Rule 497(c)
Registration No. 33-8982
Victory Funds
PROSPECTUS
THE VICTORY REAL ESTATE INVESTMENT FUND
800-KEY-FUND(R) or 800-539-3863
March 1, 1997
As Supplemented April 30, 1997
TABLE OF CONTENTS
Introduction 3
Investment Objective, Policies, and Strategies 5
An analysis which includes objective, policies, strategies, and expenses
Fund Expenses
Risk Factors 7
Investment Limitations 8
Investment Performance 9
Share Price 9
Dividends, Distributions, and Taxes 10
Investing with Victory 12
Calculation of Sales Charges 12
How to Purchase Shares 14
How to Exchange Shares 16
How to Redeem Shares 17
Organization and Management of the Fund 18
Additional Information 20
Other Securities and Investment Practices 21
Shares of the Fund are:
Not insured by the FDIC;
Not deposits or other obligations of, or guaranteed by, any KeyBank, any of its
affiliates, or any other bank;
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 Securities and Exchange Commission or any such state authority passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
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THE VICTORY PORTFOLIOS
THE VICTORY REAL ESTATE INVESTMENT FUND
800-KEY-FUND(R)
800-539-3863
This prospectus describes the Real Estate Investment Fund (the Fund). The Fund
is a diversified mutual fund and is a part of The Victory Portfolios (Victory),
an open-end investment management company. This prospectus explains the
objectives, policies, risks, and strategies of the Fund. You should read this
prospectus before investing in the Fund and keep it for future reference. A
detailed Statement of Additional Information (SAI) describing the Fund is also
available for your review. The SAI has been filed with the Securities and
Exchange Commission (SEC), and is incorporated into this prospectus by
reference. If you would like a free copy of the SAI, please request one by
calling us at 800-KEY-FUND.
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KEY TO FUND INFORMATION
OBJECTIVE AND STRATEGY
The goals and the strategy that the Fund plans to use in pursuing its investment
objective.
RISK FACTORS
The risks that you may assume as an investor in the Fund.
EXPENSES
The costs that you will pay as an investor in the Fund, including sales charges
and ongoing expenses.
Investment Objective and Strategy
Objective The Real Estate Investment Fund seeks to provide total return
through investments in real estate-related securities.
Strategy The Fund pursues its investment objective by investing primarily
in common stocks, including real estate investment trusts
(REITs), rights to purchase these securities, convertible
securities and preferred stocks. Please review "Investment
Objective, Policies, and Strategies" and "Other Securities and
Investment Practices" for an overview of the Fund.
Risk Factors
The Fund is not insured by the FDIC. Since equity securities fluctuate in value,
the Fund's shares also will fluctuate in value. Because the Fund invests in
REITs, the Fund is subject to risks similar to those associated with direct
investments in real estate. In addition, there are other potential risks which
are discussed in the section "Risk Factors."
Who Should Invest
Investors willing to accept higher risk along with higher potential long-term
returns
Investors seeking total return over the long-term with some current income
Investors who are investing for goals that are many years in the future
Investors seeking to participate in the real estate market through indirect
investment in real estate securities and who can bear the risks associated with
this investment.
Fees and Expenses
You may pay a sales charge of up to 4.75% of the offering price, depending on
the amount you invest. You also will incur expenses for investment advisory,
management, administrative, and shareholder services, all of which are included
in the Fund's expense ratio.
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Purchases
The minimum initial investment is $500 for most accounts ($250 for Individual
Retirement Accounts) and $25 thereafter. The initial investment must be
accompanied by the Fund's Account Application. Fund shares may be purchased by
check, Automated Clearing House, or wire. See "How to Purchase Shares."
Redemptions
You can redeem Fund shares by written request or telephone. When the Transfer
Agent receives a redemption request in proper form, the Fund will redeem the
shares and credit your bank account or send the proceeds to the address
designated on your Account Application. See "How to Redeem Shares."
Dividends/Distributions
Ordinarily, the Fund declares and pays dividends from its net investment income
quarterly. Any net capital gains realized by the Fund are paid as dividends at
least annually. The Fund can send your dividends directly to you by mail, credit
them to your bank account, reinvest them in the Fund, or invest them in another
fund of the Victory Group. The "Victory Group" includes other funds of The
Victory Portfolios and Key Mutual Funds. You can make this choice when you fill
out an Account Application. See "Dividends, Distributions, and Taxes."
Other Services
Victory offers a number of other services to better serve shareholders including
exchange privileges and automated investment and withdrawal plans. See "How to
Exchange Shares" and "How to Redeem Shares." Our toll-free fax number is
800-529-2244. You can reach Victory's Telecommunication Device for the Deaf
(TDD) at 800-970-5296.
General Information about
The Real Estate Investment Fund
Inception Date 4/30/97
Estimated Annual 1.40%
Expenses After Waivers
(as a percentage of net assets)
Maximum Sales Charge 4.75%
The following pages provide you with an overview of the Fund. Please look at the
objective, policies, strategies, risks, expenses, and financial history to
determine whether the Fund will suit your risk tolerance and investment needs.
You should also review the "Other Securities and Investment Practices" section
for additional information about the individual securities in which the Fund can
invest and the risks related to these investments.
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Investment Objective, Policies, and Strategies
Investment Objective
The Real Estate Investment Fund seeks to provide total return through
investments in real estate-related securities.
Investment Policies and Strategy
The Real Estate Investment Fund pursues its investment objective by investing at
least 80% of the Fund's total assets in real estate-related companies.
Under normal market conditions, the Fund will invest substantially all of its
assets in:
Equity securities (including equity and mortgage REITs)
Rights or warrants to purchase common stocks
Securities convertible into common stocks when the Fund's investment adviser
thinks that the conversion will be profitable
Preferred stocks
The Real Estate Investment Fund may also invest up to 20% of its total assets in
securities of foreign real estate companies.
For more information about other securities in which the Fund can invest, see
"Other Securities and Investment Practices" and the SAI.
Risk
The Real Estate Investment Fund is designed for long-term investors. The Fund is
subject to the risks common to all mutual funds and the risks common to mutual
funds that invest in equity securities. In addition, the Real Estate Investment
Fund is subject to the risks related to direct investment in real estate. By
itself, the Real Estate Investment Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
Portfolio Management
Patrice Derrington and Richard E. Salomon are the Portfolio Managers of the
Fund, positions they have held since the Fund's registration in March 1997.
Patrice Derrington is a Director and Portfolio Manager of Key Asset Management
Inc. (KAM or the Adviser), and has been in the real estate, investment, and
finance business since 1991. Richard E. Salomon is the President and Senior
Managing Director of KAM, and has been in the investment advisory business since
1982.
Please read "Risk Factors" carefully before investing.
Adviser: Key Asset Management, Inc. (KAM)
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Fund Expenses
This section will help you understand the costs and expenses you will pay,
directly or indirectly, if you invest in the Fund.
Shareholder CLASS A
Transaction Shares
Expenses(1)
Maximum Sales Charge 4.75%
Imposed on Purchases
(as a percentage
of the offering price)
Sales Charge Imposed NONE
on Reinvested Dividends
Deferred Sales Charge NONE
Redemption Fees NONE
Exchange Fees NONE
(1) You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
Annual Fund CLASS A
Operating Expenses Shares
After Expense Waiver and Reimbursements
(as a percentage of average daily net assets)
Management Fees(1) 0%
Rule 12b-1 Distribution Fees(1) 0%
Other Expenses(2) 0%
------
Total Fund Operating Expenses(1) 0%
(1) All fees and expenses are being voluntarily waived or reimbursed. Without
the waiver and reimbursement, the annual Management Fee would be 1.00%,
Other Expenses would be .69%, and the otal Fund Operating Expenses would
be 1.69%.
(2) "Other Expenses" includes an estimate of shareholder servicing fees the
Fund expects to pay. See "Organization and Management of the
Fund--Shareholder Servicing Plan."
The Annual Fund Operating Expenses table illustrates the estimated operating
expenses that you will incur as a shareholder of the Fund. These expenses are
charged directly to the Fund. Expenses include management fees as well as the
costs of maintaining accounts, administering the Fund, providing shareholder
services, and other activities. The expenses shown are estimated based on
historical or projected expenses of the Fund.
Example:
You would pay the following expenses on a $1,000 investment in the Fund,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period.
1 Year 3 Years
Real Estate Investment Fund $0 $0
This example is only an illustration.
Actual expenses and returns will vary.
This example is designed to help you understand the various costs you will bear,
directly or indirectly, as an investor in the Fund.
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Risk Factors
This prospectus describes some of the risks that you may assume as an investor
in the Fund. By matching your investment objective with a comfortable level of
risk, you can create your own customized investment plan. Some limitations on
the Fund's investments are described in the section that follows. "Other
Securities and Investment Practices" at the end of this prospectus provides
additional information on the securities mentioned in the overview of the Fund.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive total return over time. The Fund's price, yield, and total
return will fluctuate. You may lose money if the Fund's investments do not
perform well.
The following risks are common to all mutual funds:
Market risk is the risk that the market value of a security will fluctuate,
depending on the supply and demand for that type of security. As a result of
this fluctuation, a security may be worth less than the price the Fund
originally paid for it, or less than the security was worth at an earlier time.
Market risk may affect a single security, an industry, a sector of the economy,
or the entire market, and is common to all investments.
Manager risk is the risk that the Fund's Portfolio Manager may use a strategy
that does not produce the intended result.
The following risks are common to mutual funds that invest in equity securities:
Equity risk is the risk that the value of the security will fluctuate in
response to changes in earnings or other conditions affecting the issuer's
profitability. Unlike debt securities, which have preference to a company's
earnings and cash flow, equity securities are entitled to the residual value
after the company meets its other obligations. For example, holders of debt
securities have priority over holders of equity securities to a company's assets
in the event of bankruptcy.
The following risks are common to mutual funds that invest in real estate
securities:
Real estate risk is the risk that the value of a security will fluctuate because
of changes in property values, vacancies of rental properties, overbuilding,
changes in local laws, increased property taxes and operating expenses, and
other risks associated with real estate. While the Fund will not invest directly
in real estate, it may be subject to the risks associated with direct ownership.
Equity REITs* may be affected by changes in property value, while mortgage
REITs** may be affected by credit quality.
Regulatory risk. Certain REITs may fail to qualify for pass-through of income
under federal tax law, or to maintain their exemption from the registration
requirements under federal securities laws.
Concentration and diversification risk is the risk that only a limited number of
high-quality securities of a particular type may be available. Concentration and
diversification risk is greater for a fund that invests in the securities of a
particular industry, like the real estate industry.
It is important to keep in mind one basic principle of investing: the greater
the risk, the greater the potential reward. The reverse is also generally true:
the lower the risk, the lower the potential reward.
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Foreign issuer and currency risk. Foreign real estate securities involve
additional risks. Foreign issuers may not be subject to uniform accounting,
auditing and financial reporting standards and practices used by domestic
issuers. In addition, foreign securities markets may be less liquid, more
volatile, and less subject to governmental supervision than in the U.S.
Investments in foreign countries could be affected by factors not present in the
U.S., including expropriation, confiscation of property, and difficulties in
enforcing contracts. Currency risk is the risk that fluctuations in the exchange
rates between the U.S. dollar and foreign currencies may negatively affect an
investment. Adverse changes in rates may erode or reverse gains produced by
investments denominated in foreign currencies.
*Equity REITs may own property, generate income from rental and lease payments,
and offer the potential for growth from property appreciation and periodic
capital gains from the sale of property.
**Mortgage REITs earn interest income and are subject to credit risks, like the
chance that a developer may fail to repay a loan.
Investment Limitations
To help reduce risk, the Fund has adopted limitations on some investment
policies. These limits involve the Fund's ability to borrow money and the amount
it can invest in various types of securities, including illiquid securities.
Certain limitations can be changed only with the approval of shareholders.
Victory's Board of Trustees can change other investment limitations without
shareholder approval. See "Other Securities and Investment Practices" and the
SAI for more information.
The Fund limits to 25% of total assets the amount it may invest in any single
issuer (other than U.S. Government obligations). The Fund limits its borrowing
to 33-1/3% of its total assets. Borrowing would be in the form of selling a
security that it owns and agreeing to repurchase that security later at a higher
price. The Fund will not borrow for leverage purposes.
Diversification Requirements
SEC Requirement: The Fund is not "diversified" according to certain federal
securities provisions regarding diversification of its assets. As a
non-diversified investment company, the Fund may devote a larger portion of its
assets to the securities of a single issuer than if it were diversified.
IRS Requirement: The Fund also intends to comply with certain federal tax
requirements regarding the diversification of its assets. Generally, under those
requirements, the Fund must invest at least 50% of its total assets so that no
more than 5% of its total assets are invested in the securities of any one
issuer (excluding U.S. Government securities). These diversification provisions
and requirements are discussed in the SAI.
The SEC and IRS have certain restrictions with which all mutual funds must
comply. The Fund monitors these limitations on an ongoing basis.
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Investment Performance
Victory may advertise the performance of the Fund by comparing it to other
mutual funds with similar objectives and policies. Performance information may
also appear in various publications. Any fees charged by Investment
Professionals may not be reflected in these performance calculations.
Performance information is contained in the annual and semi-annual reports. You
may obtain a copy of the annual and semi-annual reports free of charge by
calling 800-KEY-FUND.
The "30-day yield" is an "annualized" figure--the amount you would earn if you
stayed in the Fund for a year and the Fund continued to earn the same net
interest income throughout that year. To calculate 30-day yield, the Fund's net
investment income per share for the most recent 30 days is divided by the
maximum offering price per share.
To calculate "total return," the Fund starts with the total number of shares
that you can buy for $1,000 at the beginning of the period. Then the Fund adds
all dividends and distributions paid as if they were reinvested in additional
shares. This takes into account the Fund's dividend distributions, if any. The
total number of shares is multiplied by the net asset value on the last day of
the period and the result is divided by the initial $1,000 investment to
determine the percentage gain or loss. For periods of more than one year, the
cumulative total return is adjusted to get an average annual total return.
Yield is a measure of net dividend income.
Average annual total return is a hypothetical measure of past dividend income
plus capital appreciation. It is the sum of all parts of the Fund's investment
return for periods greater than one year.
Total return is the sum of all parts of the Fund's investment return.
Whenever you see information on a Fund's performance, do not consider the past
performance to be an indication of the performance you could expect by making an
investment in the Fund today. The past is an imperfect guide to the future.
History does not always repeat itself.
Past performance does not guarantee future results. You may obtain the current
30-day yield by calling 800-KEY-FUND. Our Shareholder Servicing representatives
are available from 8:00 a.m. to 7:00 p.m. Eastern Time Monday through Friday.
Share Price
The daily NAV is useful to you as a shareholder because the NAV, multiplied by
the number of Fund shares you own, gives you the dollar amount and value of your
investment.
The Fund's share price, called its net asset value (NAV), is calculated each
business day (normally at 4:00 p.m. Eastern time). Shares are purchased at the
next share price calculated after your investment instructions are received and
accepted. A business day is a day on which the New York Stock Exchange is open
for trading or any day in which enough trading has occurred in the securities
held by the Fund to materially affect the NAV. If your account is established
with an Investment Professional or a bank, you may not be able to purchase or
sell shares on other holidays when the Federal Reserve Bank of Cleveland is
closed.
The NAV is calculated by adding up the total value of the Fund's investments and
other assets, subtracting its liabilities, and then dividing that figure by the
number of outstanding shares of the Fund:
Total Assets-Liabilities
NAV = -----------------------------
Number of Shares Outstanding
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Dividends, Distributions, and Taxes
As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Fund passes its earnings along to investors in
the form of dividends. Dividend distributions are the net dividends or interest
earned on investments after expenses. If the Fund makes a capital gain
distribution, it is paid once a year. As with any investment, you should
consider the tax consequences of an investment in the Fund.
Ordinarily, the Fund declares and pays dividends from its net investment income
quarterly. The Fund pays any net capital gains realized as dividends at least
annually. Distributions can be received in one of the following ways:
Your choice of distribution should be set up on the original Account
Application. If you would like to change the option you selected, please call
the Transfer Agent at 800-KEY-FUND.
Reinvestment Option
You can have distributions automatically reinvested in additional shares of the
Fund. If you do not indicate another choice on your Account Application, this
option will be assigned to you automatically.
Cash Option
A check will be mailed to you no later than 7 days after the pay date.
Income Earned Option
Dividends can be reinvested automatically in the Fund and your capital gains can
be paid in cash, or capital gains can be reinvested and dividends paid in cash.
Directed Dividends Option
You can have distributions automatically reinvested in shares of another fund of
the Victory Group. The "Victory Group" includes other funds of the Victory
Portfolios and Key Mutual Funds. If distributions from Class A are reinvested in
Class A shares of another fund, you will not pay a sales charge on the
reinvested distributions.
Directed Bank Account Option
In most cases, you can have distributions automatically transferred to your bank
checking or savings account. Under normal circumstances, a dividend will be
transferred within 7 days of the dividend payment date. The bank account must
have a registration identical to that of your Fund account.
Buying a Dividend. You should check the Fund's distribution schedule before you
invest. If you buy shares of the Fund shortly before it makes a distribution,
some of your investment may come back to you as a taxable distribution.
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Important Information about Taxes
The Fund intends to qualify as a regulated investment company, in which case it
pays no federal income tax on the earnings or capital gains it distributes to
its shareholders.
Ordinary dividends from the Fund are taxable as ordinary income; dividends from
the Fund's long-term capital gains are taxable as capital gain.
Dividends are treated in the same manner for federal income tax purposes whether
you receive them in cash or in additional shares. It is likely that they will
also be subject to state and local taxes.
Dividends from interest on certain U.S. Government obligations held by the Fund
may be exempted from some state and local taxes. You will receive a statement at
the end of each year showing which dividends are exempt. The Fund, however,
expects dividends of this kind to be minimal.
Certain dividends paid to you in January will be taxable as if they had been
paid to you the previous December.
Tax statements will be mailed from the Fund every January showing the amounts
and tax status of distributions made to you.
Because your tax treatment depends on your purchase price and tax position, you
should keep your regular account statements for use in determining your tax.
You should review the more detailed discussion of federal income tax
considerations in the SAI.
THE TAX INFORMATION IN THIS PROSPECTUS IS PROVIDED AS GENERAL INFORMATION. YOU
SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT
IN THE FUND.
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Investing with Victory
If you are looking for a convenient way to open an account for yourself or a
minor child, or to add money to an existing account, Victory can help. The
sections that follow will serve as a guide to your investments with Victory. The
following sections will describe how to open an account, how to access
information on your account, and how to purchase, exchange, and redeem shares of
the Fund. We want to make it simple for you to do business with us. If you have
questions about any of this information, please call your Investment
Professional or one of our customer service representatives at 800-KEY-FUND.
They will be happy to assist you.
This Fund offers only Class A shares. Class A shares have a front end sales
charge of 4.75%.
All you need to do to get started is to fill out an application.
Calculation of Sales Charges
Shares are sold at their public offering price, which includes the initial sales
charge. The sales charge as a percentage of your investment decreases as the
amount you invest increases. The current sales charge rates and commissions paid
to Investment Professionals are as follows:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Dealer Reallowance
Your Investment As a Percentage As a Percentage As a Percentage
of Offering Price of Your Investment of the Offering Price
<S> <C> <C> <C>
Up to $50,000 4.75% 4.99% 4.00%
$50,000 up to $100,000 4.50% 4.71% 4.00%
$100,000 up to $250,000 3.50% 3.63% 3.00%
$250,000 up to $500,000 2.25% 2.30% 2.00%
$500,000 up to $1,000,000 1.75% 1.78% 1.50%
$1,000,000 and above<F1> 0.00% 0.00% <F1>
<FN>
<F1> There is no initial sales charge on purchases of $1 million or more.
However, a contingent deferred sales charge (CDSC) of up to 1.00% of the
purchase price will be charged to the shareholder if shares are redeemed in the
first year after purchase, or at .50% within two years of the purchase. This
charge will be based on either the cost of the shares or net asset value, at the
time of redemption, whichever is lower. There will be no CDSC on reinvested
distributions. Investment Professionals may be paid at a rate of up to 1.00% of
the purchase price.
</FN>
</TABLE>
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.
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Sales Charge Reductions and Waivers
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
You may qualify for reduced sales charges in the following cases:
A Letter of Intent lets you purchase Class A shares of the Fund over a 13-month
period and receive the same sales charge as if all shares had been purchased at
one time. You must start with a minimum initial investment of 5% of the total
amount.
Rights of Accumulation allow you to add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge at the time of purchase.
You can combine Class A shares of multiple Victory Funds (except money market
funds) for purposes of calculating the sales charge. The combination privilege
also allows you to combine the total investments from the accounts of household
members of your immediate family (spouse and children under the age of 21) for a
reduced sales charge at the time of purchase.
Waivers for certain investors:
Current and retired Fund Trustees, directors, trustees, employees, and family
members of employees of KeyCorp or "Affiliated Providers"*, dealers who have an
agreement with the Distributor, and any trade organization to which the Adviser
or the Administrator belong.
Investors who purchase shares for trust or other advisory accounts established
with KeyCorp or its affiliates.
Investors who reinvest a distribution from a deferred compensation plan, agency,
trust, or custody account that was maintained by KeyBank National Association
and its affiliates, the Victory Group, or who invested in a fund of the Victory
Group.
Investors who reinvest shares from another mutual fund complex or the Victory
Group within 90 days after redemption, if they paid a sales charge for those
shares.
Investment Professionals who purchase Fund shares for fee-based investment
products or accounts, and selling brokers and their sales representatives.
*Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to Victory and Key Mutual Funds (the Victory
Group).
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How to Purchase Shares
Shares can be purchased in a number of different ways. You can send in your
investment by check, wire transfer, exchange from another Victory Fund, or
through arrangements with your Investment Professional. An Investment
Professional is a salesperson, financial planner, investment adviser, or trust
officer who provides you with investment information. Sometimes they will charge
you for these services. Their fee will be in addition to, and unrelated to, the
fees and expenses charged by the Fund.
All you need to do to get started is to fill out an application.
Keep the following addresses handy for purchases, exchanges, or redemptions.
Regular U.S. Mail Address
Send completed Account Application with your check, bank draft, or money order
to:
The Victory Funds
P. O. Box 8527
Boston, MA 02266-8527
Overnight Mail Address
Use the following address ONLY for
overnight packages:
The Victory Funds
c/o Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
PHONE: 800-KEY-FUND
Wire Address
The Transfer Agent does not charge a wire fee, but your originating bank may
charge a fee. Always call the Transfer Agent at 800-KEY-FUND BEFORE wiring funds
to obtain a control number.
State Street Bank and Trust Co.
ABA #011000028
For Credit to DDA
Account #9905-201-1
For Further Credit to Account #
(insert account number, name,
and control number assigned
by the Transfer Agent).
Telephone
800-KEY-FUND
800-539-3863
Fax Number:
800-529-2244
Telecommunication
Device for the Deaf
(TDD):
800-970-5296
Make your check payable to:
The Victory Funds
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ACH
After your account is set up, your purchase amount can be transferred by
Automated Clearing House (ACH). Only domestic members banks may be used. It
takes about 15 days to set up the ACH feature. A fee is not currently being
charged for ACH transfers.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, account activity will be detailed in their
statements to you. Share certificates are not issued. Twice a year, you will
receive the financial reports of the Fund. By January 31 of each year, you will
be mailed an IRS form reporting distributions for the previous year, which will
also be filed with the IRS.
Systematic Investment Plan
To enroll in the Systematic Investment Plan, you should check this box on the
Account Application. We will need your bank account information and the amount
and frequency of your investment. You can select monthly, quarterly,
semi-annual, or annual investments. You should attach a voided personal check so
the proper information can be obtained. You must first meet the minimum
investment requirement of $500, then we will make automatic withdrawals of the
amount you indicate ($25 or more) from your bank account and invest it into
shares of the Fund.
Retirement Plans
You can use the Fund as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax sheltered
plans. Please contact your Investment Professional or the Fund for details
regarding an IRA or other retirement plan that works best for your financial
situation.
All purchases must be made in U.S. Dollars and drawn on U.S. banks. The Transfer
Agent may reject any purchase order, at its sole discretion. If your check is
returned for any reason, you may be charged for any resulting fees and/or
losses. Third party checks will not be accepted. You may only invest or exchange
into fund shares legally available in your state. If your account falls below
$500, we may ask you to re-establish the minimum investment. If you do not do so
within 60 days, we may close your account and send you the value of your
account.
If you would like to make additional investments after your account is already
established, use the Investment Stub attached to your statement and send it with
your check to the address indicated.
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How to Exchange Shares
An exchange is the selling of shares of one fund of the Victory Group to
purchase shares of another. You may exchange shares of one Victory fund for
shares of the same class of any other, generally without paying any additional
sales charges. The "Victory Group" includes funds offered as a part of the
Victory Funds and Key Mutual Funds. Key Mutual Funds is affiliated with KeyCorp.
You can obtain a list of funds available for exchange by calling the Transfer
Agent at 800-KEY-FUND.
You can exchange shares of the Fund by writing or calling the Transfer Agent at
800-KEY-FUND. When you exchange shares of the Fund, you should keep the
following in mind:
Shares of the fund selected for exchange must be available for sale in your
state of residence.
The prospectus of the Fund and the fund whose shares you want to buy must offer
the exchange privilege.
Shares of the Fund may be exchanged at relative net asset value. This means that
if you own Class A shares of the Fund, you can only exchange them for Class A
shares of another fund and not pay a sales charge.
You must meet the minimum purchase requirements for the fund you purchase by
exchange.
The registration and tax identification numbers of the two accounts must be
identical.
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.
Before exchanging, read the prospectus of the fund you wish to purchase by
exchange.
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How to Redeem Shares
If we receive your request by 4:00 p.m. Eastern time, your redemption will be
processed the same day.
By Telephone
The easiest way to redeem shares is by calling 800-KEY-FUND. When you fill out
your original application, be sure to check the box marked "Telephone
Authorization." Then when you are ready to redeem, call us and tell us which one
of the following options you would like to use:
Mail a check to the address of record;
Wire funds to a domestic financial institution;
Mail to a previously designated alternate address; or
Electronically transfer the funds via ACH.
All telephone calls are recorded for your protection and measures are taken to
verify the identity of the caller. If we properly act on telephone instructions
and follow reasonable procedures to ensure against unauthorized transactions,
neither Victory, nor its servicing agents, the Adviser, nor the Transfer Agent
will be responsible for any losses. If these procedures are not followed, the
Transfer Agent may be liable to you for losses resulting from unauthorized
instructions.
If there is an unusual amount of market activity and you cannot reach the
Transfer Agent by telephone, consider placing your order by mail.
By Mail
Use the Regular U.S. Mail or Overnight Mail Address to redeem shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. All account owners must sign. A signature
guarantee is required for the following redemption requests:
Redemptions over $10,000;
Your account registration has changed within the last 15 days;
The check is not being mailed to the address on your account;
The check is not being made payable to the owner of the account; or
If the redemption proceeds are being transferred to another Victory Group
account with a different registration.
A signature guarantee can be obtained from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
There are a number of convenient ways to redeem shares of the Fund. You can use
the same mailing addresses listed for purchases. You will earn dividends up to
the date your redemption request is processed.
By Wire
If you want to redeem funds by wire, you must establish a Fund account which
will accommodate wire transactions. If you call by 4:00 p.m. Eastern time, your
funds will be wired on the next business day.
By ACH
Normally, your redemption will be processed on the same day or the next day if
we receive your instructions after 4:00 p.m. Eastern Time. It will be
transferred by ACH as long as the transfer is to a domestic bank.
If you check the Systemaatic Withdrawal Plan box on the Account Application, we
will send monthly, quarterly, semi-annual, or annual payments to the person you
designate.
Under certain emergency circumstances, the right of redemption may be suspended.
Redemption proceeds from the sale of shares purchased by a check may be held
until the purchase check has cleared. If you request a complete redemption, any
dividends declared will be included with the redemption proceeds.
Systematic Withdrawal Plan
The minimum withdrawal is $25, and you must have an account value of $5,000 or
more to start withdrawals. Once again, we will need a voided personal check to
activate this feature. You should be aware that your account eventually may be
depleted. However, you cannot automatically close your account using the
Systematic Withdrawal Plan. If your account value falls below $500, we may ask
you to bring the account back to the $500 minimum. If you decide not to increase
your account to the minimum balance, your account may be closed and the proceeds
mailed to you.
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<PAGE>
Organization and Management of the Fund
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Fund to
service its shareholders. They are paid a fee for their services.
The Funds are supervised by the Board of Trustees, who monitor the services
provided to investors.
About Victory
The Fund is a member of the Victory Funds, a group of 26 distinct investment
portfolios, organized as a Delaware business trust. Some of the Victory Funds
have been operating continuously since 1983.
The Board of Trustees of Victory has the overall responsibility for the
management of the Fund. They are elected by the shareholders.
The Investment Advisers
One of the Fund's most important contracts is its Advisory Agreement with Key
Asset Management Inc. (KAM or the Adviser), a New York Corporation registered as
an investment adviser with the SEC. KAM is a subsidiary of KeyBank National
Association, a wholly-owned subsidiary of KeyCorp. On February 28, 1997, KAM
became the surviving corporation after the reorganization of four indirect
investment adviser subsidiaries of KeyCorp. Affiliates of the Adviser manage
approximately $51 billion for a limited number of individual and institutional
clients.
The Advisory Agreement allows the Adviser to hire employees. It also allows KAM
to choose brokers or dealers to handle the purchases and sales of the Fund's
securities. Subject to Board approval, Key Investments, Inc. (KII) and/or Key
Clearing Corporation (KCC) may act as clearing broker for the Fund's security
transactions in accordance with procedures adopted by the Fund, and receive
commissions or fees in connection with their services to the Fund. Both KII and
KCC are wholly-owned indirect subsidiaries of KeyCorp and affiliates of the
adviser.
KAM will be paid a monthly fee of 1.00% of the Fund's average annual daily net
assets as its advisory fee.
Management of the Fund
Trustees
Supervise the Fund's activities.
Investment Adviser
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Manages the Fund's business
and investment activities.
The Administrator, Distributor,
and Fund Accountant
BISYS Fund Services is the Administrator and Distributor. BISYS is paid a fee of
at an annual rate of .15% of the Fund's average daily net assets as the
Administrator, but does not charge a fee for its services as Distributor. KAM
serves as Fund Accountant and receives a fee for those accounting services.
The Distributor may provide sales support, including cash or other compensation
to dealers for selling shares of the Fund. Payments may be in the form of trips,
tickets, and/or merchandise offered through sales contests. It does this at its
own expense, and not at the expense of the Fund or its shareholders.
Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan. The shareholder servicing
agent performs a number of services for its customers who are shareholders of
the Fund. It establishes and maintains accounts and records, processes dividend
and distribution payments, arranges for bank wires, assists in transactions, and
changes account information. For these services the Fund pays up to .25% of the
average daily net assets of the Fund serviced by the agent. The Fund may enter
into agreements with
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<PAGE>
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers.
Shareholder servicing agents may waive all or a portion of their fee
periodically.
Distribution Plan
Under Rule 12b-1 of the Investment Company Act of 1940, Victory has adopted a
Distribution and Service Plan for the Fund. The Fund does not currently pay
expenses under this plan.
Independent Accountants
Coopers & Lybrand L.L.P. serves as independent accountants to the Fund.
Legal Counsel
Kramer, Levin, Naftalis & Frankel serves as legal counsel to the Fund.
Additional information about the Organization and Management of the Fund.
How the Fund is Organized
Shareholders
Financial Services Firms and their
Investment Professionals
Advise current and prospective
shareholders on their fund investments.
Transfer Agent/Servicing Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping, statements, processing of buy and sell
requests, distribution of dividends, and servicing of shareholders' accounts.
Administrator and Distributor
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
Markets the Fund and distributes shares through Investment Professionals.
Custodian
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
Provides for safekeeping of the
Fund's investments and cash, and
settles trades made by the Fund.
Fund Accountant
Key Asset Management Inc.
45 Rockefeller Plaza
New York, NY 10111
Calculates the value of shares.
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<PAGE>
Additional Information
Some additional information you should know about the Fund.
If you would like to receive additional copies of any materials, please call the
Fund at 800-KEY-FUND.
The Fund offers only the class of shares described in this prospectus, but at
some future date, the Fund may offer additional classes of shares through a
separate prospectus.
Your Rights as a Shareholder
All shareholders have equal voting, liquidation, and other rights. As a
shareholder of the Fund, you have rights and privileges similar to those enjoyed
by other corporate shareholders. Delaware Trust law limits the liability of
shareholders.
If any matters are to be voted on by shareholders (such as a change in a
fundamental investment objective or the election of Trustees), each share
outstanding at that point would be entitled to one vote. If you have a qualified
trust account, the trustee will vote your shares on your behalf or in the same
percentage voted on shares that are not held in trust. Shareholders with more
than 10% of the outstanding shares of the Fund may call a special meeting for
removal of a Trustee. Normally, Victory is not required to hold annual meetings
of shareholders. However, shareholders may request one under certain
circumstances, as described in the SAI.
Code of Ethics
Victory and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons to the Fund must conform.
Investment personnel must refrain from certain trading practices and are
required to report certain personal investment activities. Violations of the
Code of Ethics can result in penalties, suspension, or termination of
employment.
Banking Laws
Banking laws, including the Glass-Steagall Act, prevent a bank holding company
or its affiliates from sponsoring, organizing, or controlling a registered,
open-end investment company. However, bank holding company subsidiaries may act
as investment adviser, transfer agent, custodian or shareholder servicing agent.
They may also purchase shares of such a company and pay third parties for
performing these functions for their customers. Should these laws ever change in
the future, the Trustees would consider selecting another qualified firm so that
all services would continue.
Shareholder Communications
You will receive unaudited Semi-Annual Reports and audited Annual Reports on a
regular basis from the Fund. In addition, you will also receive updated
prospectuses or supplements to this prospectus. In order to eliminate duplicate
mailings to an address at which two or more shareholders with the same last name
reside, the Fund will send only one copy of the above communications.
The securities described in this prospectus and the SAI are not offered in any
state in which they may not be sold lawfully. No sales representative, dealer,
or other person is authorized to give any information or make any representation
other than those contained in this prospectus and the SAI.
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<PAGE>
Other Securities and Investment Practices
The following table lists some of the types of securities the Fund may choose to
purchase. The majority of the portfolio for the Fund is made up of equity
securities. However, the Fund is also permitted to invest in the securities as
shown in the table below and in the SAI.
<TABLE>
<CAPTION>
List of Allowable Investments and Investment Practices Real Estate
Investment Fund
<S> <C>
Real Estate Investment Trusts. Shares of ownership in real estate investment <F1>
trusts or mortgages on real estate.
Equity Securities. Can include common stock, preferred stock, and convertible or
exchangeable securities of companies with real estate related interests, 80%-100%
including up to 20% in foreign real estate companies.
Warrants. The right to purchase an equity security at a stated price for a 10%
limited period of time.
When-Issued and Delayed-Delivery Securities. A security that is purchased for 33 1/3%
delivery at a later time. The market value may change before the delivery date.
<F2>Variable & Floating Rate Securities. Investment grade instruments, some of 20%
which may be illiquid, with interest rates that reset periodically.
Short-term Debt Obligations. Includes bankers' acceptances, certificates of 20%
deposit, prime quality commercial paper, cash, and cash equivalents.
U.S. Government Securities. Securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Some are direct obligations of 20%
the U.S. Treasury; others are obligations only of the U.S. agency.
<F2>Receipts. Separately traded interest or principal components of U.S. 20%
Repurchase Agreements. An agreement to sell and repurchase a security at the
same price plus interest. The seller's obligation to the Fund is secured with 33 1/3%
Commercial Paper. Short-term obligations issued by corporations and financial 20%
institutions. The Fund only uses prime quality commercial paper.
Illiquid Securities. Investments that cannot be sold readily within seven days 15%
in the usual course of business at approximately the price at which the Fund net assets
values them.
Short-Term Trading. Selling a security soon after purchasing it. Short-term <F1>
trading increases turnover and transaction costs.
<FN>
<F1> No limitation of usage; Fund may be using currently.
<F2> Indicates a "derivative security," whose value is linked to, or derived
from, another security, instrument or index.
</FN>
</TABLE>
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<TABLE>
<S> <C>
Borrowing; Reverse Repurchase Agreements. The borrowing of money from banks (up 5%
to 5% of total assets) or through reverse repurchase agreements (up to 33 1/3% 33 1/3%
of total assets). The Fund will not use borrowing to create leverage.
Securities Lending. In order to generate additional income, a Fund may lend its
portfolio securities. A Fund will receive collateral for the value of the
security plus any interest due. A Fund only will enter into loan arrangements 33 1/3%
with entities that the Adviser has determined are creditworthy.
% Percentage of total assets.
</TABLE>
For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in U.S. Government securities, or short-term, high quality debt
obligations. For more information on ratings and detailed descriptions of each
of the above investment vehicles, see the SAI.
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