPENSES-NET> 284
<NET-INVESTMENT-INCOME> 159
<REALIZED-GAINS-CURRENT> 469
<APPREC-INCREASE-CURRENT> 5046
<NET-CHANGE-FROM-OPS> 5674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 185
<DISTRIBUTIONS-OF-GAINS> 1485
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 5286
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> 1486
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 288
<AVERAGE-NET-ASSETS> 99<F1>
<PER-SHARE-NAV-BEGIN> 16.430<F1>
<PER-SHARE-NII> .000<F1>
<PER-SHARE-GAIN-APPREC> 1.130<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 17.530<F1>
<EXPENSE-RATIO> 2.120<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 051
<NAME> VICTORY DIVERSIFIED STOCK FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 427536
<INVESTMENTS-AT-VALUE> 497590
<RECEIVABLES> 5897
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 503524
<PAYABLE-FOR-SECURITIES> 4677
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 446
<TOTAL-LIABILITIES> 5123
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 386547
<SHARES-COMMON-STOCK> 33875<F1>
<SHARES-COMMON-PRIOR> 30069<F1>
<ACCUMULATED-NII-CURRENT> 123
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 41678
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70053
<NET-ASSETS> 498401
<DIVIDEND-INCOME> 5678
<INTEREST-INCOME> 89
<OTHER-INCOME> 0
<EXPENSES-NET> 2310
<NET-INVESTMENT-INCOME> 3457
<REALIZED-GAINS-CURRENT> 41945
<APPREC-INCREASE-CURRENT> 28355
<NET-CHANGE-FROM-OPS> 73757
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3407
<DISTRIBUTIONS-OF-GAINS> 33023
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4732<F1>
<NUMBER-OF-SHARES-REDEEMED> 3731<F1>
<SHARES-REINVESTED> 2805<F1>
<NET-CHANGE-IN-ASSETS> 88852
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> 32756
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1475
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2420
<AVERAGE-NET-ASSETS> 456272<F1>
<PER-SHARE-NAV-BEGIN> 13.620<F1>
<PER-SHARE-NII> .100<F1>
<PER-SHARE-GAIN-APPREC> 1.130<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .170<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 14.680<F1>
<EXPENSE-RATIO> 1.020<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 052
<NAME> VICTORY DIVERSIFIED STOCK FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 427536
<INVESTMENTS-AT-VALUE> 497590
<RECEIVABLES> 5897
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 503524
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<OTHER-ITEMS-LIABILITIES> 446
<TOTAL-LIABILITIES> 5123
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 386547
<SHARES-COMMON-STOCK> 70<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 123
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<ACCUMULATED-NET-GAINS> 41678
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70053
<NET-ASSETS> 498401
<DIVIDEND-INCOME> 5678
<INTEREST-INCOME> 89
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<EXPENSES-NET> 2310
<NET-INVESTMENT-INCOME> 3457
<REALIZED-GAINS-CURRENT> 41945
<APPREC-INCREASE-CURRENT> 28355
<NET-CHANGE-FROM-OPS> 73757
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3407
<DISTRIBUTIONS-OF-GAINS> 33023
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 88852
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> 32756
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1475
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2420
<AVERAGE-NET-ASSETS> 516<F1>
<PER-SHARE-NAV-BEGIN> 14.180<F1>
<PER-SHARE-NII> .020<F1>
<PER-SHARE-GAIN-APPREC> .430<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .040<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 14.590<F1>
<EXPENSE-RATIO> 1.700<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 091
<NAME> VICTORY INTERNATIONAL GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 108239
<INVESTMENTS-AT-VALUE> 118510
<RECEIVABLES> 580
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119106
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 200
<TOTAL-LIABILITIES> 200
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105694
<SHARES-COMMON-STOCK> 8909<F1>
<SHARES-COMMON-PRIOR> 8637<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 152
<ACCUMULATED-NET-GAINS> 3108
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10256
<NET-ASSETS> 118906
<DIVIDEND-INCOME> 760
<INTEREST-INCOME> 22
<OTHER-INCOME> 0
<EXPENSES-NET> 926
<NET-INVESTMENT-INCOME> (144)
<REALIZED-GAINS-CURRENT> 6264
<APPREC-INCREASE-CURRENT> 2493
<NET-CHANGE-FROM-OPS> 8613
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2255<F1>
<NUMBER-OF-SHARES-REDEEMED> 1979<F1>
<SHARES-REINVESTED> 1<F1>
<NET-CHANGE-IN-ASSETS> 12429
<ACCUMULATED-NII-PRIOR> 247
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3403)
<GROSS-ADVISORY-FEES> 603
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 954
<AVERAGE-NET-ASSETS> 110258<F1>
<PER-SHARE-NAV-BEGIN> 12.330<F1>
<PER-SHARE-NII> (.050)<F1>
<PER-SHARE-GAIN-APPREC> 1.060<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.340<F1>
<EXPENSE-RATIO> 1.690<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 092
<NAME> VICTORY INTERNATIONAL GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 108239
<INVESTMENTS-AT-VALUE> 118510
<RECEIVABLES> 580
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119106
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 200
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105694
<SHARES-COMMON-STOCK> 5<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 3108
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10256
<NET-ASSETS> 118906
<DIVIDEND-INCOME> 760
<INTEREST-INCOME> 22
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<EXPENSES-NET> 926
<NET-INVESTMENT-INCOME> (144)
<REALIZED-GAINS-CURRENT> 6264
<APPREC-INCREASE-CURRENT> 2493
<NET-CHANGE-FROM-OPS> 8613
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 12429
<ACCUMULATED-NII-PRIOR> 247
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3403)
<GROSS-ADVISORY-FEES> 603
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 954
<AVERAGE-NET-ASSETS> 39<F1>
<PER-SHARE-NAV-BEGIN> 12.790<F1>
<PER-SHARE-NII> .000<F1>
<PER-SHARE-GAIN-APPREC> .054<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.330<F1>
<EXPENSE-RATIO> 2.450<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 111
<NAME> VICTORY BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 207045
<INVESTMENTS-AT-VALUE> 234156
<RECEIVABLES> 2240
<ASSETS-OTHER> 17
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 236413
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 320
<TOTAL-LIABILITIES> 320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205226
<SHARES-COMMON-STOCK> 20185<F1>
<SHARES-COMMON-PRIOR> 18255<F1>
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3670
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27113
<NET-ASSETS> 236093
<DIVIDEND-INCOME> 1720
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<EXPENSES-NET> 1362
<NET-INVESTMENT-INCOME> 3527
<REALIZED-GAINS-CURRENT> 4360
<APPREC-INCREASE-CURRENT> 9263
<NET-CHANGE-FROM-OPS> 17150
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<DISTRIBUTIONS-OF-GAINS> 1361
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<NUMBER-OF-SHARES-SOLD> 3948<F1>
<NUMBER-OF-SHARES-REDEEMED> 2444<F1>
<SHARES-REINVESTED> 426<F1>
<NET-CHANGE-IN-ASSETS> 35020
<ACCUMULATED-NII-PRIOR> 88
<ACCUMULATED-GAINS-PRIOR> 669
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1099
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1557
<AVERAGE-NET-ASSETS> 220911<F1>
<PER-SHARE-NAV-BEGIN> 11.010<F1>
<PER-SHARE-NII> .210<F1>
<PER-SHARE-GAIN-APPREC> .730<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .280<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.670<F1>
<EXPENSE-RATIO> 1.240<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 112
<NAME> VICTORY BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 207045
<INVESTMENTS-AT-VALUE> 234156
<RECEIVABLES> 2240
<ASSETS-OTHER> 17
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<TOTAL-ASSETS> 236413
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 320
<TOTAL-LIABILITIES> 320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205226
<SHARES-COMMON-STOCK> 53<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 84
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3670
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27113
<NET-ASSETS> 236093
<DIVIDEND-INCOME> 1720
<INTEREST-INCOME> 3169
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<EXPENSES-NET> 1362
<NET-INVESTMENT-INCOME> 3527
<REALIZED-GAINS-CURRENT> 4360
<APPREC-INCREASE-CURRENT> 9263
<NET-CHANGE-FROM-OPS> 17150
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<DISTRIBUTIONS-OF-INCOME> 3528
<DISTRIBUTIONS-OF-GAINS> 1361
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<NUMBER-OF-SHARES-SOLD> 53<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 35020
<ACCUMULATED-NII-PRIOR> 88
<ACCUMULATED-GAINS-PRIOR> 669
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1099
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1557
<AVERAGE-NET-ASSETS> 221<F1>
<PER-SHARE-NAV-BEGIN> 11.510<F1>
<PER-SHARE-NII> .040<F1>
<PER-SHARE-GAIN-APPREC> .140<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .050<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.640<F1>
<EXPENSE-RATIO> 1.890<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 141
<NAME> VICTORY SPECIAL VALUE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 201944
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<TOTAL-LIABILITIES> 268
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192758
<SHARES-COMMON-STOCK> 17978<F1>
<SHARES-COMMON-PRIOR> 16026<F1>
<ACCUMULATED-NII-CURRENT> 75
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<ACCUMULATED-NET-GAINS> 11587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36267
<NET-ASSETS> 240687
<DIVIDEND-INCOME> 2461
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<OTHER-INCOME> 0
<EXPENSES-NET> 1429
<NET-INVESTMENT-INCOME> 1072
<REALIZED-GAINS-CURRENT> 11618
<APPREC-INCREASE-CURRENT> 15070
<NET-CHANGE-FROM-OPS> 27760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1054
<DISTRIBUTIONS-OF-GAINS> 5473
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3234<F1>
<NUMBER-OF-SHARES-REDEEMED> 1808<F1>
<SHARES-REINVESTED> 528<F1>
<NET-CHANGE-IN-ASSETS> 45987
<ACCUMULATED-NII-PRIOR> 57
<ACCUMULATED-GAINS-PRIOR> 5442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1079
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1497
<AVERAGE-NET-ASSETS> 217032<F1>
<PER-SHARE-NAV-BEGIN> 12.150<F1>
<PER-SHARE-NII> .060<F1>
<PER-SHARE-GAIN-APPREC> 1.570<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .400<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.380<F1>
<EXPENSE-RATIO> 1.330<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000802716
<NAME> THE VICTORY PORTFOLIOS
<SERIES>
<NUMBER> 142
<NAME> VICTORY SPECIAL VALUE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 201944
<INVESTMENTS-AT-VALUE> 238210
<RECEIVABLES> 2727
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 240955
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 268
<TOTAL-LIABILITIES> 268
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 192758
<SHARES-COMMON-STOCK> 7<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 75
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11587
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36267
<NET-ASSETS> 240687
<DIVIDEND-INCOME> 2461
<INTEREST-INCOME> 40
<OTHER-INCOME> 0
<EXPENSES-NET> 1429
<NET-INVESTMENT-INCOME> 1072
<REALIZED-GAINS-CURRENT> 11618
<APPREC-INCREASE-CURRENT> 15070
<NET-CHANGE-FROM-OPS> 27760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1054
<DISTRIBUTIONS-OF-GAINS> 5473
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 0<F1>
<NET-CHANGE-IN-ASSETS> 45987
<ACCUMULATED-NII-PRIOR> 57
<ACCUMULATED-GAINS-PRIOR> 5442
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1079
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1497
<AVERAGE-NET-ASSETS> 70<F1>
<PER-SHARE-NAV-BEGIN> 12.890<F1>
<PER-SHARE-NII> .010<F1>
<PER-SHARE-GAIN-APPREC> .510<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.380<F1>
<EXPENSE-RATIO> 2.050<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
