LOGO (R)
Victory Funds
PROSPECTUS
VALUE FUND
DIVERSIFIED
STOCK FUND
STOCK INDEX FUND
GROWTH FUND
SPECIAL
VALUE FUND
OHIO REGIONAL
STOCK FUND
INTERNATIONAL
GROWTH FUND
SPECIAL
GROWTH FUND
BALANCED
FUND
REAL ESTATE
INVESTMENT FUND
800-539-FUND or 800-539-3863 March 1, 1998,
As supplemented August 1, 1998
<PAGE>
THE VICTORY PORTFOLIOS
PROSPECTUS FOR:
VALUE FUND
DIVERSIFIED STOCK FUND
STOCK INDEX FUND
GROWTH FUND
SPECIAL VALUE FUND
OHIO REGIONAL STOCK FUND
INTERNATIONAL GROWTH FUND
SPECIAL GROWTH FUND
BALANCED FUND
REAL ESTATE INVESTMENT FUND
800-539-FUND 800-539-3863
The ten Victory Funds discussed in this prospectus (the Funds) are a part of The
Victory Portfolios (Victory), an open-end investment management company. The
Real Estate Investment Fund is a non-diversified mutual fund. The other nine
Funds are diversified mutual funds. This prospectus explains the objectives,
policies, risks, and strategies of the Funds. You should read this prospectus
before investing in one of these Funds and keep it for future reference. A
detailed Statement of Additional Information (SAI) describing each of the Funds
is also available for your review. The SAI has been filed with the Securities
and Exchange Commission (SEC), and is incorporated by reference into this
prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference into this Prospectus and the SAI, and
other information regarding registrants that file electronically with the SEC.
If you would like a free copy of the SAI, please request one by calling us at
800-539-FUND.
Shares of the Funds are:
o Not insured by the FDIC;
o Not deposits or other obligations of, or guaranteed by, any KeyBank, any of
its affiliates, or any other bank;
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 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.
March 1, 1998,
As supplemented August 1, 1998
<PAGE>
TABLE OF CONTENTS
Introduction 2
AN OVERVIEW OF EACH OF THE FUNDS
A fund-by-fund analysis which includes objectives, policies, strategies,
expenses, and financial highlights
Value Fund 4
Diversified Stock Fund 6
Stock Index Fund 8
Growth Fund 10
Special Value Fund 12
Ohio Regional Stock Fund 14
International Growth Fund 16
Special Growth Fund 18
Balanced Fund 20
Real Estate Investment Fund 22
Risk Factors 24
Investment Limitations 25
Investment Performance 26
Share Price 26
Dividends, Distributions, and Taxes 27
INVESTING WITH VICTORY 29
Choosing a Share Class 29
How to Purchase Shares 32
How to Exchange Shares 34
How to Redeem Shares 35
Organization and Management of the Funds 36
Additional Information 41
Other Securities and Investment Practices 42
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<PAGE>
****KEY TO FUND INFORMATION
OBJECTIVE AND STRATEGY The goals and the strategy that a Fund plans to use in
pursuing its investment objective.
RISK FACTORS The risks that you may assume as an investor in a Fund.
EXPENSES The costs that you will pay as an investor in a Fund, including sales
charges and ongoing expenses.
FINANCIAL HIGHLIGHTS A table that shows a Fund's historical performance by share
class. This table also summarizes previous operating expenses.****
INVESTMENT OBJECTIVE AND STRATEGY
OBJECTIVE
The VALUE FUND seeks to provide long-term growth of capital and dividend income.
The DIVERSIFIED STOCK FUND seeks to provide 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. (1)
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 OHIO REGIONAL STOCK FUND seeks to provide capital appreciation.
The INTERNATIONAL GROWTH FUND seeks to provide capital growth consistent with
reasonable investment risk.
The SPECIAL GROWTH FUND seeks to provide capital appreciation.
The BALANCED FUND seeks to provide income and long-term growth of capital.
The REAL ESTATE INVESTMENT FUND seeks to provide total return through
investments in real estate-related securities.
(1) "Standard & Poor's 500" is a registered service mark of Standard and Poor's
Corporation, which does not sponsor and is in no way affiliated with the
Stock Index Fund.
STRATEGY
Each of the Funds pursues its investment objective by investing primarily in
equity securities. However, each of the Funds has unique investment strategies
and its own risk/reward profile. Please review the section about the Fund in
which you are interested in investing and "Other Securities and Investment
Practices" for an overview of the Funds.
RISK FACTORS
The Funds are not insured by the FDIC. Since equity securities fluctuate in
value, the Funds' shares also will fluctuate in value. This fluctuation may be
in response to the activities of an individual company, or in response to
general market or economic conditions. Debt securities are subject to interest
rate, inflation and credit risks.
The BALANCED FUND is subject to the risks of both equity and debt securities,
since it is permitted to invest in both types of securities.
The GROWTH FUND, INTERNATIONAL GROWTH FUND, and SPECIAL GROWTH FUND invest
primarily in equity securities of companies that do not pay out a significant
portion of their earnings as dividends. Therefore, these funds will not pay
significant dividend income.
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<PAGE>
The INTERNATIONAL GROWTH FUND invests primarily in foreign equity securities. An
investment in a fund holding foreign securities may be subject to more economic,
currency, or political risks than an investment in a domestic equity fund.
The OHIO REGIONAL STOCK FUND invests primarily in the securities of companies
whose headquarters re located in the State of Ohio. An investment in a state
specific fund can involve additional economic or political risks specific to the
state.
The SPECIAL GROWTH FUND and SPECIAL VALUE FUND invest primarily in securities of
small and mid-capitalization companies. Smaller, less seasoned companies may be
subject to greater business risks than larger, established companies.
The REAL ESTATE INVESTMENT FUND is subject to the risks of both equity and real
estate securities. In addition, there are other potential risks, which are
discussed in the section "Risk Factors."
WHO SHOULD INVEST
o Investors willing to accept higher short-term risk along with higher
potential long-term returns
o Investors seeking capital appreciation over the long term
o Investors seeking funds for the growth portion of a diversified portfolio
o Investors who are investing for goals that are many years in the future
FEES AND EXPENSES
The Value Fund, Stock Index Fund, Growth Fund, Special Growth Fund, and Real
Estate Investment Fund offer only Class A Shares, while the Diversified Stock
Fund, Special Value Fund, Ohio Regional Stock Fund, International Growth Fund,
and Balanced Fund offer both Class A and Class B Shares. See "Choosing a Share
Class." If you purchase Class A Shares of a Fund, you may pay a sales charge of
up to 5.75% of the offering price, depending on the Fund in which you invest and
the amount you invest. If you purchase Class B Shares of a Fund, you will not
pay an initial sales charge; however, you may pay a deferred sales charge if you
sell (redeem) your shares within six years of purchase, and you will pay
additional distribution expenses. In either case, you also will incur expenses
for investment advisory, administrative, and shareholder services, all of which
are included in a Fund's expense ratio. See "Choosing a Share Class."
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 a 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, a 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 Balanced Fund declares and pays dividends from its net
investment income monthly. All other Funds in this prospectus declare and pay
dividends, if any, from their net investment income quarterly. Any net capital
gains realized by a Fund are paid as dividends at least annually. A 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. You can make
this choice when you fill out an Account Application. See "Dividends,
Distributions, and Taxes."
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<PAGE>
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 Each Of The Funds
<TABLE>
<CAPTION>
Annual
Victory Fund Inception Expenses Maximum Newspaper
Date After Waivers Sales Charge Abbreviation*
<S> <C> <C> <C> <C>
Value Fund -- Class A 12/3/93 1.40% 5.75% Victory Value
Diversified Stock -- Class A 10/20/89 1.05% 5.75% Victory DvsStkA
Diversified Stock -- Class B 3/1/96 2.29% 5.00% Victory DvsStkB
Stock Index -- Class A 12/3/93 0.56% 5.75% Victory StkIdx
Growth Fund -- Class A 12/3/93 1.40% 5.75% Victory Growth
Special Value -- Class A 12/3/93 1.40% 5.75% Victory SplValA
Special Value -- Class B 3/1/96 2.64% 5.00% Victory SplValB
Ohio Regional Stock Fund -- Class A 10/20/89 1.40% 5.75% Victory OH RegA
Ohio Regional Stock Fund -- Class B 3/1/96 2.64% 5.00% Victory OH RegB
International Growth -- Class A 5/18/90 1.75% 5.75% Victory IntlGrA
International Growth -- Class B 3/1/93 2.99% 5.00% Victory IntlGrB
Special Growth -- Class A 1/11/94 1.40% 5.75% Victory SplGwth
Balanced Fund -- Class A 12/10/93 1.25% 5.75% Victory BalncdA
Balanced Fund -- Class B 3/1/96 2.49% 5.00% Victory BalncdB
Real Estate Investment Fund -- Class A 4/30/97 1.40% 5.75% Victory REIT
</TABLE>
*All newspapers do not use the same abbreviation.
The following pages provide you with separate overviews of each Fund. Please
look at the objective, policies, strategies, risks, expenses, and financial
history to determine which Fund will best suit your risk tolerance and
investment needs. You also should review the "Other Securities and Investment
Practices" section for additional information about the individual securities in
which the Funds can invest and the risks related to these investments.
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<PAGE>
VALUE FUND
INVESTMENT OBJECTIVE
The Value Fund seeks to provide long-term growth of capital and dividend income.
INVESTMENT POLICIES AND STRATEGY
The Value Fund pursues its investment objective by investing primarily in a
diversified group of equity securities with an emphasis on companies with above
average total return potential. The securities in the Value Fund usually are
listed on a national exchange.
The Adviser seeks equity securities of under-valued companies that are
inexpensive relative to historical measurements, such as price to earnings.
Under normal market conditions, the Value Fund:
o Will invest at least 80% of its total assets in equity securities and
securities convertible or exchangeable into common stock
o May invest up to 20% of its total assets in:
Investment-grade corporate debt securities
Short-term debt obligations
U.S. Government obligations
The Value Fund is designed for long-term investors. The Value Fund is subject to
the risks common to all mutual funds and the risks common to mutual funds that
invest in equity securities. By itself, the Value 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.
PLEASE READ "RISK FACTORS" CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Judith A. Jones and Neil A. Kilbane are the Portfolio Managers of the Value
Fund. Ms. Jones has been the Portfolio Manager of the Value Fund since its
inception in December 1993. She is a Portfolio Manager and Managing Director of
Key Asset Management Inc. (KAM), and has been in the investment business since
1967. Mr. Kilbane has been a Portfolio Manager of the Value Fund since April
1998. He is a Portfolio Manager and Managing Director of KAM and has been in the
investment business since 1986.
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<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the Value Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES
Maximum Sales Charge Imposed on Purchases 5.75%
(as a percentage of the offering price)
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE**
Redemption Fees NONE
Exchange Fees NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Value Fund. THESE
EXPENSES ARE CHARGED DIRECTLY TO THE VALUE FUND. Expenses include management
fees as well as the costs of maintaining accounts, administering the Value Fund,
providing shareholder services, and other activities. The expenses shown are
estimated based on historical expenses of the Value Fund adjusted to reflect
anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES
(as a percentage of average daily net assets)
Management Fees(1) .86%
Other Expenses(2) .54%
----
Total Fund Operating Expenses(1) 1.40%
=====
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.00% and the Total Operating Expenses would be
1.54%.
(2) Other Expenses include an estimate of shareholder servicing fees the Value
Fund expects to pay. See "Organization and Management of the
Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Value Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Value Fund, assuming: (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $71 $99 $130 $216
</TABLE>
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
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<PAGE>
FINANCIAL HIGHLIGHTS
VALUE FUND
The Financial Highlights describe the Value Fund's returns and operating
expenses over time. This table shows the results of an investment in one share
of the Value Fund for each of the periods indicated.
Variability, as shown by year-to-year total return:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
+ 27.24% 24.66% 22.28% 3.27%
0----------------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------------------
Year Year Year December 3,
Ended Ended Ended 1993 to
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1997 1996 1995(d) 1994(a)
---- ---- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.18 $ 11.87 $ 10.13 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income 0.15 0.20 0.27 0.21
Net realized and unrealized gains
from Investments 3.57 2.65 1.92 0.11
------- ------- ------- -------
Total from Investment Activities 3.72 2.85 2.19 0.32
------- ------- ------- -------
Distributions
Net investment income (0.16) (0.20) (0.27) (0.19)
In excess of net realized gains - - (0.01) -
Net realized gains (0.67) (0.34) (0.17) -
-------- -------- -------- -------
Total Distributions (0.83) (0.54) (0.45) (0.19)
-------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 17.07 $ 14.18 $ 11.87 $ 10.13
======= ======= ======= =======
Total Return (excludes sales charge) 27.24% 24.66% 22.28% 3.27%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $472,047 $ 382,083 $ 295,871 $ 188,184
Ratio of expenses to average net assets 1.32% 1.33%$ 0.99% 0.92%(c)
Ratio of net investment income to
average net assets 0.93% 1.56% 2.55% 2.32%
Ratio of expenses to average net assets(g) (f) 1.35% 1.30% 1.48%(c)
Ratio of net investment income to
average net assets(g) (f) 1.54% 2.24% 1.76%
Portfolio turnover 25% 28% 23% 39%
Average commission rate paid(e) $ 0.0530 $ 0.0524 - -
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Value Fund's most recent
Annual Report to shareholders, which is incorporated by reference in the SAI. If
you would like a copy of the Annual Report, write or call us at 800-539-FUND.
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<PAGE>
(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) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Value Fund for which commissions were charged.
(f) There were no voluntary fee reductions during the period.
(g) During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
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<PAGE>
DIVERSIFIED STOCK FUND
INVESTMENT OBJECTIVE
The Diversified Stock Fund seeks to provide long-term growth of capital.
INVESTMENT POLICIES AND STRATEGY
The Diversified Stock Fund pursues its investment objective by investing
primarily in equity securities and securities convertible into common stocks
issued by established domestic and foreign companies.
The Adviser seeks to invest in securities that it considers undervalued in
relation to historical earnings and the value of the issuer's underlying assets.
In making investment decisions, the Adviser may consider cash flow, book value,
dividend yield, growth potential, quality of management, adequacy of revenues,
earnings, capitalization, and expected future relative earnings growth. The
Adviser will pursue investments that provide above average dividend yield or
potential for appreciation.
Under normal market conditions, the Diversified Stock Fund:
o Will invest at least 80% of its total assets in equity securities and
securities convertible or exchangeable into common stock
o May invest up to 20% of its total assets in:
Preferred stocks
Investment-grade corporate debt securities
Short-term debt obligations
U.S. Government obligations
The Diversified Stock Fund is designed for long-term investors. The Diversified
Stock Fund is subject to the risks common to all mutual funds and the risks
common to mutual funds that invest in equity securities. By itself, the
Diversified Stock 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. PLEASE READ "RISK FACTORS" CAREFULLY
BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Lawrence G. Babin is the Portfolio Manager of the Diversified Stock Fund, a
position he has held since its inception in October 1989. He is a Portfolio
Manager and Managing Director of KAM, and has been in the investment business
since 1982.
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<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Diversified Stock Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A CLASS B
SHARES SHARES
------ ------
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 5.75% NONE
Sales Charge Imposed on Reinvested NONE NONE
Dividends
Deferred Sales Charge NONE** 5.00%***
Redemption Fees NONE NONE
Exchange Fee NONE NONE
* You may be charged additional fees if you purchase, exchange, or redeem shares
through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
*** 5% in the first year, declining to 1% in the sixth year, with no charge
after the sixth year.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Diversified Stock
Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE DIVERSIFIED STOCK FUND.
Expenses include management fees as well as the costs of maintaining accounts,
administering the Diversified Stock Fund, providing shareholder services, and
other activities. The expenses shown are estimated based on historical expenses
of the Diversified Stock Fund adjusted to reflect anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B
(as a percentage of average daily net assets) SHARES SHARES
Management Fees(1) .54% .54%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(2) .51% 1.00%
---- -----
Total Fund Operating Expenses(1) 1.05% 2.29%
===== =====
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be .65% and the Total Fund Operating Expenses would be
1.16% for Class A Shares, and 2.40% for Class B Shares.
(2) Other Expenses include an estimate of shareholder servicing fees the
Diversified Stock Fund expects to pay. See "Organization and Management of
the Funds -- Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Diversified Stock Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Diversified Stock Fund, assuming: (1) a 5% annual return and (2) redemption at
the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A Shares $68 $89 $112 $178
Class B Shares $73 $102 $143 $231
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
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<PAGE>
FINANCIAL HIGHLIGHTS
DIVERSIFIED STOCK FUND
****The Financial Highlights describe the Diversified Stock Fund's returns and
operating expenses over time. This table shows the results of an investment in
one share of the Fund for each of the periods indicated.****
Variability, as shown by
year-to-year total return:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
+ 26.48% 26.61% 27.96% 27.16% 23.54% 7.39%
0----------------------------------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1997 1996(a) 1997 1996(a) 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $15.71 $14.18 $15.75 $13.62 $12.68 $13.39
------ ------ ------ ------ ------ ------
BEGINNING OF PERIOD
Income from
Investment Activities
Net investment (0.06) 0.07 0.16 0.20 0.27 0.25
income
Net realized and
unrealized gains
(losses) from 3.85 1.57 3.84 3.21 2.33 0.64
---- ---- ---- ----- ----
investments
Total from 3.79 1.64 4.00 3.41 2.60 0.89
---- ---- ---- ----- ----
Investment Activities
Distributions
Net investment - (0.07) (0.16) (0.19) (0.27) (0.23)
income
In excess of net (0.05) (0.04) - - (0.01) -
investment income
Net realized gains (1.83) - (1.83) (1.09) (1.38) (1.37)
------ -------- ------ ------ ------ ------
Total Distributions (1.88) (0.11) (1.99) (1.28) (1.66) (1.60)
------ ------ ------ ------ ------ ------
Distributions
NET ASSET VALUE, END $17.62 $15.71 $17.76 $15.75 $13.62 12.68
====== ====== ====== ====== ====== =====
OF PERIOD
Total Return (Excludes 26.48% 26.61%(c) 27.96 27.16% 23.54% 7.39%
Sales Charge)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, End of $30,198 $8,228 $762,270 $574,153 $409,549 $263,227
Period (000)
Ratio of expenses to 2.19% 2.07%(b) 1.03 1.05% 0.92% 0.89%
average net assets
Ratio of net investment (0.29%) 0.11%(b) 0.97 1.40% 2.11% 2.06%
income to average net
assets
Ratio of expenses to g 2.08%(b) g 1.08% 0.95% 1.10%
average net assets(f)
Ratio of net investment
income to average g 0.10%(b) g 1.37% 2.07% 1.86%
net assets(f)
Portfolio turnover (d) 63% 94% 63% 94% 75% 104%
Average commission $0.0505 $0.0504 $0.505 $0.0504 - -
rate paid(e)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------------------------------------------------------------
+ 14.04% 11.57% 27.50%
0----------------------------------------------------------------------------------------------------------------------------------
- (4.29%) (1.00%)
- ------------------------------------------------------------------------------------------------------------------------------------
(Diversified Stock Fund, continued) CLASS A
Period From
Year Ended Year Ended Year Ended Year Ended Oct. 20, 1989 to
Oct. 31, 1993 Oct. 31, 1992 Oct. 31, 1991 Oct. 31, 1990 Oct. 31, 1989
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $12.16 $11.44 $9.25 $9.90 $10.00
------ ------ ----- ----- ------
PERIOD
Income from Investment Activities
Net investment income 0.18 0.19 0.23 0.26
Net realized and unrealized gains
(losses) from investments 1.50 1.11 2.20 (0.67) (0.10)
----
Total from Investment 1.68 1.30 2.43 (0.41) (0.10)
----
Activities
Distributions
Net investment income (0.21) (0.19) (0.24) (0.24)
In excess of net investment -- -- -- -- --
income
Net realized gains (0.24) (0.39)
-----
Total Distributions (0.45) (0.58) (0.24) (0.24)
-----
NET ASSET VALUE, END OF PERIOD $13.39 $12.16 $11.44 $9.25 $9.90
====== ====== ====== ===== ======
Total Return (Excludes Sales Charge) 1 14.04% 11.57% 27.50% (4.29%) (1.00%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $257,405 $227,839 $177,472 $121,754 $80,046
Ratio of expenses to average net assets 0.89% 0.91% 0.91% 0.91% 0.75%b
Ratio of net investment income to 1.45% 1.63% 2.06% 2.75% 1.39%b
average net assets
Ratio of expenses to average net 0.90% h h h h
assets(f)
Ratio of net investment income to
average 1.43% h h h h
net assets(f)
Portfolio turnover (d) 86% 75% 51% 63% 3%
Average commission rate paid(e) -- -- -- -- --
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Diversified Stock Fund's most
recent Annual Report to shareholders, which is incorporated by reference in the
SAI. If you would like a copy of the Annual Report, write call us at
800-539-FUND.
(a) Effective March 1, 1996. the Diversified Stock Fund designated the existing
shares as Class A Shares and began offering Class B Shares.
(b) Annualized.
(c) Represents total return for the Diversified Stock Fund for the period
November 1, 1995 through February 29, 1996 plus total return for Class B
Shares for the period March 1, 1996 through October 31, 1996. The total
return for Class B Shares for the period March 1, 1996 through October 31,
1996 was 11.62%.
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<PAGE>
(d) Portfolio turnover is calculated on the basis of the Diversified Stock Fund
as a whole without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on the portfolio
security transactions divided by the total number of shares purchased and
sold by the Diversified Stock Fund for which commissions were charged.
(f) Period from commencement of operations.
(g) During the period certain fees were voluntarily waived or expenses
reimbursed. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(h) There were no voluntary fee reductions during the period.
-15-
<PAGE>
STOCK INDEX FUND
INVESTMENT OBJECTIVE
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 (S&P 500 Index).
INVESTMENT POLICIES AND STRATEGY
The Stock Index Fund pursues its investment objective by attempting to duplicate
the capital performance and dividend income of the S&P 500 Index. The Stock
Index Fund primarily invests in many of the equity securities that are in the
S&P 500 Index, including American Depositary Receipts (ADRs), and secondarily in
related futures and options contracts.
The S&P 500 Index is comprised of 500 common stocks. To minimize small positions
and transactions expenses, the Stock Index Fund need not invest in every stock
included in the S&P 500 Index. The Stock Index Fund may purchase stocks that are
not included in the S&P 500 Index if the Adviser believes that these investments
will reduce "tracking error" (the difference between the Stock Index Fund's
investment results, before expenses, and that of the S&P 500 Index).
The Stock Index Fund is not managed in the traditional sense using economic,
financial, and market analysis. Therefore, the Stock Index Fund will not
necessarily sell a stock that is underperforming. Brokerage costs, fees,
operating expenses, and tracking errors may cause the Stock Index Fund's total
return to be lower than that of the S&P 500 Index.
The Stock Index Fund is designed for long-term investors. The Stock Index Fund
is subject to the risks common to all mutual funds and the risks common to
mutual funds that invest in equity securities. The Stock Index Fund may
purchase, retain, and sell securities when such transactions would not be
consistent with traditional investment criteria. The Stock Index Fund generally
will remain fully invested in common stocks even when stock prices generally are
falling. Accordingly, an investor is exposed to a greater risk of loss (or
conversely, a greater prospect of gain) from fluctuations in the value of such
securities than would be the case if the Stock Index Fund was not fully
invested, regardless of market conditions. By itself, the Stock Index Fund does
not constitute a complete investment plan and should be considered a long-term
investment for investors who can afford to weather sudden and sometimes
substantial changes in the value of their investment. PLEASE READ "RISK FACTORS"
CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Theresa Hemmi is the Portfolio Manager of the Stock Index Fund, a position she
has held since May 1998. She is a Portfolio Manager and Director of KAM, and has
been in the investment business since 1994.
-16-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the Stock Index Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A
SHARES
Maximum Sales Charge Imposed on Purchases 5.75%
(As a percentage of the offering price)
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE**
Redemption Fees NONE
Exchange Fees NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Stock Index Fund.
THESE EXPENSES ARE CHARGED DIRECTLY TO THE STOCK INDEX FUND. Expenses include
management fees, as well as the costs of maintaining accounts, administering the
Stock Index Fund, and other activities. The expenses shown are estimated based
on historical expenses of the Stock Index Fund adjusted to reflect anticipated
expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES
(AFTER EXPENSE WAIVERS AND REIMBURSEMENTS)
(as a percentage of average daily net assets)
Management Fees (1) .46%
Other Expenses (1) .10%
---
Total Fund Operating Expenses(1) .56%
===
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be .60%., and other expenses would be .24%. If the
waivers were not in place, the Total Fund Operating Expenses would be
.84%.
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Stock Index Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Stock Index Fund, assuming: (1) a 5% annual return and (2) redemption at the end
of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A Shares $63 $74 $87 $124
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-17-
<PAGE>
FINANCIAL HIGHLIGHTS
STOCK INDEX FUND
The Financial Highlights describe the Stock Index Fund's returns and operating
expenses over time. This table shows the results of an investment in one share
of the Stock Index Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------------------------------------------
+ 31.16% 23.38% 25.72% 3.66%
0----------------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR DECEMBER 3,
ENDED ENDED ENDED 1993 TO
OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1997 1996 1995 1994(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.85 $ 12.50 $ 10.18 $ 10.00
----- ----- ----- -----
INVESTMENT ACTIVITIES
NET INVESTMENT INCOME 0.29 0.28 0.27 0.20
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS 4.23 2.58 2.31 0.16
---- ---- ---- ----
TOTAL FROM INVESTMENT ACTIVITIES 4.52 2.86 2.58 0.36
---- ---- ---- ----
DISTRIBUTIONS
NET INVESTMENT INCOME (0.29) (0.28) (0.26) (0.18)
NET REALIZED GAINS (0.33) (0.23) -- --
------ ------ -- --
TOTAL DISTRIBUTIONS (0.62) (0.51) (0.26) (0.18)
------ ----- ------ -----
NET ASSET VALUE, END OF PERIOD $ 18.75 $ 14.85 $ 12.50 $ 10.18
===== ===== ===== =====
TOTAL RETURN (EXCLUDES SALES CHARGE)
31.16% 23.38% 25.72% 3.66%(b)
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000) $ 465,015 $ 277,124 $160,822 $ 89,686
RATIO OF EXPENSES TO AVERAGE NET ASSETS
0.56% 0.57% 0.55% 0.58%(c)
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS
1.74% 2.14% 2.53% 2.35%(c)
RATIO OF EXPENSES TO AVERAGE NET ASSETS(D)
0.86% 0.89% 0.87% 1.10%(c)
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS(D)
1.44% 1.82% 2.21% 1.82%(c)
PORTFOLIO TURNOVER 11% 4% 12% 1%
AVERAGE COMMISSION RATE PAID(E) $ 0.0212 $ 0.0186 -- --
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the stock index fund's most
recent annual report to shareholders, which is incorporated by reference in the
sai. If you would like a copy of the annual report, write or call us at
800-539-FUND.
-18-
<PAGE>
(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) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Stock Index Fund for which commissions were charged.
-19
<PAGE>
GROWTH FUND
INVESTMENT OBJECTIVE
The Growth Fund seeks to provide long-term growth of capital.
INVESTMENT POLICIES AND STRATEGY
The Growth Fund pursues its investment objective by investing primarily in
equity securities of companies with superior prospects for long-term earnings
growth and price appreciation. The issuers usually are listed on a nationally
recognized exchange.
In making investment decisions, the Adviser will look for above average growth
rates, high return on equity, issuers that reinvest their earnings in their
business, and strong balance sheets.
o Under normal market conditions, the Growth Fund:
Will invest at least 80% of its total assets in common stocks and
securities convertible into common stocks
o May invest up to 20% of its total assets in:
Preferred stocks Investment-grade corporate debt securities Short-term
debt obligations U.S. Government obligations
The Growth Fund is designed for long-term investors. The Growth Fund is subject
to the risks common to all mutual funds and the risks common to mutual funds
that invest in equity securities. The Growth Fund may be appropriate for
investors who are comfortable with assuming the added risks associated with
stocks that do not pay out significant portions of their earnings as dividends.
By itself, the Growth 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 and do not require significant
current income from their investments. PLEASE READ "RISK FACTORS" CAREFULLY
BEFORE INVESTING.
PORTFOLIO MANAGEMENT
William F. Ruple is the Portfolio Manager of the Growth Fund, a position he has
held since June 1995. He is a Portfolio Manager and Director of KAM, and has
been in the investment advisory business since 1970.
-20-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the Growth Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES
Maximum Sales Charge Imposed on Purchases 5.75%
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE**
Redemption Fees NONE
Exchange Fees NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Growth Fund.
THESE EXPENSES ARE CHARGED DIRECTLY TO THE GROWTH FUND'S INCOME BEFORE IT IS
PAID TO YOU. Expenses include management fees as well as the costs of
maintaining accounts, administering the Growth Fund, providing shareholder
services, and other activities. The expenses shown are estimated based on
historical expenses of the Growth Fund adjusted to reflect anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES
(as a percentage of average daily net assets)
Management Fees(1) .86%
Other Expenses(2) .54%
Total Fund Operating Expenses(1) 1.40%
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.00% and the Total Fund Operating Expenses would
be 1.54%.
(2) Other Expenses includes an estimate of shareholder servicing fees the
Growth Fund expects to pay. See "Organization and Management of the
Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Growth Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Growth Fund, assuming: (1) a 5% annual return and (2) redemption at the end of
each time period.
1 Year 3 Years 5 Years 10 Years
Class A Shares $71 $99 $130 $216
This example is only an illustration. Actual expenses and returns will vary.
-21-
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH FUND
The Financial Highlights describe the Growth Fund's returns and operating
expenses over time. This table shows the results of an investment in one share
of the Growth Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------------------------------------------------------------
+ 29.08% 25.66% 20.54% 3.22%
0----------------------------------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1997 1996 1995(d) 1994(a)(e)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.57 $ 12.15 $ 10.23 $ 10.00
--------- --------- --------- ---------
Investment Activities
Net investment income (loss) 0.03 0.08 0.11 0.10
Net realized and unrealized gains
on investments 4.07 2.93 1.97 0.22
--------- --------- --------- ---------
Total from Investment Activities 4.10 3.01 2.08 0.32
--------- --------- --------- ---------
Distributions
Net investment income (0.04) (0.08) (0.11) (0.09)
Net realized gains (0.62) (0.51) (0.05) --
---------- ---------- ---------- ---------
Total Distributions (0.66) (0.59) (0.16) (0.09)
---------- --------- ---------- ---------
NET ASSET VALUE, END OF PERIOD $ 18.01 $ 14.57 $ 12.15 $ 10.23
========= ========= ========= =========
Total Return (excludes sales charge) 29.08% 25.66% 20.54% 3.22%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 185,533 $ 147,753 $ 108,253 $ 66,921
Ratio of expenses to average net assets 1.34% 1.33% 1.07% 0.94%(c)
Ratio of net investment income to
average net assets 0.19% 0.64% 1.00% 1.10%
Ratio of expenses to average net assets(f) (h) 1.39% 1.42% 1.51%(c)
Ratio of net investment income to
average net assets(f) (h) 0.58% 0.65% 0.52%(c)
Portfolio turnover 21% 27% 107% 28%
Average commission rate paid(e) $ 0.0592 $ 0.0618 -- --
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Growth Fund's most recent
Annual Report to shareholders, which is incorporated by reference in the SAI. If
you would like a copy of the Annual Report, write or call us at 800-539-FUND.
(a) Period from commencement of operations.
(b) Not annualized.
-22-
<PAGE>
(c) Annualized.
(d) Effective June 5, 1995, the Victory Equity Portfolio merged into the
Growth Fund. Financial highlights for the period prior to June 5,
1995 represent the Growth Fund.
(e) 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.
(f) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(g) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased
and sold by the Growth Fund for which commissions were charged.
(h) There were no voluntary fee reductions during the period.
-23-
<PAGE>
SPECIAL VALUE FUND
INVESTMENT OBJECTIVE
The Special Value Fund seeks to provide long-term growth of capital and dividend
income.
INVESTMENT POLICIES AND STRATEGY
The Special Value Fund pursues its investment objective by investing primarily
in equity securities of small- and medium-sized companies listed on a national
exchange. Small-sized companies are defined as those having market
capitalization of less than $1 billion at the time of purchase, and medium-sized
companies are defined as those having a market capitalization of between $1
billion and $5 billion at the time of purchase.
The Adviser looks for companies with above average total return potential whose
equity securities are under-valued and considered statistically cheap.
Under normal market conditions the Special Value Fund:
o Will invest at least 80% of its total assets in: Common stocks Securities
convertible into common stock of small- and medium-sized companies
o May invest up to 20% of its total assets in: Investment-grade debt
securities Preferred stocks
The Special Value Fund is designed for long-term investors. The Special Value
Fund is subject to the risks common to all mutual funds and the risks common to
mutual funds that invest in equity securities. The Special Value Fund may be
appropriate for investors who are comfortable with assuming the added risks
associated with small- and mid-capitalization stocks in return for the
possibility of long-term rewards. The smaller, less seasoned companies in which
the Special Value Fund may invest may be subject to greater business risks than
larger, established companies. They may be at greater risk to changes in
economic conditions and factors affecting the profits of corporations. By
itself, the Special Value 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. PLEASE READ "RISK FACTORS"
CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Anthony Aveni, Barbara Myers, and Paul Danes are the Portfolio Managers of the
Special Value Fund. Mr. Aveni has been a Portfolio Manager of the Special Value
Fund since its inception in December 1993. He is a Director, Chief Investment
Officer, and a Senior Managing Director with KAM, and has been in the investment
business since 1981. Ms. Myers has been a Portfolio Manager of the Special Value
Fund since June 1995. She is a Portfolio Manager and Director with KAM, and has
been in the investment business since 1987. Mr. Danes has been a Portfolio
Manager of the Special Value Fund since October 1995. He is a Portfolio Manager
and Director with KAM, and has been in the investment business since 1987.
-24-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the Special Value Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 5.75% NONE
Deferred Sales Charge NONE** 5.00%***
Sales Charge Imposed on Reinvested Dividends NONE NONE
Redemption Fees NONE NONE
Exchange Fees NONE NONE
</TABLE>
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
*** 5% in the first year, declining to 1% in the sixth year, with no charge
after the sixth year.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Special Value
Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE SPECIAL VALUE FUND. Expenses
include management fees, as well as the costs of maintaining accounts,
administering the Special Value Fund, providing shareholder services, and other
activities. The expenses shown are estimated based on historical expenses of the
Special Value Fund adjusted to reflect anticipated expenses.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES CLASS B SHARES
(as a percentage of average daily net assets)
<S> <C> <C>
Management Fees .90% .90%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(1) .50% .99%
--- ---
Total Fund Operating Expenses 1.40% 2.64%
==== ====
</TABLE>
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.00% and the Total Fund Operating Expenses would
be 1.50% for Class A Shares, and 2.74% for Class B Shares.
(2) Other Expenses includes an estimate of shareholder servicing fees the
Special Value Fund expects to pay. See "Organization and Management of the
Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Special Value Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Special Value Fund, assuming: (1) a 5% annual return and (2) redemption at the
end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A Shares $71 $99 $130 $216
Class B Shares $77 $112 $160 $267
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-25-
<PAGE>
FINANCIAL HIGHLIGHTS
SPECIAL VALUE FUND
The Financial Highlights describe the Special Value Fund's returns and operating
expenses over time. This table shows the results of an investment in one share
of the Special Value Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------------------------------------------------------------
+ 25.41% 19.80% 27.05% 20.60% 18.01% 5.92%
0----------------------------------------------------------------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
MARCH 1, DECEMBER 3,
YEAR 1996 YEAR YEAR YEAR 1993
ENDED THROUGH ENDED ENDED ENDED THROUGH
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1997 1996(E) 1997 1996(E) 1995 1994(a)
NET ASSET VALUE, BEGINNING OF PERIOD
<S> <C> <C> <C> <C> <C>
$ 14.09 $ 12.89 $ 14.15 $ 12.15 $ 10.49 $ 10.00
------- ------- ------- ------- ------- -------
Income from Investment Activities
Net investment income (loss)
(0.04) 0.01 0.10 0.12 0.15 0.11
Net realized and unrealized
gains (losses) from investments and
foreign currencies
3.41 1.23 3.50 2.33 1.71 0.48
------- ------- ------- ------- ------- -------
Total from Investment
Activities 3.37 1.24 3.60 2.45 1.86 0.59
------- ------- ------- ------- ------- -------
Distributions
Net investment income -- (0.01) (0.12) (0.11) (0.15) (0.10)
In excess of net investment (0.02) (0.03) -- -- -- --
income
Net realized gains (0.95) -- (0.95) (0.34) (0.05) --
-------- ----------- -------- -------- -------- -------
Total Distributions (0.97) (0.04) (1.07) (0.45) (0.20) (0.10)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD
$ 16.49 $ 14.09 $ 16.68 $ 14.15 $ 12.15 $ 10.49
======= ======= ======= ====== ======= =======
Total Return (excludes sales charge)
25.41% 19.87%(f) 27.05% 20.60% 18.01% 5.92%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000)
$ 1,660 $ 386 $420,020 $289,460 $194,700 $118,600
Ratio of expenses to average net
assets 2.66% 2.51%(c) 1.37% 1.37% 1.04% 1.00%(c)
Ratio of net investment income
(loss) to average net assets
(0.62%) (0.31%)(c) 0.65% 0.88% 1.35% 1.23%(c)
Ratio of expenses to average net
assets(d) 3.63% 3.75%(c) 1.37% 1.40% 1.30% 1.49%(c)
Ratio of net investment income
(loss) to average net assets(d)
(1.59%) (1.55%)(c) 0.65% 0.85% 1.09% 0.74%(c)
Portfolio turnover(g) 39% 55% 39% 55% 39% 18%
Average commission paid(h) $ 0.0503 $0.0501 $0.0503 $ 0.0501 -- --
</TABLE>
-26-
<PAGE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Special Value Fund's most
recent Annual Report to shareholders, which is incorporated by reference in the
SAI. If you would like a copy of the Annual Report, write or call us at
800-539-FUND.
(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 March 1, 1996, the Special Value Fund designated the existing
shares as Class A Shares and began offering Class B Shares.
(f) Represents total return for the Special Value Fund for the period November
1, 1995 through February 29, 1996 plus total return for Class B Shares for
the period March 1, 1996 through October 31, 1996. The total return for the
Class B Shares for the period from March 1, 1996 through October 3, 1996
was 9.66%.
(g) Portfolio turnover is calculated on the basis of the Special Value Fund as
a whole without distinguishing between the classes of shares issued.
(h) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Special Value Fund for which commissions were charged.
-27-
<PAGE>
OHIO REGIONAL STOCK FUND
INVESTMENT OBJECTIVE
The Ohio Regional Stock Fund seeks to provide capital appreciation.
INVESTMENT POLICIES AND STRATEGY
The Ohio Regional Stock Fund pursues its investment objective by investing at
least 80% of the Fund's total assets in equity securities issued by companies
headquartered in the State of Ohio.
In making investment decisions, the Adviser analyzes cash flow, book value,
dividend growth potential, quality of management, earnings, and capitalization.
The Ohio Regional Stock Fund looks at any information that reflects the
potential for future earnings growth. The Ohio Regional Stock Fund invests in
nationally recognized companies and lesser-known companies that may have smaller
capitalization, but also the potential for growth.
Under normal market conditions, the Ohio Regional Stock Fund:
o Will invest at least 80% of its total assets in common stocks
o May invest up to 20% of its total assets in Short-term debt obligations
Investment-grade corporate debt securities U.S. Government obligations
o May invest up to 5% of its total assets in securities convertible or
exchangeable into common stocks
The Ohio Regional Stock Fund is designed for long-term investors. The Ohio
Regional Stock Fund is subject to the risks common to all mutual funds and the
risks common to mutual funds that invest in equity securities. The Ohio Regional
Stock Fund may be appropriate for investors who are comfortable with assuming
the added risks associated with an investment in a fund that concentrates its
investments in a single state. By itself, the Ohio Regional Stock 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. Since the Ohio Regional Stock Fund concentrates its investments in
the State of Ohio, its assets may be at greater risk because of economic,
political, or regulatory risks associated with the state. The Ohio Regional
Stock Fund is subject to additional risks because it concentrates its
investments in a single geographic area and it may invest more than 5% of its
assets in the securities of a single issuer. PLEASE READ "RISK FACTORS"
CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Lynn S. Hamilton is the Portfolio Manager of the Ohio Regional Stock Fund, a
position he has held since October 1991. He is a Portfolio Manager and Managing
Director of KAM, and has been in the investment business since 1977.
-28-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Ohio Regional Stock Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 5.75% NONE
Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE** 5.00%***
Redemption Fees NONE NONE
Exchange Fees NONE NONE
</TABLE>
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
*** 5% in the first year, declining to 1% in the sixth year, with no charge
after the sixth year.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Ohio Regional
Stock Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE OHIO REGIONAL STOCK FUND.
Expenses include management fees as well as the costs of maintaining accounts,
administering the Ohio Regional Stock Fund, providing shareholder services, and
other activities. The expenses shown are estimated based on historical expenses
of the Ohio Regional Stock Fund adjusted to reflect anticipated expenses.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES CLASS B SHARES
(as a percentage of average daily net assets)
<S> <C> <C>
Management Fees(1) .62% .62%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(2) .78% 1.27%
---- -----
Total Fund Operating Expenses(1) 1.40% 2.64%
===== =====
</TABLE>
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be .75%, and the Total Fund Operating Expenses would
be 1.53% for Class A Shares, and 2.77% for Class B Shares.
(2) Other Expenses includes an estimate of shareholder servicing fees the Ohio
Regional Stock Fund expects to pay. See "Organization and Management of
the Funds-- Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Ohio Regional Stock
Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the Ohio
Regional Stock Fund, assuming: (1) a 5% annual return and (2) redemption at the
end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $71 $99 $130 $216
Class B Shares $78 $116 $166 $284
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-29-
<PAGE>
FINANCIAL HIGHLIGHTS
OHIO REGIONAL STOCK FUND
The Financial Highlights describe the Ohio Regional Stock Fund's return and
operating expenses over time. This table shows the results of an investment in
one share of the Ohio Regional Stock Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- -----------------------------------------------------------------------------------------------------------------------------------
+ 32.71% 16.95% 34.16% 17.79% 16.93%
0---------------------------------------------------------------------------------------------------------------------------------
-
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
MARCH 1,
YEAR 1996 YEAR YEAR YEAR
ENDED THROUGH ENDED ENDED ENDED
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1997 1996(C) 1997 1996(C) 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.87 $ 16.43 $ 17.95 $ 15.94 $ 14.56
------- ------- ------- ------- -------
Income from Investment Activities
Net investment income (loss) (0.14) (0.03) 0.14 0.14 0.17
Net realized and unrealized gains (losses) from 5.90 1.51 5.96 2.96 2.13
------- ------- ------- ------- -------
investments
Total from Investment Activities 5.76 1.48 6.10 2.76 2.30
------- ------- ------- ------- -------
Distributions
Net investment income -- -- (0.14) (0.14) (0.17)
In excess of net investment income -- (0.04) -- -- (0.01)
Net realized gains (0.35) -- (0.35) (0.36) (0.65)
In excess of net realized gains -- -- -- (0.25) (0.09)
------- ------- ------- ------- -------
Total Distributions (0.35) (0.04) (0.49) (0.75) (0.92)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 23.28 $ 17.87 $ 23.56 $ 17.95 $ 15.94
======= ======= ======= ====== =======
Total Return (Excludes Sales Charge) 32.71% 16.95%(d) 34.61% 17.79% 16.93%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $705 $ 326 $ 53,703 $45,294 $39,048
Ratio of expenses to average net assets 2.65% 2.61%(a) 1.26% 1.39% 1.20%
Ratio of net investment income (loss)
to average net assets (0.76%) (0.60%)(a) 0.67% 0.79% 1.13%
Ratio of expenses to average net assets(b) 4.25% 3.50%(a) 1.26% 1.40% 1.24%
Ratio of net investment income (loss)
to average net assets(b) (2.36%) (1.49%)(c) 0.67% 0.78% 1.09%
Portfolio turnover(e) 8% 6% 8% 6% 11%
Average commission paid(f) $0.0579 $0.0513 $ 0.0579 $0.0513
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------------------------------------------------------
+ 3.96% 23.16% 11.50% 68.68%
0----------------------------------------------------------------------------------------------------------------------------
- (28.63%) (2.80%)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ohio Regional Stock Fund, continued CLASS A
YEAR YEAR YEAR YEAR YEAR PERIOD FROM OCT.
ENDED ENDED ENDED ENDED ENDED 20, 1989 TO
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----
$ 9.72 $ 10.00
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.69 $ 12.12 $ 11.15 $ 6.75 ------- -------
------- ------- ------- -------
Income from Investment Activities 0.24
Net investment income (loss) 0.18 0.16 0.20 0.21 (2.98) (0.28)
Net realized and unrealized gains 0.39 2.63 1.07 4.39 -------- --------
------- ------- ------- -------
(losses) from investments (2.74) (0.28)
Total from Investment Activities 0.57 2.79 1.27 4.60 -------- --------
------- ------- ------- -------
Distributions (0.23) --
Net investment income (0.17) (0.18) (0.21) (0.20) -- --
In excess of net investment income -- -- -- --
Net realized gains (0.53) (0.04) (0.09) -- --
In excess of net realized gains -- -- -- -- -------- --------
------- ------- ------- ------- (0.23)
Total Distributions (0.70) (0.22) (0.30) (0.20) --------
-------- -------- -------- -------- $ 6.75 $ 9.72
NET ASSET VALUE, END OF PERIOD $ 14.56 $ 14.69 $ 12.12 $ 11.15 ======= =======
======= ======= ======= ======= (28.63%) (2.80%)b
Total Return (Excludes Sales Charge) 3.96% 23.16% 11.50% 68.68%
RATIOS/SUPPLEMENTAL DATA: $13,039 $20,277
Net Assets, End of Period (000) $33,965 $34,926 $36,115 $27,092 1.11% 0.88%c
Ratio of expenses to average net assets 1.04% 1.04% 1.04% 1.08%
Ratio of net investment income (loss) to 2.66% 0.47%c
average net assets 1.27% 1.17% 1.73% 2.16% -- --
Ratio of expenses to average net assets(b) 1.27% 1.06% -- -- -- --
Ratio of net investment income (loss) to -- --
average net assets(b) 1.04% 1.15% 11% --
Portfolio turnover(e) 14% 7% 8% 15%
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Ohio Regional Stock Fund's
most recent Annual Report to shareholders, which is incorporated by reference in
the SAI. If you would like a copy of the Annual Report, write or call us at
800-539-FUND.
(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 March 1, 1996, the Ohio Regional Stock Fund designated the
existing shares as Class A Shares and began offering Class B Shares.
-31-
<PAGE>
(f) Represents total return for the Ohio Regional Stock Fund for the
period November 1, 1995 through February 29, 1996 plus total return
for Class B Shares for the period March 1, 1996 through October 31,
1996. The total return for the Class B Shares for the period from
March 1, 1996 through October 31, 1996 was 9.03%.
(g) Portfolio turnover is calculated on the basis of the Ohio Regional
Stock Fund as a whole without distinguishing between the classes of
shares issued.
(h) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased
and sold by the Ohio Regional Stock Fund for which commissions were
charged.
-32-
<PAGE>
INTERNATIONAL GROWTH FUND
INVESTMENT OBJECTIVE: The International Growth Fund seeks to provide capital
growth consistent with reasonable investment risk.
INVESTMENT POLICIES AND STRATEGY: The International Growth Fund pursues its
investment objective by investing primarily in equity securities of foreign
corporations, most of which are denominated in foreign currencies.
The International Growth Fund will invest 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 any exchange outside
of the U.S. including developing countries and other developed countries. In
making investment decisions, the Adviser may analyze the economies of foreign
countries and the growth potential for individual sectors and securities.
Under normal market conditions, the International Growth Fund: Will invest at
least 65% of its total assets in:
o Securities (including American Depositary Receipts) of companies that
derive more than 50% of their gross revenues from, or have more than
50% of their assets, outside the United States.
o Securities for which the principal trading markets are located in at
least three different countries (excluding the United States).
o May invest up to 35% of its total assets in:
o Domestic money market securities
o Securities convertible into common stock
o "Sponsored" and "unsponsored" American Depositary Receipts and similar
securities
o Investment grade corporate debt obligations
o U.S. Government Obligations
o Preferred stocks
o May invest up to 20% of its total assets in securities of companies located
in developing countries
The International Growth Fund's higher portfolio turnover rate may result in
higher expenses and taxable gain distributions.
The International Growth Fund is designed for long-term investors. The
International Growth Fund is subject to the risks common to all mutual funds and
to the risks common to mutual funds that invest in equity securities and foreign
securities. The International Growth Fund may be appropriate for investors who
are comfortable with assuming the added risks associated with stocks that do not
pay out significant portions of their earnings as dividends. The International
Growth Fund may be appropriate for investors who are comfortable with assuming
the added risks associated with investments in foreign countries and investments
denominated in foreign currencies. By itself, the International Growth 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 and do not require significant current income from their investments.
PLEASE READ "RISK FACTORS" CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Key Asset Management Inc. (KAM), the investment adviser, is a Manager of
Managers of the International Growth Fund. As Manager of Managers, KAM may
select one or more sub-advisers to manage the International Growth Fund's
assets. KAM has an agreement with Indocam International Investments Services,
S.A. (IIIS), a French corporation located in Paris, France. IIIS has been the
sub-adviser for the International Growth Fund's assets (other than short-term
debt instruments) since June 1998. KAM oversees the investment advisory services
that IIIS provides to the International Growth Fund. For more information about
the sub-adviser, see "Organization and Management of the Fund -- The Investment
Sub-adviser to the International Growth Fund."
-33-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the International Growth Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 5.75% NONE
Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE** 5.00%***
Redemption Fees NONE NONE
Exchange Fees NONE NONE
</TABLE>
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
*** 5% in the first year, declining to 1% in the sixth year with no charge
after the sixth year.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the International
Growth Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE INTERNATIONAL GROWTH
FUND. Expenses include management fees as well as the costs of maintaining
accounts, administering the International Growth Fund, providing shareholder
services, and other activities. The expenses shown are estimated based on
historical expenses of the International Growth Fund adjusted to reflect
anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES CLASS B SHARES
(as a percentage of average daily net assets)
Management Fees(1) .96% .96%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(2) .79% 1.28%
------ -----
Total Fund Operating Expenses(1) 1.75% 2.99%
===== =====
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.10% and the Total Fund Operating Expenses would
be 1.89% for Class A Shares, and 3.13% for Class B Shares.
(2) Other Expenses includes an estimate of shareholder servicing fees the
International Growth Fund expects to pay. See "Organization and Management
of the Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the International Growth
Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
International Growth Fund, assuming: (1) a 5% annual return and (2) redemption
at the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $74 $109 $147 $252
Class B Shares $80 $122 $177 $302
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-34-
<PAGE>
FINANCIAL HIGHLIGHTS
INTERNATIONAL GROWTH FUND
The Financial Highlights describe the International Growth Fund's returns and
operating expenses over time. This table shows the results of an investment in
one share of the International Growth Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ---------------------------------------------------------------------------------------------------------------------------
+ 4.68% 4.89% 6.04% 5.65%
0-------------------------------------------------------------------------------------------------------------------------
- (2.50%)
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS A
MARCH 1,
YEAR 1996 YEAR YEAR YEAR
ENDED THROUGH ENDED ENDED ENDED
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1997 1996(A) 1997 1996(A) 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.93 $ 12.79 $ 13.01 $ 12.33 $ 13.32
------- ------- ------- ------- -------
Income from Investment Activities
Net investment income (loss) (0.06) -- 0.09 0.08 0.05
Net realized and unrealized gains
(losses) from investments from
foreign currencies 0.65 0.14 0.67 0.62 (0.42)
------- ------- ------- ------- --------
Total from Investment Activities 0.59 0.14 0.76 0.70 (0.37)
------- ------- ------- ------- --------
Distributions
Net investment income -- -- (0.01) (0.02) --
Net realized gains (0.45) -- (0.45) -- (0.55)
Tax return capital -- -- -- -- (0.07)
------- ------- ------- ------- --------
Total Distributions (0.45) -- (0.46) (0.02) (0.62)
-------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.07 $ 12.93 $ 13.31 $ 13.01 $ 12.33
======= ======= ======= ====== =======
Total Return (Excludes Sales Charge) 4.68% 4.89%(c) 6.04% 5.65% (2.50%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 184 $ 118 $106,189 $121,517 $106,477
Ratio of expenses to average net assets 3.07% 2.91%(d) 1.69% 1.73% 1.53%
Ratio of net investment income (loss)
to average net assets (0.68%) (0.10%)(d) 0.63% 0.64% 0.75%
Ratio of expenses to average net assets(g) 10.01% 6.46%(d) 1.69% 1.75% 1.65%
Ratio of net investment income (loss)
to average net assets(g) (7.62%) (3.65%)(d) 0.63% 0.62% 0.63%
Portfolio turnover(e) 116% 178% 116% 178% 68%
Average commission paid(f) $0.0274 $0.0242 $0.0274 $0.0242 --
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ---------------------------------------------------------------------------------------------------------------------------------
+ 11.65% 33.59% 2.93%
0------------------------------------------------------------------------------------------------------------------------------
- (2.08%) (4.54%)
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth Fund, continued CLASS A
YEAR YEAR YEAR YEAR MAY 18, 1990
ENDED ENDED ENDED ENDED THROUGH
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.93 $ 8.93 $ 9.20 $ 9.46 $10.00
------- -------- -------- -------- --------
Income from Investment Activities
Net investment income (loss) (0.01) (0.03) (0.02) 0.51 0.09
Net realized and unrealized gains
(losses) from investments from
foreign currencies 1.40 3.03 (0.17) (0.25) (0.55)
------- ------- -------- -------- --------
Total from Investment Activities 1.39 3.00 (0.19) 0.26 (0.46)
------- ------- -------- ------- --------
Distributions
Net investment income -- -- (0.01) (0.52) (0.08)
Net realized gains -- -- (0.07) -- --
Tax return capital -- -- -- -- --
-------- -------- -------- -------- -------
Total Distributions -- -- (0.08) (0.52) (0.08)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 13.32 $ 11.93 $ 8.93 $ 9.20 $ 9.46
======= ======= ======= ======= =======
Total Return (Excludes Sales Charge) 11.65% 33.59% (2.08%) 2.93% (4.54%)i
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $81,307 $30,629 $ 11,091 $5,682 $9,878
Ratio of expenses to average net assets 1.48% 1.46% 1.56% 1.72% 1.70%d
Ratio of net investment income (loss)
to average net assets (0.51%) (0.74%) (0.20%) 5.97% 2.51%d
Ratio of expenses to average net assets(g) 1.83% 1.63% 1.72%
Ratio of net investment income (loss)
to average net assets(g) (0.86%) (0.91%) (0.35%)
Portfolio turnover(e) 51% 45% 92% 103% 12%
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the International Growth Fund's
most recent Annual Report to shareholders, which is incorporated by reference in
the SAI. If you would like a copy of the Annual Report, write or call us at
800-539-FUND.
(a) Effective March 1, 1996, the International Growth Fund designated
the existing shares of Class A Shares and began offering Class B
Shares.
(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
Fund.
(c) Represents total return for the International Growth Fund for the
period November 1, 1995 through February 29, 1996 plus total return
for Class B Shares for the Period March 1, 1995 through October 31,
1996. The total return for Class B Shares for the period from March
1, 1996 through 31, 1996 was 1.11%.
-36-
<PAGE>
(d) Annualized.
(e) Portfolio turnover is calculated on the basis of the International
Growth Fund as a whole without distinguishing between the classes of
shares issued.
(f) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased
and sold by the International Growth Fund for which commissions were
charged.
(g) 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.
(h) Period from commencement of operations.
(i) Not annualized.
-37-
<PAGE>
SPECIAL GROWTH FUND
INVESTMENT OBJECTIVE
The Special Growth Fund seeks to provide capital appreciation.
INVESTMENT POLICIES AND STRATEGY
The Special Growth Fund pursues its investment objective by investing primarily
in equity securities of companies with market capitalization of $1 billion or
less.
In making investment decisions, the Adviser will look for above average growth
rates, high return on equity, issuers that reinvest their earnings in their
business, and strong balance sheets.
Under normal market conditions, the Special Growth Fund:
o Will invest at least 65% of its total assets in equity securities of
companies with market capitalization of $1 billion or less. These equity
investments include:
o Common stock
o Convertible preferred stock
o Debt convertible or exchangeable into equity securities
o Securities convertible into common stock
o May invest up to 35% of its total assets in:
o Equity securities of companies with market capitalization's of
approximately $1 billion or more
o Investment-grade debt securities
o Preferred stocks
The Special Growth Fund's higher portfolio rate may result in higher expenses
and taxable gain distributions.
The Special Growth Fund is designed for long-term equity investors. The Special
Growth Fund may be appropriate for investors who are comfortable with assuming
the added risks associated with small-capitalization stocks in return for the
possibility of long-term rewards. Smaller capitalization companies may have
limited product lines, markets, or financial resources, which may make them more
susceptible to setbacks and reversals. These securities may be subject to more
abrupt or erratic price fluctuations than securities of larger companies.
Small-capitalization stocks as a group may not respond to general market rallies
or downturns as much as other types of equity securities. The Special Growth
Fund may be appropriate for investors who are comfortable with assuming the
added risks associated with stocks that do not pay out significant portions of
their earnings as dividends. By itself, the Special Growth 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 and do not require significant current income from their investments.
PLEASE READ "RISK FACTORS" CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Annette Geddes is the Portfolio Manager of the Special Growth Fund, a position
she has held since June 1996. She is a Portfolio Manager and Senior Managing
Director of KAM, and has been in the investment business since 1967.
-38-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Special Growth Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES
Maximum Sales Charge Imposed on Purchases 5.75%
(as a percentage of the offering price)
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE**
Redemption Fees NONE
Exchange Fees NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Special Growth
Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE SPECIAL GROWTH FUND. Expenses
include management fees as well as costs of maintaining accounts, administering
the Special Growth Fund, providing shareholder services, and other activities.
The expenses shown are estimated based on historical expenses of the Special
Growth Fund adjusted to reflect anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES
(as a percentage of average daily net assets)
Management Fees (1) .86%
Other Expenses(2) .54%
---
Total Fund Operating Expenses(1) 1.40%
====
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.00% and the Total Fund Operating Expenses would
be 1.54%.
(2) Other Expenses includes an estimate of shareholder servicing fees the
Special Growth Fund expects to pay. See "Organization and Management of the
Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Special Growth Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Special Growth Fund, assuming: (1) a 5% annual return and (2) redemption at the
end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A Shares $71 $99 $130 $216
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-39-
<PAGE>
FINANCIAL HIGHLIGHTS
SPECIAL GROWTH FUND
The Financial Highlights describe the Special Growth Fund's returns and
operating expenses over time. This table shows the results of an investment in
one share of the Special Growth Fund for each of the periods indicated.
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- -----------------------------------------------------------------------------------------------------------------------------------
+ 20.62% 19.73% 12.05% 7.51%
0---------------------------------------------------------------------------------------------------------------------------------
- (1.80%)
- -----------------------------------------------------------------------------------------------------------------------------------
Year Year Six Months Year Jan. 11, 1994
Ended Ended Ended Ended through
Oct. 31, Oct. 31, Oct. 31, April 30, April 30,
1997 1996 1995(d) 1995(d) 1994(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.14 $ 11.81 $ 10.54 $ 9.82 $ 10.00
------- --------- ------- -------- --------
Investment Activities
Net investment income (0.13) (0.07) -- 0.02 (0.01)
Net realized and unrealized gains
(losses) on investments 2.93 2.40 1.27 0.72 (0.17)
------- --------- ------- -------- ---------
Total from Investment Activities 2.80 2.33 1.27 0.74 (0.18)
------- --------- ------- -------- ---------
Distributions
Net investment income -- -- -- (0.02) --
In excess of net investment income -- -- -- -- --
Net realized gains (0.65) -- -- -- --
-------- ------------- ------------ -------------- --------
Total Distributions (0.65) -- -- (0.02) --
-------- ------------- ------------ --------- --------
NET ASSET VALUE, END OF PERIOD $ 16.29 $ 14.14 $ 11.81 $ 10.54 $ 9.82
======= ========= ======= ======== ========
Total Return (excludes sales charge) 20.62% 19.73% 12.05%(b) 7.51% (1.80%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $104,565 $ 87,837 $54,335 $20,796 $30,867
Ratio of expenses to average net assets 1.38% 1.47% 0.65%(c) 1.04% 0.82%(c)
Ratio of net investment income to
average net assets (0.93%) (0.62%) (0.13%)(c) 0.17% (0.27%)(c)
Ratio of expenses to average net assets(f) (g) 1.51% 1.40%(c) 1.35% 1.47%(c)
Ratio of net investment income to
average net assets(f) (g) (0.66%) (0.88%)(c) (0.14%) (0.92%)(c)
Portfolio turnover 195% 152% 54% 102% 61%
Average commission rate paid(e) $0.0541 $ 0.0468 -- -- --
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP for each of
the periods in the five-year period ended October 31, 1997. This information
should be read in conjunction with the Special Growth Fund's most recent Annual
Report to shareholders, which is incorporated by reference in the SAI. If you
would like a copy of the Annual Report, write or call us at 800-539-FUND.
-40-
<PAGE>
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) 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.
(e) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Special Growth Fund for which commissions were charged.
(f) During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(g) There were no voluntary fee reductions during the period.
-41-
<PAGE>
BALANCED FUND
INVESTMENT OBJECTIVE: The Balanced Fund seeks to provide income and long-term
growth of capital.
INVESTMENT POLICIES AND STRATEGY: The Balanced Fund pursues its investment
objective by investing in equity securities and fixed income securities. The
Balanced Fund may invest in any type or class of security.
Under normal market conditions, the Balanced Fund will:
o Invest 40% to 75% of its total assets in equity securities and securities
convertible or exchangeable into common stock
o Invest at least 25% of its total assets in fixed income securities and
preferred stocks
o Invest up to 10% of its total assets in equity securities (including
American Depositary Receipts) of foreign companies that derive more than
50% of their gross revenues from, or have more than 50% of their assets,
outside the United States.
IMPORTANT CHARACTERISTICS OF THE BALANCED FUND'S INVESTMENTS:
In making investment decisions involving Equity Securities, the Adviser
considers:
o The growth and profitability prospects for the economic sector and markets
in which the company operates and for the products or services it provides
o The financial condition of the company
o The price of the security and how that price compares to historical price
levels, to current price levels in the general market, and to prices of
competing companies; projected earnings estimates; and the earnings growth
rate of the company
In making investment decisions involving Debt Securities, the Adviser considers:
o QUALITY: The Balanced Fund primarily purchases investment-grade debt
securities.
o MATURITY: The average weighted maturity of the Balanced Fund's fixed income
securities will range from 5 to 15 years. This range may be changed in
response to changes in market conditions.
In making investment decisions involving Preferred Stock, the Adviser considers:
o The issuer's financial strength, including its historic and current
financial condition
o The issuer's projected earnings, cash flow, and borrowing requirements
o The issuer's continuing ability to meet its obligations
The Balanced Fund's higher portfolio turnover rate may result in higher expenses
and taxable gain distributions.
The Balanced Fund is designed for long-term investors. The Balanced Fund is
subject to the risks common to all mutual funds and the risks common to mutual
funds that invest in equity securities, debt securities, and foreign issuer
risk. By itself, the Balanced 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 and in the level of
income they receive from their investment. PLEASE READ "RISK FACTORS" CAREFULLY
BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Denise Coyne and Richard T. Heine are the Portfolio Managers of the Balanced
Fund. Mr. Heine has been the Portfolio Manager of the Balanced Fund since its
inception in December 1993. He is a Portfolio Manager and Director of KAM, and
has been in the investment business since 1976. Ms. Coyne has been a Portfolio
Manager of the Balanced Fund since January 1995. She is a Portfolio Manager and
Director for KAM, and has been in the investment business since 1985.
-42-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Balanced Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES CLASS B SHARES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% NONE
Sales Charge Imposed on Reinvested Dividends NONE NONE
Deferred Sales Charge NONE** 5.00***
Redemption Fees NONE NONE
Exchange Fees NONE NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
*** 5% in the first year, declining to 1% in the sixth year, with no charge
after the sixth year.
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Balanced Fund.
THESE EXPENSES ARE CHARGED DIRECTLY TO THE BALANCED FUND. Expenses include
management fees, as well as the costs of maintaining accounts, administering the
Balanced Fund, providing shareholder services, and other activities. The
expenses shown are estimated based on historical expenses of the Balanced Fund
adjusted to reflect anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES CLASS B SHARES
(as a percentage of average daily net assets)
Management Fees(1) .76% .76%
Rule 12b-1 Distribution Fees .00% .75%
Other Expenses(2) .49% .98%
---- ----
Total Fund Operating Expenses(1) 1.25% 2.49%
===== =====
(1) These fees have been voluntarily reduced. Without this waiver, the
Management Fee would be 1.00%, and the Total Fund Operating Expenses would
be 1.49% for Class A Shares, and 2.73% for Class B Shares.
(2) Other Expenses includes an estimate of shareholder servicing fees the
Balanced Fund expects to pay. See "Organization and Management of the
Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Balanced Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Balanced Fund, assuming: (1) a 5% annual return and (2) redemption at the end of
each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A Shares $70 $95 $122 $200
Class B Shares $75 $108 $153 $252
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
-43-
<PAGE>
FINANCIAL HIGHLIGHTS
BALANCED FUND
****The Financial Highlights describe the Balanced Fund's returns and operating
expenses over time. This table shows the results of an investment in one share
of the Balanced Fund for each of the periods indicated.****
<TABLE>
<CAPTION>
Variability, as shown by year-to-year total return:
- ----------------------------------------------------------------------------------------------------------------------------------
+ 17.43% 15.73% 19.02% 16.27% 19.24%
0--------------------------------------------------------------------------------------------------------------------------------
- (0.57%)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES CLASS A SHARES
MARCH 1,
1996 DECEMBER 10,
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED YEAR ENDED 1993
OCT. 31, OCT. 31, OCT. 31, OCT. 31, OCT. 31, TO OCT. 31,
1997 1996(D) 1997 1996(D) 1995 1994(A)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.34 $11.51 $12.33 $11.01 $9.62 $10.00
------ ------ ------ ------ ------ ------
Income from Investment Activities
Net investment income 0.19 0.14 0.36 0.36 0.41 0.33
Net realized and unrealized gains
(losses) from investments and foreign currencies 1.89 0.85 1.90 1.39 1.40 (0.39)
---- ---- ---- ---- ---- ------
Total from Investment Activities 2.08 0.99 2.26 1.75 1.81 (0.06)
---- ---- ---- ---- ---- ------
Distributions
Net investment income (0.17) (0.14) (0.35) (0.36) (0.42) (0.32)
In excess of net investment income - (0.02) - - (0.01) -
Net realized gains (0.37) - (0.37) (0.07) -
------ --------- ------ ------ ---
Total Distributions (0.54) (0.16) (0.72) (0.43) (0.42) (0.32)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $13.88 $12.34 $13.87 $12.33 $11.01 $9.62
====== ====== ====== ====== ====== =====
Total Return (Excludes Sales Charge) 17.43% 15.73%(e) 19.02% 16.27% 19.24% (0.57%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $3,291 $1,432 $342,933 $273,553 $201,073 $127,285
Ratio of expenses to average net assets 2.56% 2.46%(c) 1.25% 1.27% 0.98% 0.87%(c)
Ratio of net investment income to average net 1.36% 1.78%(c) 2.69% 3.14% 4.05% 3.97%(c)
assets
Ratio of expenses to average net assets(h) 2.95% 2.67%(c) 1.36% 1.43% 1.36% 1.49%(c)
Ratio of net investment income to average net 0.97% 1.57%(c) 2.58% 2.98% 3.67% 3.35%(c)
assets(h)
Portfolio turnover(f) 109% 80% 109% 80% 69% 118%
Average commission rate paid(g) $0.0356 $0.0084 $0.0356 $0.0084 -- --
</TABLE>
The financial highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Balanced Fund's most recent
Annual Report to shareholders, which is incorporated by reference in the SAI. If
you would like a copy of the Annual Report, write or call us at 800-539-FUND.
(a) Period from commencement of operations.
(b) Not annualized
(c) Annualized.
-44-
<PAGE>
(d) Effective March 1, 1996, the Balanced Fund designated the existing shares
as Class A Shares and began offering Class B Shares.
(e) Represents total return for the Balanced Fund for the period November 1,
1995 through February 29, 1996 plus total return for Class B Shares for the
period March 1, 1996 through October 31, 1996. The total return for Class B
Shares for the period from March 1, 1996 through October 31, 1996 was
8.72%.
(f) Portfolio turnover is calculated on the basis of the Balanced Fund as a
whole without distinguishing between the classes of shares issued.
(g) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Balanced Fund for which commissions were charged.
(h) 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.
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<PAGE>
REAL ESTATE INVESTMENT FUND
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 Real Estate Investment Fund will invest
substantially all of its assets in:
o Equity securities (including equity and mortgage REITs)
o Rights or warrants to purchase common stocks
o Securities convertible into common stocks when the Fund's investment
adviser thinks that the conversion will be profitable
o Preferred stocks
The Real Estate Investment Fund also may invest up to 20% of its total assets in
securities of foreign real estate companies and ADRs.
The Real Estate Investment Fund is designed for long-term investors. The Real
Estate Investment 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. PLEASE READ "RISK FACTORS" CAREFULLY BEFORE INVESTING.
PORTFOLIO MANAGEMENT
Patrice Derrington and Richard E. Salomon are the Portfolio Managers of the Real
Estate Investment Fund. Ms. Derrington is a Managing Director and Portfolio
Manager of KAM, and has been in the real estate, investment, and finance
business since 1991. Mr. Salomon is a Director of, and a Senior Managing
Director with KAM and has been in the investment advisory business since 1982.
-46-
<PAGE>
FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invested in the Real Estate Investment Fund.
SHAREHOLDER TRANSACTION EXPENSES* CLASS A SHARES
Maximum Sales Charge Imposed on Purchases
(as a percentage of the offering price) 5.75%
Sales Charge Imposed on Reinvested Dividends NONE
Deferred Sales Charge NONE**
Redemption Fees NONE
Exchange Fees NONE
* You may be charged additional fees if you purchase, exchange, or redeem
shares through a broker or agent.
** Except for investments of $1 million or more. See "Choosing a Share Class."
The Annual Fund Operating Expenses table below illustrates the estimated
operating expenses that you will incur as a shareholder of the Real Estate
Investment Fund. THESE EXPENSES ARE CHARGED DIRECTLY TO THE REAL ESTATE
INVESTMENT FUND. Expenses include management fees as well as the costs of
maintaining accounts, administering the Real Estate Investment Fund, providing
shareholder services, and other activities. The expenses shown are estimated
based on historical expenses of the Real Estate Investment Fund adjusted to
reflect anticipated expenses.
ANNUAL FUND OPERATING EXPENSES CLASS A SHARES
(as a percentage of average daily net assets)
Management Fees(1) 1.00%
Rule 12b-1 Distribution Fees .00%
Other Expenses(2) .40%
-----
Total Fund Operating Expenses(1) 1.40%
=====
(1) These fees have been voluntarily reduced. Without this reimbursement, other
expenses would be 1.93%, and the Total Fund Operating Expenses would be
2.93%
(2) Other Expenses include an estimate of shareholder servicing fees the Real
Estate Investment Fund expects to pay. See "Organization and Management of
the Funds--Shareholder Servicing Plan."
The following example is designed to help you understand the various costs you
will bear, directly or indirectly, as an investor in the Real Estate Investment
Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment in the Real
Estate Investment Fund, assuming: (1) a 5% annual return and (2) redemption at
the end of each time period.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class A Shares $71 $99 $130 $216
THIS EXAMPLE IS ONLY AN ILLUSTRATION. ACTUAL EXPENSES AND RETURNS WILL VARY.
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<PAGE>
FINANCIAL HIGHLIGHTS
REAL ESTATE INVESTMENT FUND
The Financial Highlights describe the Real Estate Investment Fund's returns and
operating expenses over time. This table shows the results of an investment in
one share of the Real Estate Investment Fund for each of the periods indicated.
Variability, as shown by year-to-year total return:
- ------------------------------------------------------------------------------
+ 22.42%
0--------------------------------------------------------------------------
-
- ------------------------------------------------------------------------------
April 30, 1997
Through
Oct. 31,
1997(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------
Investment Activities
Net investment income 0.23
Net realized and unrealized (losses) from investments 2.01
Total from Investment Activities 2.24
Distributions
Net investment income (0.17)
Total Distributions (0.17)
NET ASSET VALUE, END OF PERIOD $ 12.07
==========
Total Return (excludes sales charge) 22.42%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (000) $ 4,376
Ratio of expenses to average net assets 0.00%(c)
Ratio of net investment income to
average net assets 5.11%(c)
Ratio of expenses to average net assets(e) 2.93%(c)
Ratio of net investment income to
average net assets(e) 2.18%(c)
Portfolio turnover 21%
Average commission rate paid(d) $ 0.0464
The Financial Highlights were audited by PricewaterhouseCoopers LLP. This
information should be read in conjunction with the Fund's most recent Annual
Report to shareholders, which is incorporated by reference in the SAI. If you
would like a copy of the Annual Report, write or call us at 800-539-FUND.
(a) Period from commencement of operations.
-48-
<PAGE>
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
security transactions divided by total number of shares purchased and sold
by the Fund for which commissions were charged.
(e) 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
RISK FACTORS
****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.****
This prospectus describes some of the risks that you may assume as an investor
in the Funds. By matching your investment objective with a comfortable level of
risk, you can create your own customized investment plan. Some limitations on
the Funds' 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 each of
the Funds. As with any mutual fund, there is no guarantee that a Fund will earn
income or show a positive total return over time. A Fund's price, yield, and
total return will fluctuate. You may lose money if a Fund's investments do not
perform well.
THE FOLLOWING RISKS ARE COMMON TO ALL MUTUAL FUNDS:
o 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 more or less than the price a
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.
o MANAGER RISK is the risk that a Fund's Portfolio Manager may use a strategy
that does not produce the intended result. Manager risk also refers to the
possibility that the Portfolio Manager may fail to execute a Fund's
investment strategy effectively and thus fail to achieve its objective.
o YEAR 2000 RISK. Like other mutual funds, each of the Funds could be
adversely affected if the computer systems used by their service providers,
including shareholder servicing agents, do not properly process and
calculate date-related information. The Funds' service providers have been
actively updating their systems to be able to process year 2000 data.
However, there can be no assurance that these steps will be adequate to
avoid a temporary service disruption or any adverse impact on the Funds.
THE FOLLOWING RISK IS COMMON TO MUTUAL FUNDS THAT INVEST IN EQUITY SECURITIES:
o 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 FOREIGN
SECURITIES:
o 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 exchange rates may erode or reverse any gains produced
by foreign currency denominated investments and may widen any losses.
-49-
<PAGE>
o FOREIGN ISSUER RISK. Compared to U.S. and Canadian companies, there
generally is 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 issuers may not be
subject to the 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. All of these factors can make foreign investments, especially
those in developing countries, more volatile than U.S. investments.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN DEBT SECURITIES:
o INTEREST RATE RISK. The value of a debt security typically changes in the
opposite direction from a change in interest rates. Therefore, when
interest rates go up, the value of a fixed-rate security typically goes
down. When interest rates go down, the value of these securities typically
goes up. Generally, the market values of securities with longer maturities
are more sensitive to changes in interest rates.
o INFLATION RISK is the risk that inflation will erode the purchasing power
of the cash flows generated by debt securities held by a Fund. Fixed-rate
debt securities are more susceptible to this risk than floating-rate debt
securities.
o REINVESTMENT RISK is the risk that when interest income is reinvested,
interest rates will have declined so that income must be reinvested at a
lower interest rate. Generally, interest rate risk and reinvestment risk
have offsetting effects.
o CREDIT (OR DEFAULT) RISK is the risk that the issuer of a debt security
will be unable to make timely payments of interest or principal. Although
the Funds generally invest only in high-quality securities, the interest or
principal payments may not be insured or guaranteed on all securities.
Credit risk is measured by NRSROs* such as S&P, Fitch, or Moody's.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN THE SECURITIES OF
A SINGLE STATE AND REAL ESTATE:
o 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 Funds that primarily
invest in the securities of a single state, geographic area, or a
particular industry.
THE FOLLOWING RISKS ARE COMMON TO MUTUAL FUNDS THAT INVEST IN REAL ESTATE
SECURITIES:
o 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.
o 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.
* An NRSRO is a nationally recognized statistical ratings organization such as
Standard and Poor's (S&P), Fitch, or Moody's which assigns credit ratings to
securities based on the borrower's ability to meet its obligation to make
principal and interest payments.
** 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.
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<PAGE>
*** 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
****The SEC and IRS have certain restrictions with which all mutual funds must
comply. The Funds monitor these limitations on an ongoing basis.****
To help reduce risk, the Funds have adopted limitations on some investment
policies. These limits involve a Fund's ability to borrow money and the amount
it can invest in various types of 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.
Each Fund limits to 25% of its total assets the amount that it may invest in any
single industry (other than U.S. Government obligations). Each Fund limits its
borrowing to 331/3% 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 Funds do not intend to borrow for leveraging purposes.
DIVERSIFICATION REQUIREMENTS
o SEC REQUIREMENT: Each Fund (other than the Real Estate Investment Fund) is
"diversified" according to certain federal securities provisions regarding
the diversification of its assets. Generally, under these provisions, a
Fund must invest at least 75% of its total assets so that no more than 5%
of its total assets are invested in the securities of any one issuer.
o IRS REQUIREMENT: Each Fund also intends to comply with certain federal tax
requirements regarding the diversification of its assets, which generally
are less restrictive than the SEC requirements. These diversification
provisions and requirements are discussed in the SAI.
INVESTMENT PERFORMANCE
****Past performance does not guarantee future results. You may obtain the
current 30-day yield by calling 800-539-FUND. Our Shareholder Servicing
representatives are available from 8:00 a.m. to 8:00 p.m. Eastern Time Monday
through Friday.****
Victory may advertise the performance of a 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 free of
charge, by calling 800-539-FUND.
The "30-day yield" is an "annualized" figure--the amount you would earn if you
stayed in a Fund for a year and the Fund continued to earn the same net interest
income throughout that year. To calculate 30-day yield, a Fund's net interest
per share for the most recent 30 days is divided by the maximum offering price
per share for Class A Shares, or by the NAV for Class B Shares.
To calculate "total return," a 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.
-51-
<PAGE>
o YIELD is a measure of net interest and dividend income.
o AVERAGE ANNUAL TOTAL RETURN is a hypothetical measure of past dividend
income plus capital appreciation. It is the sum of all of the parts of a
Fund's investment return for periods greater than one year.
0 TOTAL RETURN is the sum of all of the parts of a 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 a Fund today. The past is an imperfect guide to the future.
History does not always repeat itself.
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.****
Each Fund's share price, called its net asset value (the NAV), is calculated
each business day as of the close of the New York Stock Exchange (normally at
4:00 p.m. Eastern Time). Shares are purchased, exchanged, and redeemed 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 a Fund to affect the NAV materially. 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
but the New York Stock Exchange is open.
The NAV is calculated by adding up the total value of a 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
Each Fund's net asset value can be found daily in The Wall Street Journal and
other newspapers.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
As a shareholder, you are entitled to your share of net income and capital gains
on a Fund's investments. The Funds pass their earnings along to investors in the
form of dividends. Dividend distributions are the net dividends or interest
earned on investments after expenses. If a 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 a Fund.
Ordinarily, the Balanced Fund declares and pays dividends from its net
investment income monthly. All other Funds in this prospectus declare and pay
dividends from their net investment income quarterly. The Funds pay any net
capital gains realized as dividends at least annually. The Funds declare and pay
dividends separately for Class A and Class B Shares of the Funds. Distributions
can be received in one of the following ways:
****BUYING A DIVIDEND. You should check a Fund's distribution schedule before
you invest. If you buy shares of a Fund shortly before it makes a distribution,
some of your investment may come back to you as a taxable distribution.****
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<PAGE>
o REINVESTMENT OPTION: You can have distributions automatically reinvested in
additional shares of a Fund. If you do not indicate another choice on your
Account Application, this option will be assigned to you automatically.
o CASH OPTION: A check will be mailed to you no later than 7 days after the
pay date.
o INCOME EARNED OPTION: Dividends can be reinvested automatically in a Fund
in which you have invested and your capital gains can be paid in cash, or
capital gains can be reinvested and dividends paid in cash.
o DIRECTED DIVIDENDS OPTION: You can have distributions automatically
reinvested in shares of another fund of the Victory Group. If distributions
from Class A Shares are reinvested in Class A Shares of another fund, you
will not pay a sales charge on the reinvested distributions. DIRECTED BANK
o ACCOUNT OPTION: In most cases, you can have distributions transferred
automatically to your bank checking or savings account. Under normal
circumstances, dividends 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.
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 800-539-FUND.
IMPORTANT INFORMATION ABOUT TAXES
Each Fund intends to continue 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.
o Ordinary dividends from a Fund are taxable as ordinary income; dividends
from a Fund's long-term capital gain are taxable as capital gain.
o Dividends are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares. They may also be
subject to state and local taxes.
o Dividends from the Funds that are attributable to interest on certain U.S.
Government obligations may be exempt from certain state and local income
taxes. The extent to which ordinary dividends are attributable to U.S.
Government obligations will be provided on the tax statements you receive
from a Fund.
o Certain dividends paid to you in January will be taxable as if they had
been paid to you the previous December.
o Tax statements will be mailed from a Fund every January showing the amounts
and tax status of distributions made to you.
o Under certain circumstances, a Fund may be in a position to (in which case
it would) "pass-through" to you the right to a credit or deduction for
income or other tax credits earned from foreign investments.
o 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.
o You should review the more detailed discussion of federal income tax
considerations in the SAI.
-53-
<PAGE>
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 A FUND.
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
section on "Choosing a Share Class" will help you decide whether it would be
more to your advantage to purchase Class A or Class B Shares of a Fund. 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
a Fund. We want to make it simple for you to do business with us. The sections
that follow will serve as a guide to your investments with Victory. If you have
questions about any of this information, please call your Investment
Professional or one of our customer service representatives at 800-539-FUND.
They will be happy to assist you.
****All you need to do to get started is to fill out an application.****
CHOOSING A SHARE CLASS
Some of the Funds described in this prospectus offer only Class A Shares, while
others offer both Class A and B shares of the Funds. The following chart shows
which Funds offer one or both classes of shares:
ONLY CLASS A SHARES BOTH CLASS A AND CLASS B SHARES
------------------- -------------------------------
Value Fund Diversified Stock Fund
Stock Index Fund Special Value Fund
Growth Fund Ohio Regional Stock Fund
Special Growth Fund International Growth Fund
Real Estate Investment Fund Balanced Fund
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your Investment Professional can also help you decide.
CLASS A
o Front-end sales charges, as described on the next page. There are several
ways to reduce these charges.
o Lower annual expenses than Class B shares.
CLASS B
o No front-end sales charge. All your money goes to work for you right away.
o Higher annual expenses than Class A shares.
o A deferred sales charge on shares you sell within 6 years of purchase, as
described on the next page.
o Automatic conversion to Class A shares after 8 years, thus reducing future
annual expenses.
****For historical expense information on Class A and B shares, see the
financial highlights in the Fund overviews earlier in this prospectus.****
-54-
<PAGE>
CALCULATION OF SALES CHARGES--CLASS A
Class A 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 % OF OFFERING PRICE AS A % OF YOUR INVESTMENT AS A % OF THE
OFFERING PRICE
<S> <C> <C> <C>
Up to $50,000 5.75% 6.10% 5.00%
$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 2.50% 2.56% 2.00%
$500,000 up to $1,000,000 2.00% 2.04% 1.75%
$1,000,000 and above* 0.00% 0.00% *
</TABLE>
* 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.
The Distributor reserves the right to pay the entire commission to dealers. If
that occurs, the dealer may be considered an "underwriter" under federal
securities laws.
****There are several ways you can combine multiple purchases in the Victory
Funds and take advantage of reduced sales charges.****
SALES CHARGE REDUCTIONS AND WAIVERS FOR CLASS A SHARES
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you purchase Class A Shares of a 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.
2. 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.
3. You can combine Class A Shares of multiple Victory Funds, (excluding 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 21) for a reduced sales charge at the time of purchase.
4. Waivers for certain investors:
a) Current and retired Fund Trustees, directors, trustees,
employees, and family members of employees of KeyCorp or
"Affiliated Providers,"* and dealers who have an agreement with
the Distributor and any trade organization to which the Adviser
or the Administrator belong.
b) Investors who purchase shares for trust or other advisory
accounts established with KeyCorp or its affiliates.
-55-
<PAGE>
c) Investors who reinvest a distribution from a deferred
compensation plan, agency, trust, or custody account that was
maintained by KeyBank National Associates and its affiliates, the
Victory Group, or invested in a fund of the Victory Group.
d) 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.
e) Investment Professionals who purchased 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 the Victory Group.
DEFERRED SALES CHARGES--CLASS B
Shares are offered at their NAV per share, without an initial sales charge. When
you sell the shares within six years of buying them, there is a contingent
deferred sales charge (CDSC). The CDSC is based on the original purchase cost of
your investment or the NAV at the time of redemption, whichever is lower.
Eight years after Class B Shares are purchased, they automatically will convert
to Class A Shares. Class A shareholders are not subject to the asset-based sales
charge that normally would apply to Class B shares, as described in
"Distribution Plan for Class B Shares." Also see the SAI for additional details.
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
After 6 Years None
THE DISTRIBUTOR PAYS SALES COMMISSIONS OF 4.00% OF THE PURCHASE PRICE TO DEALERS
AT THE TIME OF SALE.
****There is no CDSC on reinvested dividends. The longer the time between the
purchase and sale of shares, the lower the rate of the CDSC.****
SALES CHARGE REDUCTIONS AND WAIVERS FOR CLASS B SHARES: The CDSC will be waived
for the following redemptions:
1. Distributions from retirement plans if the distributions are made:
a) Under the Systematic Withdrawal Plan after age 59-1/2 for up to 12% of
the account value annually; or
b) Following the death or disability of the participant or beneficial
owner;
2. Redemptions from accounts other than retirement accounts following the
death or disability of the shareholder;
3. Returns of excess contributions to retirement plans;
4. Distributions of less than 12% of the annual account value under a
Systematic Withdrawal Plan;
-56-
<PAGE>
5. Shares issued in a plan of reorganization sponsored by Victory, or shares
redeemed involuntarily in a similar situation.
HOW TO PURCHASE SHARES
Class A and Class B Shares can be purchased in a number of different ways. You
can send in your investment by check, wire transfer, exchange from another fund
of the Victory Group, 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 a Fund.
If your request is received and accepted by 4:00 p.m. Eastern Time, your
purchase will be processed using that day's share price.
****All you need to do to get started is to fill out an application.****
Make your check payable to:
THE VICTORY FUNDS
Keep the following addresses handy for purchases, exchanges, or redemptions:
REGULAR U.S. MAIL ADDRESS
Send a 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
66 BROOKS DRIVE
BRAINTREE, MA 02184
PHONE: 800-539-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 800-539-FUND BEFORE wiring funds
to obtain a confirmation 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 confirmation number assigned by the
Transfer Agent)
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<PAGE>
TELEPHONE
800-539-FUND
800-539-3863
****FAX Number:
800-529-2244****
****Telecommunication Device for the Deaf (TDD): 800-970-5296****
ACH
After your account is set up, your purchase amount can be transferred by
Automated Clearing House (ACH). Only domestic member banks may be used. It takes
about 15 days to set up the ACH feature. Currently, the Funds do not charge a
fee 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 Funds. By January 31 of each year, you will
be mailed an IRS form reporting account distributions for the previous year,
which also will 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 in shares of
a Fund.
RETIREMENT PLANS
You can use the Funds as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-deferred
retirement 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.
****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.****
All purchases must be made in U.S. Dollars and drawn on U.S. banks. The Transfer
Agent may reject any purchase order in 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.
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<PAGE>
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.
****You can obtain a list of funds available for exchange by calling the
Transfer Agent at 800-539-FUND.****
You can exchange shares of the Fund by writing or calling the Transfer Agent at
800-539-FUND. When you exchange shares of the Funds, you should keep the
following in mind:
o Shares of the fund selected for exchange must be available for sale in your
state of residence.
o The Fund whose shares you would like to exchange and the fund whose shares
you want to buy must offer the exchange privilege.
o Shares of a 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. The same rules
apply to Class B Shares.
o You must meet the minimum purchase requirements for the fund you purchase
by exchange.
o The registration and tax identification numbers of the two accounts must be
identical.
o 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.
o Before exchanging, read the prospectus of the fund you wish to purchase by
exchange.
HOW TO REDEEM SHARES
If your request is received and accepted 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 800-539-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:
o Mail a check to the address of record;
o Wire funds to a domestic financial institution;
o Mail to a previously designated alternate address; or
o 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.
-59-
<PAGE>
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:
o Redemptions over $10,000;
o Your account registration has changed within the last 15 days;
o The check is not being mailed to the address on your account;
o The check is not being made payable to the owner of the account; or
o 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.
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
your instructions are received after 4:00 p.m. Eastern Time. It will be
transferred by ACH as long as the transfer is to a domestic bank.
****There are a number of convenient ways to redeem shares of a Fund. You can
use the same mailing addresses listed for purchases. You will earn dividends up
to the date your redemption request is processed.****
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
If you check this box on the Account Application, we will send monthly,
quarterly, semi-annual, or annual payments to the person you designate. The
minimum withdrawal is $25, and you must have an account value of $5,000 or more
to begin 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>
****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 Funds to
service their shareholders. They are paid a fee for their services.****
ORGANIZATION AND MANAGEMENT OF THE FUNDS
ABOUT VICTORY
Each Fund is a member of the Victory Funds, a group of 36 distinct investment
portfolios, organized as a Delaware business trust. Some of the Victory Funds
have been operating since 1983.
The Board of Trustees of Victory has the overall responsibility for the
management of the Funds. They are elected by the shareholders.
THE INVESTMENT ADVISER
One of a 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 $64 billion for a limited number of individual and institutional
clients.
The Advisory Agreement allows the Adviser to hire employees of its affiliates.
It also allows KAM to choose brokers or dealers to handle the purchases and
sales of a Fund's securities. Subject to Board approval, Key Investments, Inc.
(KII) and/or Key Clearing Corporation (KCC) may act as clearing broker for the
Funds' security transactions in accordance with procedures adopted by the Funds,
and receive commissions or fees in connection with their services to the Funds.
Both KII and KCC are wholly-owned indirect subsidiaries of KeyCorp and are
affiliates of the Adviser.
Prior to February 28, 1997, KeyCorp Mutual Fund Advisers, Inc. was the adviser.
Society Asset Management, Inc. (formerly the adviser) was the sub-adviser to
each of the Funds except the Special Growth Fund. During the fiscal year ended
October 31, 1997, the Adviser was paid an advisory fee at an annual rate based
on the average daily net assets of each Fund (after waivers) as follows:
<TABLE>
<CAPTION>
Ohio Inter- Real
Diversified Stock Special Regional national Special Estate
Value Fund Stock Index Growth Value Stock Growth Growth Balanced Investment
Fund Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees 1.00% .65% .45% 1.00% 1.00% .75% 1.10% 1.00% .89% .00%
</TABLE>
|----------------------------------------|
| MANAGEMENT OF THE FUNDS |
|----------------------------------------|
|
|----------------------------------------|
| TRUSTEES |
|----------------------------------------|
| Supervise each Fund's activities |
|----------------------------------------|
|
|----------------------------------------|
| Investment Adviser |
|----------------------------------------|
| Key Asset Management Inc. |
| 127 Public Square |
| Cleveland, OH 44114 |
| |
|----------------------------------------|
| Manages each Fund's |
| business and investment activities. |
|----------------------------------------|
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<PAGE>
THE INVESTMENT SUB-ADVISER TO THE INTERNATIONAL GROWTH FUND
Manager of Managers. KAM, the investment adviser, serves as a Manager of
Managers of the International Growth Fund. That is, KAM may select one or more
sub-advisers to manage the International Growth Fund's assets. KAM evaluates
each sub-adviser's skills, investment styles and strategies in light of KAM's
analysis of the international securities markets. Under its Advisory Agreement
with Victory, KAM oversees the investment advisory services that a sub-adviser
provides to the International Growth Fund. If KAM engages more than one
sub-adviser, KAM may reallocate assets among sub-advisers when it believes it is
appropriate. KAM provides investment advice regarding short-term debt
securities. KAM has the ultimate responsibility for the International Growth
Fund's investment performance because it is responsible for overseeing all
sub-advisers and recommending to the Fund's Board of Trustees that it hire,
terminate or replace a particular sub-adviser.
Victory and KAM have obtained an order from the SEC that allows KAM to serve as
a Manager of Managers. The order lets KAM, subject to certain conditions, select
new sub-advisers with the approval of Victory's Board of Trustees, without
obtaining shareholder approval. The order also allows KAM to change the terms of
agreements with the sub-advisers or to keep a sub-adviser even if certain events
would otherwise require that a sub-advisory agreement to terminate. Victory will
notify shareholders of any sub-adviser change. Shareholders, however, also have
the right to terminate an agreement with a particular sub-adviser. If KAM hires
more than one sub-adviser, the order also allows the International Growth Fund
to disclose only the aggregate amount of fees paid to all sub-advisers.
***IIIS is the sub-adviser for the International Growth Fund.***
Indocam International Investment Services, S.A. KAM has entered into a Portfolio
Management Agreement with Indocam International Investment Services, S.A.
(IIIS). IIIS serves as sub-adviser for all of the International Growth Fund's
assets (other than short-term debt instruments). IIIS and its advisory
affiliates (Indocam) are the global asset management component of the Credit
Agricole banking and financial services group. As of December 31, 1997, Indocam
managed approximately $124 billion for its clients.
Eric Taze-Bernard, Ayaz Ebrahim, Didier Le Conte, and Jean-Claude Kaltenbach are
directly responsible for the management of the Fund. Mr. Taze-Bernard, the lead
portfolio manager, has been employed by IIIS (or its affiliates) since 1987 and
currently is the Head of Strategy of Asset Allocation of IIIS. Mr. Ebrahim is
the Director and Portfolio Manager of IIIS, Hong Kong. Mr. Ebrahim has been
employed by IIIS (or its affiliates) since 1991. Mr. Le Conte is the Senior
Portfolio Manager responsible for European Equities at IIIS and has been
employed by IIIS (or its affiliates) since 1966. Mr. Kaltenbach is the Head of
Equity Management at IIIS and has been employed by IIIS (or its affiliates)
since 1994. Prior to his employment by IIIS, Mr. Kaltenbach was the Head of
Asset Management at Union Europeenne de CIC since 1988.
KAM, and not the International Growth Fund, pays IIIS a sub-advisory fee equal,
on an annual basis, to 0.55% of the International Growth Fund's average daily
net assets.
o THE ADMINISTRATOR, DISTRIBUTOR, AND FUND ACCOUNTANT
BISYS Fund Services is the Administrator and the Distributor. The Fund pays
BISYS a fee as the Administrator at the following annual rate based on each
Fund's average daily net assets:
o .15% for portfolio assets of $300 million and less,
o .12% for the next $300 million through $600 million of portfolio assets;
and
o .10% for portfolio assets greater than $600 million.
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<PAGE>
Under a Sub-Administration Agreement, BISYS pays KAM a fee at the annual rate of
up to .05% of each Fund's average daily net assets to perform some of the
administrative duties for the Funds. The Funds do not pay BISYS a fee for its
services as Distributor, although BISYS receives the sales charge. Each Fund
pays BISYS Fund Services Ohio, Inc. a fee for serving as the Funds' Accountant.
The Distributor may provide sales support, including cash or other compensation
to dealers for selling shares of a 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 a Fund or its shareholders.
SHAREHOLDER SERVICING PLAN
The Funds have adopted a Shareholder Servicing Plan for each class of shares of
the Funds except the Stock Index Fund. The shareholder servicing agent performs
a number of services for its customers who are shareholders of the Funds. It
establishes and maintains accounts and records, processes dividend payments,
arranges for bank wires, assists in transactions, and changes account
information. For these services a Fund pays a fee at an annual rate of up to
.25% of the average daily net assets of the appropriate class of shares serviced
by the agent. The Funds may enter into agreements with various shareholder
servicing agents, including KeyBank National Association and its affiliates,
other financial institutions, and securities brokers. The Funds may pay a
servicing fee to broker-dealers and others who sponsor "no transaction fee" or
similar programs for the purchase of shares. 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 Class B Shares of the five funds that sell
Class B Shares. Victory pays the Distributor an annual asset-based sales charge
of up to 0.75%. The fee is computed on the average daily net assets of those
shares. The Distributor then uses the asset-based sales charge to recoup these
sales commissions and the costs for financing them. Victory has adopted a
Distribution and Service Plan for the Real Estate Investment Fund, but this Fund
does not currently pay expenses under this plan. See the SAI for more details
regarding this plan.
****The Funds are supervised by the Board of Trustees who monitor the services
provided to investors.****
BROKERAGE
The Fund may buy and sell securities through an affiliate of KAM. The Board of
Trustees has adopted procedures to ensure that these transactions are fair and
in the best interest of the Fund.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP serves as independent accountants to the Funds.
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel serves as legal counsel to the Funds.
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<PAGE>
<TABLE>
<CAPTION>
HOW THE FUNDS ARE ORGANIZED
<S> <C>
|---------------------|
| |
|-------------| 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. |
|----------------------------------------------|
|
|
|-------------------------------------------------| | |----------------------------------------------|
| DISTRIBUTOR AND ADMINISTRATOR | | | FUND ACCOUNTANT |
| | | | |
| | |--------------| |
| BISYS Fund Services | | | BISYS Fund Services Ohio, Inc. |
| and its affiliates | | | 3435 Stelzer Road |
| 3435 Stelzer Road | | | Columbus, OH 43219 |
| Columbus, OH 43219 | | | |
| |-----------| | |
| | | | |
| | | |Calculates the value of Fund shares and keeps |
| | | | certain Fund records. |
| As Distributor, markets the Funds, distributes | | | |
| shares through Investment Professionals. As | | | |
| Administrator, handles the day-to-day operations| | | |
| of the Funds. | | | |
| | | | |
|-------------------------------------------------| | |----------------------------------------------|
|
|-------------------------------------------------| | |----------------------------------------------|
| SUB-ADMINISTRATOR | | | CUSTODIAN |
| Key Asset Management Inc. | | | Key Trust Company of Ohio, N.A. |
| 127 Public square | | | 127 Public Square |
| Cleveland, OH 44114 | | | Cleveland, OH 44114 |
| | | | Provides for safekeeping of the |
|Handles some day-to-day operations of the Funds. | ---------------- Funds' investments and cash, and settles |
| | | trades made by the Funds. |
| | | |
| | | |
- --------------------------------------------------| |----------------------------------------------|
</TABLE>
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<PAGE>
ADDITIONAL INFORMATION
****Some additional information you should know about the Funds.****
SHARE CLASSES
The Funds offer only the classes of shares described in this prospectus, but at
some future date, the Funds 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 a 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 a 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 also may purchase shares of such a company for their customers and pay
third parties for performing these functions. 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 each 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 lawfully be sold. 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.
****If you would like to receive additional copies of any materials, please
call the Funds at 800-539-FUND.****
-65-
<PAGE>
The following table lists some of the types of securities each of the Funds may
choose to purchase under normal market conditions. Each Fund invests primarily
in equity securities. However, the Funds also are permitted to invest in the
non-equity securities as shown in the table below and in the SAI. For temporary
defensive purposes, each Fund may hold up to 100% of its total assets in cash or
short-term money market instruments. For more information on ratings and
detailed descriptions of each of the investments below, see the SAI.
% Percent of TOTAL assets
o Indicates a "derivative security," whose value is linked to, or derived from
another security, instrument or index. # No limitation of usage; Fund may be
using currently.
OTHER SECURITIES AND INVESTMENT PRACTICES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VALUE DIVERSIFIED STOCK INDEX
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES FUND STOCK FUND FUND(1) GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. EQUITY SECURITIES. Can include common stock and securities 80-100% 80-100% 80-100% 80-100%
convertible into stock of U.S. corporations.
- -----------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES OF COMPANIES TRADED ON A FOREIGN EXCHANGE. Can
include common stock and securities convertible into stock of None None None None
non-U.S. corporations.
EQUITY SECURITIES OF FOREIGN COMPANIES TRADED ON U.S. EXCHANGES.
Can include common stock, preferred stock, and securities 10% 10% # 5%
convertible into stock. Also may include American Depositary
Receipts (ADRs) and Global Depositary Receipts (GDRs).
- -----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK. A class of stock that pays dividends at a None 20% None 20%
specified rate and that has preference over common stock in the
payment of dividends and the liquidation of assets.
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. CORPORATE DEBT OBLIGATIONS. Debt instruments issued by U.S. 20% 20% None 20%
public corporations. They may be secured or unsecured.
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS. Shares of ownership in real estate 25% 25% 25% 25%
investment trusts or mortgages on real estate.
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the 20% 20% 20% 20%
U.S. government, its agencies or instrumentalities. Some are only U.S.
direct obligations of the U.S. Treasury; others are obligations Treasury
only of the U.S. agency. obligations (3)
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT OBLIGATIONS. Includes bankers' acceptances, 20% 20% 33 1/3%(3) 20%
certificates of deposit, prime quality commercial paper, Eurodollar
obligations, variable and floating rate notes, cash, and cash
equivalents.
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN DEBT SECURITIES. Debt securities of foreign issuers None None None None
including international bonds traded in the United States and
abroad.
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL OHIO INTER- SPECIAL REAL ESTATE
VALUE REGIONAL NATIONAL GROWTH BALANCED INVESTMENT
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES FUND STOCK FUND GROWTH FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. EQUITY SECURITIES. Can include common stock and securities 80-100% 80-100% None 65-100% 40-75% 80-100%
convertible into stock of U.S. corporations.
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES OF COMPANIES TRADED ON A FOREIGN EXCHANGE. Can
include common stock and securities convertible into stock of None None None
non-U.S. corporations.
EQUITY SECURITIES OF FOREIGN COMPANIES TRADED ON U.S. EXCHANGES.
Can include common stock, preferred stock, and securities 5% None 65-100% 5% 10% 20%
convertible into stock. Also may include American Depositary
Receipts (ADRs) and Global Depositary Receipts (GDRs).
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK. A class of stock that pays dividends at a 20% None 35% 35% 25% 20%
specified rate and that has preference over common stock in the
payment of dividends and the liquidation of assets.
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. CORPORATE DEBT OBLIGATIONS. Debt instruments issued by U.S. 20% 20% 35% 35% 60% (2) None
public corporations. They may be secured or unsecured.
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS. Shares of ownership in real estate 25% 25% 25% 25% 25% #
investment trusts or mortgages on real estate.
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the 20% 20% 35% 35% 60% 20%
U.S. government, its agencies or instrumentalities. Some are
direct obligations of the U.S. Treasury; others are obligations
only of the U.S. agency.
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT OBLIGATIONS. Includes bankers' acceptances, 20% 20% 35% 35% 35% 20%
certificates of deposit, prime quality commercial paper, Eurodollar
obligations, variable and floating rate notes, cash, and cash
equivalents.
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN DEBT SECURITIES. Debt securities of foreign issuers None None 20% None 10% None
including international bonds traded in the United States and
abroad.
- ------------------------------------------------------------------------------------------------------------------------------------
-66-
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------
VALUE DIVERSIFIED STOCK INDEX
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES FUND STOCK FUND FUND(1)
- -------------------------------------------------------------------------------------------------------------------------
WARRANTS. The right to purchase an equity security at a stated 10% 10% 10%
price for a limited period of time.
- -------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. A security that is 33-1/3% 33-1/3% 33-1/3%
purchased for delivery at a later time. The market value may
change before the delivery date and the value is included in the
NAV of the Fund.
- -------------------------------------------------------------------------------------------------------------------------
o RECEIPTS. Separately traded interest or principal components of 20% 20% None
U.S. Government securities.
- -------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. An agreement to sell and repurchase a 20% 20% 20%(3)
security at a stated price plus interest. The seller's obligation
to the Fund is secured by collateral. Subject to the receipt of an
exemptive order from the SEC, the Adviser may combine repurchase
transactions among one or more Victory funds into a single
transaction.
- -------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES. Investments that cannot be readily sold 15% of net 15% of net 15% of net
within seven days in the usual course of business at approximately assets assets assets
the price at which a Fund values them, including forward contracts*
to hedge currency risk. (*Only the Balanced Fund and the
International Growth Fund may use forward contracts this way.)
- -------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES. Securities that are not registered under 20% 20% 20%
federal securities laws but that may be traded among qualified
institutional investors and the Fund. Some of these securities
may be illiquid.
- -------------------------------------------------------------------------------------------------------------------------
o FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Contracts 5% in margins 5% in margins 5% in margins
involving the right or obligation to deliver or receive assets or and premiums; and premiums; and premiums;
money depending on the performance of one or more assets or a 33-1/3% subject 33-1/3% subject 33-1/3% subject
securities index. To reduce the effects of leverage, liquid to futures or to futures or to futures or
assets equal to the contract commitment are set aside to cover options on options on options on
the commitment. The Funds may invest in futures in an effort futures futures futures
to hedge against market risk.
- -------------------------------------------------------------------------------------------------------------------------
o OPTIONS. A Fund may write, or sell, a covered call option on a 25% in covered 25% in covered 25% in covered
security that it owns or on an index to hedge its position or calls calls calls
generate additional income. The Special Growth Fund may purchase
call options, purchase put options, write put options, or write
uncovered call options for speculative investments.
- -------------------------------------------------------------------------------------------------------------------------
BORROWING, REVERSE REPURCHASE AGREEMENTS. The borrowing of money 5% 5% 5%
from banks (up to 5% of total assets) or through reverse 33-1/3% 33-1/3% 33-1/3%
repurchase agreements (up to 33-1/3% of total assets). The Funds
will not use borrowing to create leverage.
- -------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
OHIO
SPECIAL VALUE REGIONAL
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES GROWTH FUND FUND STOCK FUND
- --------------------------------------------------------------------------------------------------------------------------
WARRANTS. The right to purchase an equity security at a stated 10% 10% 10%
price for a limited period of time.
- --------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. A security that is 33-1/3% 33-1/3% 33-1/3%
purchased for delivery at a later time. The market value may
change before the delivery date and the value is included in the
NAV of the Fund.
- --------------------------------------------------------------------------------------------------------------------------
o RECEIPTS. Separately traded interest or principal components of 20% 20% 20%
U.S. Government securities.
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. An agreement to sell and repurchase a 20% 20% 20%
security at a stated price plus interest. The seller's obligation
to the Fund is secured by collateral. Subject to the receipt of an
exemptive order from the SEC, the Adviser may combine repurchase
transactions among one or more Victory funds into a single
transaction.
- --------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES. Investments that cannot be readily sold 15% of net 15% of net 15% of net
within seven days in the usual course of business at approximately assets assets assets
the price at which a Fund values them, including forward contracts*
to hedge currency risk. (*Only the Balanced Fund and the
International Growth Fund may use forward contracts this way.)
- --------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES. Securities that are not registered under 20% 20% 20%
federal securities laws but that may be traded among qualified
institutional investors and the Fund. Some of these securities
may be illiquid.
- --------------------------------------------------------------------------------------------------------------------------
o FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Contracts 5% in margins 5% in margins 5% in margins
involving the right or obligation to deliver or receive assets or and premiums; and premiums; and premiums;
money depending on the performance of one or more assets or a 33-1/3% subject 33-1/3% 33-1/3% subject
securities index. To reduce the effects of leverage, liquid to futures or subject to to futures or
assets equal to the contract commitment are set aside to cover options on futures or options on
the commitment. The Funds may invest in futures in an effort futures options on futures
to hedge against market risk. futures
- --------------------------------------------------------------------------------------------------------------------------
o OPTIONS. A Fund may write, or sell, a covered call option on a 25% in covered 25% in covered 25% in covered
security that it owns or on an index to hedge its position or calls calls calls
generate additional income. The Special Growth Fund may purchase
call options, purchase put options, write put options, or write
uncovered call options for speculative investments.
- --------------------------------------------------------------------------------------------------------------------------
BORROWING, REVERSE REPURCHASE AGREEMENTS. The borrowing of money 5% 5% 5%
from banks (up to 5% of total assets) or through reverse 33-1/3% 33-1/3% 33-1/3%
repurchase agreements (up to 33-1/3% of total assets). The Funds
will not use borrowing to create leverage.
- --------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SPECIAL REAL ESTATE
INTERNATIONAL GROWTH FUND BALANCED INVESTMENT
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES GROWTH FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
WARRANTS. The right to purchase an equity security at a stated 10% 10% 10% 10%
price for a limited period of time.
- -----------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. A security that is 33-1/3% 33-1/3% 33-1/3% 33-1/3%
purchased for delivery at a later time. The market value may
change before the delivery date and the value is included in the
NAV of the Fund.
- -----------------------------------------------------------------------------------------------------------------------------------
ORECEIPTS. Separately traded interest or principal components of 20% 20% 10% 20%
U.S. Government securities.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. An agreement to sell and repurchase a 35% 35% 35% 20%
security at a stated price plus interest. The seller's obligation
to the Fund is secured by collateral. Subject to the receipt of an
exemptive order from the SEC, the Adviser may combine repurchase
transactions among one or more Victory funds into a single
transaction.
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES. Investments that cannot be readily sold 15% of net assets* 15% of net 15% of net 15% of net
within seven days in the usual course of business at approximately assets assets* assets
the price at which a Fund values them, including forward contracts
to hedge currency risk. (*Only the Balanced Fund and the
International Growth Fund may use forward contracts this way.)
- -----------------------------------------------------------------------------------------------------------------------------------
RESTRICTED SECURITIES. Securities that are not registered under 35% 35% 35% 15%
federal securities laws but that may be traded among qualified
institutional investors and the Fund. Some of these securities
may be illiquid.
- -----------------------------------------------------------------------------------------------------------------------------------
o FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Contracts 5% in margins and 5% in margins 5% in margins 5% in margins
involving the right or obligation to deliver or receive assets or premiums; 33-1/3% and premiums; and premiums; and premiums;
money depending on the performance of one or more assets or a subject to 33-1/3% 33-1/3% 33-1/3%
securities index. To reduce the effects of leverage, liquid futures or subject to subject to subject to
assets equal to the contract commitment are set aside to cover options on futures futures or futures or futures or
the commitment. The Funds may invest in futures in an effort options on options on options on
to hedge against market risk. futures futures futures
- -----------------------------------------------------------------------------------------------------------------------------------
o OPTIONS. A Fund may write, or sell, a covered call option on a 25% in covered 25% in covered 25% in 25% in
security that it owns or on an index to hedge its position or calls calls and 5% covered covered
generate additional income. The Special Growth Fund may purchase in call or put calls calls
call options, purchase put options, write put options, or write options and puts
uncovered call options for speculative investments.
- -----------------------------------------------------------------------------------------------------------------------------------
BORROWING, REVERSE REPURCHASE AGREEMENTS. The borrowing of money 5% 5% 5% 5%
from banks (up to 5% of total assets) or through reverse 33-1/3% 33-1/3% 33-1/3% 33-1/3%
repurchase agreements (up to 33-1/3% of total assets). The Funds
will not use borrowing to create leverage.
- -----------------------------------------------------------------------------------------------------------------------------------
-67-
<PAGE>
- ----------------------------------------------------------------------------------------------------------------------------------
SPECIAL
VALUE DIVERSIFIED STOCK INDEX GROWTH VALUE
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES FUND STOCK FUND FUND(1) FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING. To generate additional income, a Fund may lend 33-1/3% 33-1/3% 33-1/3% 33-1/3% 33-1/3%
its portfolio securities. A Fund will receive collateral for the
value of the security plus any interest due. A Fund only will
enter into securities lending arrangements with entities that the
Adviser has determined are creditworthy. Subject to the receipt
of an exemptive order from the SEC, Key Trust Company of Ohio,
N.A., the Funds' Custodian and lending agent, may earn a fee
based on the amount of income earned on the investment of
collateral.
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES. Shares of other mutual funds with 5% 5% 5% 5% 5%
similar investment objectives. The following limitations apply: 3% 3% 3% 3% 3%
(1) No more than 5% of a Fund's total assets may be invested in one 10% 10% 10% 10% 10%
mutual fund, (2) a Fund and its affiliates may not own more than 3%
of the securities of any one mutual fund, and (3) no more than 10%
of a Fund's total assets may be invested in combined mutual fund
holdings.
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
OHIO INTER- SPECIAL REAL ESTATE
REGIONAL NATIONAL GROWTH BALANCED INVESTMENT
LIST OF ALLOWABLE INVESTMENTS AND INVESTMENT PRACTICES STOCK FUND GROWTH FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING. To generate additional income, a Fund may lend 33-1/3% 33-1/3% 33-1/3% 33-1/3% 33-1/3%
its portfolio securities. A Fund will receive collateral for the
value of the security plus any interest due. A Fund only will
enter into securities lending arrangements with entities that the
Adviser has determined are creditworthy. Subject to the receipt
of an exemptive order from the SEC, Key Trust Company of Ohio,
N.A., the Funds' Custodian and lending agent, may earn a fee
based on the amount of income earned on the investment of
collateral.
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY SECURITIES. Shares of other mutual funds with 5% 5% 5% 5% 5%
similar investment objectives. The following limitations apply: 3% 3% 3% 3% 3%
(1) No more than 5% of a Fund's total assets may be invested in one 10% 10% 10% 10% 10%
mutual fund, (2) a Fund and its affiliates may not own more than 3%
of the securities of any one mutual fund, and (3) no more than 10%
of a Fund's total assets may be invested in combined mutual fund
holdings.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assets subject to S&P 500 futures are considered U.S. equity investments.
(2) The Balanced Fund may invest up to 20% of its total assets in asset-backed
securities, including securities backed by commercial mortgages, automobile
loan receivables, credit card receivables, and rate reduction bonds.
Asset-backed securities are debt securities backed by loans or accounts
receivable originated by banks, credit card companies, or other providers
of credit. These securities may be enhanced by a bank letter of credit or
by insurance coverage provided by a third party.
(3) The Stock Index Fund may hold short-term Debt Obligations and may enter
into Repurchase Agreements for liquidity.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
LOGO (R)
VICTORY FUNDS
PRINTED ON RECYCLED PAPER VF-EQTY-PRO (8/98)
