As filed with the Securities and Exchange Commission on March 26, 1999
File No. 33-8982
ICA No. 811-4852
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 49 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 50
The Victory Portfolios
(Exact name of Registrant as Specified in Trust Instrument)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Office)
(800) 362-5365
(Area Code and Telephone Number)
Copy to:
Ellen F. Stoutamire, Esq. Carl Frischling, Esq.
BISYS Fund Services Kramer Levin Naftalis & Frankel LLP
3435 Stelzer Road 919 Third Avenue
Columbus, Ohio 43219 New York, New York 10022
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
registration statement becomes effective.
It is proposed that this filing will become effective:
<TABLE>
<CAPTION>
<S> <C>
|X| Immediately upon filing pursuant to paragraph (b) |_| on ____________ pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1) |_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2) |_| on (date) pursuant to paragraph (a)(2) of rule 485.
</TABLE>
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
CROSS-REFERENCE SHEET
THE VICTORY PORTFOLIOS
(Pursuant to Rule 404 showing location in the prospectuses for
the Fund for Income and Small Company Opportunity Fund, series of The Victory
Portfolios, of the responses to the Items in Part A and location in the
Statement of Additional Information of the responses to the Items in Part B of
Form N-1A).
Part A
------
Form N-1A,
Item Number Prospectus Caption
----------- ------------------
1(a) Front Cover Page
(b) Back Cover Page
2(a) Risk/Return Summary - Investment Objective
(b) Risk/Return Summary - Principal Investment Strategies
(c) Risk/Return Summary - Principal Risks
3 Risk/Return Summary - Fund Expenses
4(a) Risk/Return Summary - Investment Objective
(b) Risk/Return Summary - Principal Investment Strategies
(c) Risk Factors
5(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
6(a) Organization and Management of the Funds
(b) Not Applicable
7(a) Share Price
(b) How to Buy Shares
(c) How to Sell Shares
(d) Dividends, Distributions and Taxes
(e) Important Information about Taxes
(f) Not Applicable
8(a) Not Applicable
(b) Organization and Management of the Funds - Distribution
and Service Plan
(c) Not Applicable
9 Financial Highlights
<PAGE>
Part B
------
Form N-1A,
Item No. Statement of Additional Information Caption
-------- -------------------------------------------
10(a) Front Cover Page
(b) Table of Contents
11(a) Additional Information - Description of Shares
(b) Not Applicable
12(a) Statement of Additional Information
(b) Instruments in Which the Funds Can Invest
(c) Investment Policies and Limitations
(d) Temporary Defensive Measures - Short-Term Obligations
(e) Advisory and Other Contracts -- Portfolio Turnover
13(a) Trustees and Officers - Board of Trustees
(b) Trustees and Officers - Board of Trustees; Officers
(c) Trustees and Officers - Board of Trustees
(d) Trustees and Officers - Board of Trustees
(e) Trustees and Officers - Officers
14(a) Additional Information
(b) Additional Information
(c) Trustees and Officers - Officers
15(a) Advisory and Other Contracts - Investment Adviser
(b) Advisory and Other Contracts - Distributor
(c) Advisory and Other Contracts - Investment Adviser
(d) Transfer Agent; Other Servicing Plans; Distribution and
Service Plan; Fund Accountant; Legal Counsel
(e) Not Applicable
(f) Additional Purchase, Exchange, and Redemption
Information - Dealer Reallowances
(g) Distribution Plan
(h) Administrator; Transfer Agent; Custodian; Independent
Accountants; Legal Counsel
16(a) Portfolio Transactions
(b) Portfolio Transactions
(c) Portfolio Transactions
(d) Portfolio Transactions
<PAGE>
(e) Not Applicable
17(a) Additional Information - Description of Shares
(b) Not Applicable
18(a) Additional Purchase, Exchange, and Redemption
Information; Purchasing Shares
(b) Not Applicable
(c) Additional Purchase, Exchange, and Redemption
Information; Purchasing Shares
(d) Additional Purchase, Exchange, and Redemption
Information
19(a) Taxes
(b) Taxes
20(a) Distributor
(b) Not Applicable
(c) Not Applicable
21(a) Performance of the Money Market Funds
(b) Performance of the Non-Money Market Fund
22(a) Independent Accountants
(b) Independent Accountants
(c) Not Applicable
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
[Key Logo]
VICTORY FUNDS
PROSPECTUS
As with all mutual funds, the Securities
and Exchange Commission has not approved
the Fund's securities or determined
whether this Prospectus is accurate or FUND FOR INCOME
complete. Anyone who tells you otherwise MARCH 29, 1999
is committing a crime.
Call Victory at: Or Call Gradison McDonald at:
800-539-FUND (800-539-3863) 800-869-5999 or 513-579-5999
<PAGE>
THE VICTORY PORTFOLIOS
PROSPECTUS FOR:
FUND FOR INCOME
TABLE OF CONTENTS
RISK/RETURN SUMMARY OF THE FUND 2
An analysis which includes the investment objective, principal strategies,
principal risks, performance, and expenses
Risk Factors 4
Share Price 5
Dividends, Distributions, and Taxes 5
INVESTING WITH VICTORY 8
- Choosing a Share Class 8
- How to Buy Shares 10
- How to Exchange Shares 12
- How to Sell Shares 13
Organization and Management of the Fund 14
Additional Information 17
Other Securities and Investment Practices 18
Financial Highlights 19
KEY TO FUND INFORMATION
[LOGO]
OBJECTIVE AND STRATEGIES
The goals and the strategies that the
Fund plans to use to pursue its
investment objective.
[LOGO]
RISK FACTORS
The risks you may assume as an investor
in the Fund.
[LOGO]
PERFORMANCE
A summary of the historical performance
of the Fund in comparison to an
unmanaged index.
[LOGO]
EXPENSES
The costs you will pay, directly or
indirectly, as an investor in the Fund,
including sales charges and ongoing
expenses.
Shares of the Fund are:
- Not insured by the FDIC;
- Not deposits or other obligations of KeyBank or any
of its affiliates.
- Subject to investment risk, including possible loss of
the amount invested.
<PAGE>
FUND FOR INCOME RISK/RETURN SUMMARY
[LOGO] INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income consistent with
preservation of shareholders' capital.
[LOGO] PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing primarily in securities
issued by the U.S. Government and its agencies or instrumentalities. The Fund
currently invests only in securities that are guaranteed by the full faith and
credit of the U.S. Government, and repurchase agreements collateralized by such
securities.
Under normal market conditions, the Fund primarily invests in:
- - Mortgage-backed obligations and collateralized mortgage obligations (CMOs)
issued by the Government National Mortgage Association (GNMA). The Fund
will invest at least 65% of its total assets in GNMA securities.
- - Obligations issued or guaranteed by the U.S. Government or by its agencies
or instrumentalities with maturities generally in the range of 2 to 30
years.
The Fund may invest in repurchase agreements collateralized by the
securities described above. The Fund may, but is not required to, use derivative
instruments, including:
- Writing covered call options
- Engaging in closing options transactions
Please see the definition of a derivative instrument in the "Other
Securities and Investment Practices" section at the end of this Prospectus.
[LOGO] PRINCIPAL RISKS
The Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Fund's net asset value, yield and/or total return may be
adversely affected if any of the following occurs:
- The market value of securities acquired by the Fund declines
- A particular strategy does not produce the intended result or the
Portfolio Manager does not execute the strategy effectively
- Interest rates rise
- An issuer's credit quality is downgraded
- The Fund must reinvest interest or sale proceeds at lower rates
- The rate of inflation increases
- The average life of a mortgage-related security is shortened or
lengthened
- A security on which the Fund has written a call option increases in
value and is called away from the Fund.
An investment in the Fund is not a deposit of KeyBank or any of its affiliates
and is not insured or guaranteed by the FDIC or any other government agency.
2
<PAGE>
FUND FOR INCOME Risk/Return Summary
[LOGO] INVESTMENT PERFORMANCE
The chart and table shown below give an indication of the risks of investing in
the Fund by showing changes in the Fund's performance as of December 31 from
year to year for the last ten years. The table below shows how the Fund's
average annual returns for one year, five years and ten years compare to the
returns of a broad-based securities market index. The figures shown assume
reinvestment of dividends and distributions.
On March 5, 1999, shareholders of Gradison Government Income Fund approved
the reorganization of their fund into Class G Shares of the Fund for Income. At
the time of the reorganization, the Fund for Income assumed the performance and
accounting history of Gradison Government Income Fund.
The performance information below is for Class G Shares of the Fund. Class
A Shares have a sales charge and different expense ratio. If the sales charge
was reflected, returns would be less than those shown.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12.75% 8.76% 14.07% 6.29% 7.58% -3.67% 17.19% 3.50% 8.35% 7.37%
</TABLE>
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
5.57% (quarter ending June 30, 1989) and the lowest return for a quarter was
- -3.04% (quarter ending March 31, 1994).
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED PAST PAST PAST
DEC. 31, 1998) ONE YEAR 5 YEARS 10 YEARS
================================================================================
Class A 5.20% 5.90% 7.86%
- --------------------------------------------------------------------------------
Class G* 7.37% 6.33% 8.08%
- --------------------------------------------------------------------------------
Lehman
GNMA Index** 6.93% 7.33% 9.24%
* The performance data does not reflect the deduction of a maximum 2% sales
charge which was in effect for the Gradison Government Income Fund from its
inception until July 7, 1997.
** The Lehman GNMA Index is a broad-based unmanaged
index that represents the general performance of GNMA securities.
[LOGO] FUND EXPENSES
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
(PAID DIRECTLY FROM YOUR INVESTMENT)* CLASS A CLASS G
================================================================================
Maximum Sales Charge
Imposed on Purchases 2.00% NONE
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends NONE NONE
- --------------------------------------------------------------------------------
Deferred Sales Charge NONE** NONE
- --------------------------------------------------------------------------------
Redemption Fees NONE NONE
- --------------------------------------------------------------------------------
Exchange Fees NONE NONE
** You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
** Except for investments of $1 million or more. See "Investing with Victory."
The Annual Fund Operating Expenses table below illustrates the operating
expenses that you will incur as a shareholder of the Fund. The Fund pays these
expenses from its assets.
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS G
================================================================================
Management Fees 0.50% 0.50%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.00% 0.25%
- --------------------------------------------------------------------------------
Other Expenses 0.66% 1 0.30%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses 2 1.16% 1.05%
- --------------------------------------------------------------------------------
Fee Waiver (0.16%) (0.16%)
- --------------------------------------------------------------------------------
Net Expenses 1.00% 3 0.89% 4
1 Includes a shareholder servicing fee of 0.25%.
2 The expenses shown are based on historical expenses of the Fund adjusted to
reflect current expenses.
3 For the fiscal year ended October 31, 1998, the Adviser waived a portion of
its fee so that the Fund's net operating expenses equaled 1.00% for Class A
Shares. The Adviser has agreed to waive its management fee to the same
extent that the fee is waived for Class G Shares until at least April
1,2001.
4 The Adviser has agreed to waive its management fee and/or reimburse
expenses, as allowed by law, to the extent necessary to maintain the Fund's
Class G net operating expenses at a maximum of 0.89% until at least April
1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods shown
and then sell all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
================================================================================
Class A $706 $981 $1,277 $2,116
- --------------------------------------------------------------------------------
Class G* $ 91 $301 $ 547 $1,253
* This Example assumes that Total Annual Fund Operating Expenses will equal
0.89% until April 1, 2001 and will equal 1.05% thereafter for Class G
Shares.
3
<PAGE>
[LOGO] RISK FACTORS
This Prospectus describes the principal risks that you may assume as an investor
in the Fund. The "Other Securities and Investment Practices" section in this
Prospectus provides additional information on the securities mentioned in the
Risk/Return Summary for the Fund. As with any mutual fund, there is no guarantee
that the Fund will earn income or show a positive total return over time. The
Fund's price, yield, and total return will fluctuate. You may lose money if the
Fund's investments do not perform well.
GENERAL RISKS:
- - MARKET RISK is the risk that the market value of a security may 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
the Fund originally paid for the security, or more or less than the
security was worth at an earlier time. Market risk may affect a single
issuer, an industry, a sector of the economy, or the entire market and is
common to all investments.
- - MANAGER RISK is the risk that the Fund's portfolio manager may use a
strategy that does not produce the intended result. Manager risk also
refers to the possibility that the portfolio manager may fail to execute
the Fund's investment strategy effectively and, thus, fail to achieve its
objective.
RISKS ASSOCIATED WITH INVESTING IN DEBT SECURITIES:
- - INTEREST RATE RISK. The value of a debt security typically changes in the
opposite direction from a change in interest rates. When interest rates go
up, the value of a debt security typically goes down. When interest rates
go down, the value of a debt security typically goes up. Generally, the
market values of securities with longer maturities are more sensitive to
changes in interest rates.
- - INFLATION RISK is the risk that inflation will erode the pupurchasing power
of the cash flows generated by debt securities held by the Fund. Fixed-rate
debt securities are more susceptible to this risk than floating-rate debt
securities or equity securities that have a record of dividend growth.
- - REINVESTMENT RISK is the risk that when interest rates are dedeclining the
Fund will have to reinvest interest income or prepayments on a security at
lower interest rates. Generally, interest rate risk and reinvestment risk
have offsetting effects.
- - CREDIT (OR DEFAULT) RISK is the risk that the issuer of a debt sesecurity
will be unable to make timely payments of interest or principal. Although
the Fund generally invests in only high-quality securities, the interest or
principal payments may not be insured or guaranteed on all securities.
Credit risk is measured by nationally recognized statistical ratings
organizations, such as S&P, Fitch, or Moody's.
RISKS ASSOCIATED WITH INVESTING IN MORTGAGE-RELATED SECURITIES:
- - PREPAYMENT RISK. Prepayments of principal on mortgage-related sesecurities
affect the average life of a pool of mortgage-related securities. The level
of interest rates and other factors may affect the frequency of mortgage
prepayments. In periods of rising interest rates, the prepayment rate tends
to decrease, lengthening the average life of a pool of mortgage- related
securities. In periods of falling interest rates, the prepayment rate tends
to increase, shortening the average life of a pool of mortgage-related
securities. Prepayment risk is the risk that, because prepayments generally
occur when interest rates are falling, the Fund may have to reinvest the
proceeds from prepayments at lower interest rates.
- - EXTENSION RISK is the risk that the rate of anticipated prprepayments on
principal may not occur, typically because of a rise in interest rates, and
the expected maturity of the security will increase. During periods of
rapidly rising interest rates, the effective average maturity of a security
may be extended past what the Portfolio Manager anticipated that it would
be. The market value of securities with longer maturities tend to be more
volatile.
By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.
It is important to keep in mind one basic principle of investing: in general,
the greater the potential reward. The reverse is also generally true: the lower
the risk, the lower the potential reward.
An investment in the Fund is not a
complete investment program.
4
<PAGE>
SHARE PRICE
The Fund calculates its share price, called its "net asset value" (NAV), each
business day, at the close of trading on the New York Stock Exchange, Inc.
(NYSE), which is normally at 4:00 p.m. Eastern Time. You may buy, exchange, and
sell your shares on any business day at the NAV that is calculated after you
place your order. A business day is a day on which the Federal Reserve Bank of
Cleveland and the NYSE are open or any day in which enough trading has occurred
in the securities held by the Fund to materially affect the NAV. You may not be
able to buy or sell shares on certain holidays when the Federal Reserve Bank of
Cleveland is closed, but the NYSE and other financial markets are open.
The Fund values its investments based on market value. When market quotations
are not readily available, the Fund values its investments based on fair value
methods approved by the Board of Trustees of the Victory Portfolios. Each class
of the Fund calculates its NAV by adding up the total value of its investments
and other assets, subtracting its liabilities, and then dividing that figure by
the number of outstanding shares of the class.
Total Assets-Liabilities
NAV= ----------------------------
Number of Shares Outstanding
You can find the Fund's net asset value each day in the Wall Street Journal
and other newspapers.
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 value of your investment.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Fund passes its earnings along to investors in
the form of dividends. Dividend distributions are the net income earned on
investments after expenses.
Ordinarily, the Fund declares and pays dividends monthly. Each class of
shares declares and pays dividends separately. Generally, the Fund will
distribute short-term gains, as necessary, and if the Fund makes a long-term
capital gain distribution, it is normally paid once a year. As with any
investment, you should consider the tax consequences of an investment in the
Fund.
Buying a Dividend. You should check the Fund distribution schedule before you
invest. If you buy shares of the Fund shortly before it makes distribution, some
of your investment may come back to you as a taxable distribution.
5
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)
You can receive distributions in one of the following ways.
REINVESTMENT OPTION
You can have distributions automatically reinvested in additional shares of the
Fund. If you do not indicate another choice on your Account Application, you
will be assigned this option automatically.
CASH OPTION
A check will be mailed to you no later than seven days after the pay date.
INCOME EARNED OPTION
You can automatically reinvest your dividends in your Fund and have your capital
gains paid in cash, or reinvest capital gains and have your dividends paid in
cash.
DIRECTED DIVIDENDS OPTION
In most cases, you can automatically reinvest distributions in the same class of
shares of another fund of the Victory Group. If you reinvest your distributions
in a different class of another fund, you may pay a sales charge on the
reinvested distributions.
DIRECTED BANK ACCOUNT OPTION
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Transfer Agent will
transfer your distributions within seven days of the pay date. The bank account
must have a registration identical to that of your Fund account.
6
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)
IMPORTANT INFORMATION ABOUT TAXES
The Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
- - Ordinary dividends from the Fund are taxable to shareholders as orordinary
income; dividends from the Fund's long-term capital gains are taxable as
capital gain. Capital gains may be taxable at different rates depending
upon how long the Fund holds certain assets.
- - Dividends are treated in the same manner for federal income tax pupurposes
whether you receive them in cash or in additional shares. They also may be
subject to state and local taxes.
- - Dividends from the Fund that are attributable to interest on cecertain U.S.
Government obligations may be exempt from certain state and local income
taxes. The extent to which ordinary dividends are attributable to these
U.S. Government obligations will be provided on the tax statements you
receive from the Fund.
- - An exchange of the Fund's shares for shares of another fund will be treated
as a sale. When you sell or exchange shares of the Fund, you must recognize
any gain or loss.
- - Certain dividends paid to you in January may be taxable as if they had been
paid to you the previous December.
- - Tax statements will be mailed from the Fund every January showing ththe
amounts and tax status of distributions made to you.
- - Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your
tax.
- - You should review the more detailed discussion of federal income tatax
considerations in the SAI.
The following table provides general guidelines for potential federal
income tax liability when you sell or exchange shares of the Fund (unless your
investment is in a tax-deferred retirement plan like an IRA). In general,
distributions are taxable as follows:
TAX RATE FOR
TAX RATE FOR 28% BRACKET
TYPE OF DISTRIBUTION 15% BRACKET OR ABOVE
===============================================================================
Income Ordinary Ordinary
dividends income rate income rate
- --------------------------------------------------------------------------------
Short-term capital
gains (Shares sold Ordinary Ordinary
up to 12 months income rate income rate
after purchase)
- --------------------------------------------------------------------------------
Long-term capital
gains (Shares sold
more than 12 months 10% 20%
after purchase)
The tax information in this Prospectus
is provided as general information. You
should consult your own tax adviser
about the tax consequences of an
investment in the Fund.
7
<PAGE>
INVESTING WITH VICTORY
If you are looking for a convenient way to open an account or to add money to an
existing account, Victory can help. The sections that follow will serve as a
guide to your investments with Victory. The following sections will describe how
to open an account, how to access information on your account, and how to buy,
exchange and sell shares of the Fund. We want to make it simple for you to do
business with us. If you have questions about any of this information, please
call your Investment Professional, a representative of the Gradison Division of
McDonald Investments Inc., an affiliate of KAM (Gradison McDonald), at
513-579-5999 or 800-869-5999, or one of our customer service representatives at
800-539-FUND. They will be happy to assist you.
CHOOSING A SHARE CLASS
The Fund offers both Class A and Class G Shares. Class A Shares have a front end
sales charge of 2.00%. Class G Shares have no front end sales charge. Class G
Shares are available only through certain broker-dealers.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your Investment Professional also can help you decide.
CLASS A
- - Front-end sales charge, as described later. There are several ways to rereduce
this charge.
- - Higher annual expenses than Class G Shares.
CLASS G
- - No front-end sales charge. All your money goes to work for you right away.
- - No deferred sales charge.
- - - Lower annual expenses than Class A Shares.
- - Class G Shares are sold only by certain broker-dealers.
CALCULATION OF SALES CHARGES-CLASS A
Class A shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed in the following table.
Sales Charge Sales Charge
as a % of as a % of
Your Investment in the Fund Offering Price Your Investment
================================================================================
Up to $50,000 2.00% 2.04%
- --------------------------------------------------------------------------------
$50,000 up to $100,000 1.75% 1.78%
- --------------------------------------------------------------------------------
$100,000 up to $250,000 1.50% 1.52%
- --------------------------------------------------------------------------------
$250,000 up to $500,000 1.25% 1.27%
- --------------------------------------------------------------------------------
$500,000 up to $1,000,000 1.00% 1.01%
- --------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00%
* 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 0.50% 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.
All you need to do to get started is to
fill out an application.
An Investment Professional is an
investment consultant, salesperson,
financial planner, investment adviser,
or trust officer who provides you with
investment information.
8
<PAGE>
CHOOSING A SHARE CLASS (CONTINUED)
- - 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 buy Class A Shares of the Fund over a 13-month
period and receive the same sales charge as if all shares had been
purchased at one time. You must start with a minimum initial investment of
5% of the total amount.
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 buy shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
c. Investors who reinvest a distribution from a deferred compensation
plan, agency, trust, or custody account that was maintained by KeyBank
National Association or 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.
f. Participants in tax-deferred retirement plans that meet at least one
of the following requirements: more than $1 million in plan assets; or
100 eligible employees; or if all of the plan's transactions are
executed through a single financial institution or service
organization which has an agreement to sell the Victory Funds in
connection with such accounts.
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
9
* Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
<PAGE>
HOW TO BUY SHARES
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500 ($100 for IRAs), with additional investments of at
least $25. You can send in your payment by check, wire transfer, exchange from
another Victory Fund, or through arrangements with your Investment Professional.
Sometimes an Investment Professional will charge you a fee for these services.
This fee will be in addition to, and unrelated to, the fees and expenses charged
by the Fund.
If you buy shares directly from the Fund and your investment is received
and accepted by the close of trading on the NYSE (usually 4:00 p.m. Eastern
Time), your purchase will be processed the same day using that day's share
price.
Make your check payable to:
THE VICTORY FUNDS
Keep the following addresses handy for purchases, exchanges, or redemptions:
<TABLE>
<CAPTION>
By Regular U.S. Mail CLASS A SHARES CLASS G SHARES
<S> <C> <C>
Send a completed Account The Victory Funds The Victory Funds
Application with your check, P.O. Box 8527 c/o Gradison McDonald
bank draft, or money order to: Boston, MA 02266-8527 580 Walnut Street
Cincinnati, OH 45202
By Overnight Mail CLASS A SHARES CLASS G SHARES
Use this address ONLY for The Victory Funds The Victory Funds
overnight packages. c/o Boston Financial Data Services c/o Gradison McDonald
66 Brooks Drive 580 Walnut Street
Braintree, MA 02184 Cincinnati, OH 45202
PHONE: 800-539-FUND PHONE: 513-579-5999
or: 800-869-5999
By Wire CLASS A SHARES CLASS G SHARES
The Transfer Agent does not The Victory Funds 800-539-FUND The Victory Funds
charge a wire fee, but your State Street Bank and Trust Co. c/o Gradison McDonald
originating bank may charge a ABA #011000028 513-579-5999 or 800-869-5999
fee. Always call the Transfer For Credit to DDA Firstar Bank
Agent BEFORE wiring funds and Account #9905-201-1 ABA #042000013
to obtain a confirmation For Credit to DDA
number. For Further Credit to Account # Account #8236234
(insert account number, name,
and confirmation number
assigned by the Transfer Agent)
By Telephone CLASS A SHARES CLASS G SHARES
Victory at: Gradison McDonald at:
800-539-FUND 513-579-5999
(800-539-3863) or 800-869-5999
</TABLE>
FAX Number:
800-529-2244
Telecommunication Device for the Deaf (TDD):
800-970-5296
10
<PAGE>
HOW TO BUY SHARES (CONTINUED)
- - 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 an ACH account. Currently, the Fund does 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 your account
statements. Share certificates are not issued. Twice a year, you will receive
the financial reports of the Fund. By January 31 of each year, you will be
mailed an IRS form reporting distributions for the previous year, which also
will be filed with the IRS.
- - SYSTEMATIC AND AUTOMATIC
INVESTMENT PLAN
To enroll in the Systematic or Automatic Investment Plan, you should check this
box on the Account Application or complete a separate Automatic Investment Plan
Application. We will need both your bank 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 initial investment
requirement of $500 ($100 for IRAs), then we will make automatic withdrawals of
the amount you indicate ($25 or more) from your bank account and invest it in
shares of the Fund.
- - RETIREMENT PLANS
You can use the Fund as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-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
established, use the Investment Stub
attached to your confirmation 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 will be charged for any resulting fees and/or
losses. Third party checks may not be accepted. You may only buy 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.
11
<PAGE>
HOW TO EXCHANGE SHARES
You can sell shares of one fund of the Victory Portfolios to buy shares of
another. This is considered an exchange. 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 exchange shares of the Fund by writing or calling the Transfer Agent at
800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999. When you
exchange shares of the Fund, you should keep the following in mind:
- - Both funds must offer the exchange privilege.
- - Shares of the Fund may be exchanged at relative net asset value. This means
that if you own Class A Shares of the Fund, you can only exchange them for
Class A Shares of another fund and not pay a sales charge. If you exchange
into a fund with a higher sales charge, you pay the percentage-point
difference between that fund's sales charge and any sales charge you had
previously paid in connection with the shares you are exchanging. If you
exchange from the Fund to buy Class A Shares of another fund in the Victory
Group that has a 5.75% sales charge, you would pay the 3.75% difference in
sales charge.
- - If you bought Class G Shares after the reorganization of the Gradison Funds
into Victory Funds, you can exchange into Class G Shares, Select Shares, or
any single class money market fund shares of a fund without paying a sales
charge. If a fund has both Class G and Class A Shares, a Class G
shareholder can exchange into only Class GShares. However, if you owned
Class G Shares before the reorganization, you can exchange into Class A
Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
- - Exchange orders will be accepted up to 4:00 P.M. Eastern Time.
- - You must meet the minimum purchase requirements for the fund you purchase
by exchange.
- - The registration and tax identification numbers of the two accounts must be
identical.
- - You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them; after the account is open
seven days, you can exchange shares on any business day.
- - Effective April 1, 1999, the Fund may refuse any exchange purchase request
if the Adviser determines that the request is associated with a market
timing strategy. The Fund may terminate or modify the exchange privilege at
any time on 30 days' notice to shareholders.
- - An exchange of Fund shares constitutes a sale for tax purposes.
- - Before exchanging, read the prospectus of the fund you wish to purchase by
exchange.
You can obtain a list of funds available for exchange by calling the Transfer
Agent at 800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999.
12
<PAGE>
HOW TO SELL SHARES
If your request is received and accepted by the close of trading on the NYSE
(usually 4:00 p.m. Eastern Time), your redemption will be processed the same
day.
BY TELEPHONE
The easiest way to sell shares is by calling 800-539-FUND or Gradison McDonald
at 513-579-5999 or 800-869-5999. When you fill out your original application, be
sure to check the box marked "Telephone Authorization." Then when you are ready
to sell, call and tell us which one of the following options you would like to
use:
- - Mail a check to the address of record;
- - Wire funds to a domestic financial institution;
- - Electronically transfer your redemption via the Automated Clearing House
(ACH). This feature is available only to certain accounts.
The Transfer Agent records all telephone calls for your protection and
takes measures to verify the identity of the caller. If the Transfer Agent
properly acts on telephone instructions and follows reasonable procedures to
ensure against unauthorized transactions, neither Victory, its servicing agents,
the Adviser, nor the Transfer Agent will be responsible for any losses. If the
Transfer Agent does not follow these procedures, it may be liable to you for
losses resulting from unauthorized instructions.
If there is an unusual amount of market activity and you cannot reach the
Transfer Agent or your Investment Professional by telephone, consider placing
your order by mail.
BY MAIL
Use the Regular U.S. Mail or Overnight Mail Address to sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
- - Redemptions over $10,000;
- - Your account registration has changed within the last 15 days;
- - The check is not being mailed to the address on your account;
- - The check is not being made payable to the owner of the account;
- - The redemption proceeds are being transferred to another Victory Fund account
with a different registration; or
- - The check or wire is being sent to a different bank account.
You can get a signature guarantee from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
BY WIRE
If you want to sell shares by wire, you must establish a Fund account that 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, if this feature is available for your account, your redemption will be
processed on the same day or the next day if received after 4:00 p.m. Eastern
Time. It will be transferred by ACH as long as the transfer is to a domestic
bank, and the ACH feature is available for your account.
There are a number of convenient ways to sell your shares. You can use the same
mailing address listed for purchases.
13
<PAGE>
HOW TO SELL SHARES (CONTINUED)
- - 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 a balance of $5,000 or more. Once
again, we will need a voided personal check to activate this feature. You should
be aware that your account eventually may be depleted and that each withdrawal
will be a taxable transaction. However, you cannot automatically close your
account using the Systematic Withdrawal Plan. If your balance falls below $500,
we may ask you to bring the account back to the minimum balance. If you decide
not to increase your account to the minimum balance, your account may be closed
and the proceeds mailed to you.
- - ADDITIONAL INFORMATION ABOUT REDEMPTIONS
- - - Redemption proceeds from the sale of
shares purchased by a check may be
held up to 15 business days or until
the purchase check has cleared.
- - The Fund may suspend your right to
redeem your shares in the following
circumstances:
During non-routine closings of the NYSE;
When the Securities and Exchange Commission (SEC) determines that (a)
trading on the NYSE is restricted or (b) when an emergency prevents the
sale or valuation of the Fund's securities; or
When the SEC orders a suspension to protect the Fund's shareholders.
- - The Fund will pay redemptions by any one shareholder during any 9090-day
period in cash up to the lesser of $250,000 or 1% of the Fund's net assets.
The Fund reserves the right to pay the remaining portion "in kind," that
is, in portfolio securities rather than cash.
ORGANIZATION AND MANAGEMENT OF THE FUND
- - ABOUT VICTORY
The Fund is a member of The Victory Portfolios, a group of over 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.
THE INVESTMENT ADVISER
AND SUB-ADMINISTRATOR
The Fund has an Advisory Agreement which is one of its most important contracts.
Key Asset Management Inc. (KAM), a New York corporation registered as an
investment adviser with the SEC, is the adviser to the Fund. KAM, a subsidiary
of KeyCorp, oversees the operations of the Fund according to investment policies
and procedures adopted by the Board of Trustees. Affiliates of the Adviser
manage approximately $68 billion for a limited number of individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114. During the fiscal year ended October 31, 1998, KAM was paid a management
fee based on a percentage of the average daily net assets of the Fund (after
waivers) at an annual rate of 0.07%.
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the Fund's
administrator, pays KAM a fee at the annual rate of up to 0.05% of the Fund's
average daily net assets to perform some of the administrative duties for the
Fund.
14
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)
- - PORTFOLIO MANAGEMENT
Thomas M. Seay has been the Portfolio Manager of the Fund since January 1999,
and is primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Seay, a Senior Vice President of McDonald Investments Inc., also
served as Portfolio Manager of the Gradison Government Income Fund since April
1998. From March 1987 until April 1998, he served as Vice President and Fixed
Income Portfolio Manager, Lexington Management Corporation.
- - SHAREHOLDER SERVICING PLAN
The Fund has adopted a Shareholder Servicing Plan for its Class A Shares. The
shareholder servicing agents perform a number of services for their customers
who are shareholders of the Fund. They establish and maintain accounts and
records, process dividend payments, arrange for bank wires, assist in
transactions, and change account information. For these services the Fund pays a
fee at an annual rate of up to 0.25% of the average daily net assets of the
Class of Shares serviced by the agent. The Fund may enter into agreements with
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers. The Fund
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 AND SERVICE PLAN
According to Rule 12b-1 under the Investment Company Act of 1940, Victory has
adopted a Distribution and Service Plan for Class A shares of the Fund. The Fund
does not pay expenses under this plan.
Victory also adopted a Rule 12b-1 Distribution and Service Plan for Class
G Shares of the Fund, under which these Shares will pay to the Distributor a
monthly service fee at an annual rate of 0.25% of the average daily net assets
of the Fund. The service fee is paid to securities broker dealers or other
financial intermediaries for providing personal services to shareholders of the
Funds, including responding to inquires, providing information to shareholders
about their Fund accounts, establishing and maintaining accounts and records,
processing dividend and distribution payments, arranging for bank wires,
assisting in transactions, and changing account information. The Fund may enter
into agreements with various shareholder servicing agents, including KeyBank
National Association and its affiliates, and with other financial institutions
that provide such services.
Because 12b-1 fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges. We want you to know who plays
what role in your investment and how they are related. This section discusses
the organizations employed by the Fund to provide services to the Fund's
shareholders. Each of these organizations is paid a fee for its services.
We want you to know who plays what role
in your investment and how they are
related. This section discusses the
organization employed by the Fund to
provide services to the Fund's
shareholders. Each of these
organizations is paid a fee for its
services.
15
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)
OPERATIONAL STRUCTURE OF THE FUND
TRUSTEES ADVISOR
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND Gradison Division
THEIR INVESTMENT PROFESSIONALS McDonald Investments Inc.
Advise current and prospective
shareholders on their Fund investments.
Provides
services
to
certain
shareholders.
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 shareholder accounts.
Administrator, Distributor, Custodian
and Fund Accountant Key Trust Company of Ohio, N.A.
BISYS Fund Services 127 Public Square
and its affiliates Cleveland, OH 44114
3435 Stelzer Road
Columbus, OH 43219 Provides for safekeeping of the
Fund's investments and cash, and
Markets the Fund, distributes shares settles trades made by the Fund.
through Investment Professionals, and
calculates the value of shares. As
Administrator, handles the day-to-day
activities of the Fund.
Sub-Administrator
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain
sub-administrative services.
The Fund is supervised by the Board of
Trustees who monitors the services
provided to investors.
16
<PAGE>
Additional Information
- - SHARE CLASSES
The Fund offers only the classes of shares described in this Prospectus. At some
future date, the Fund may offer additional classes of shares through a separate
prospectus.
- - CODE OF ETHICS
The Fund and the Adviser have each adopted a Code of Ethics to which all
investment personnel and all other access persons of 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
The Adviser is a subsidiary of a bank holding company. Banking laws, including
the Glass-Steagall Act, currently 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 an
investment adviser, transfer agent, custodian, or shareholder servicing agent.
They also may pay third parties for performing these functions and buy shares of
such an investment company for their customers. Should these laws change in the
future, the Trustees would consider selecting another qualified firm so that all
services would continue.
- - PERFORMANCE
The Victory Funds may advertise the performance of the Fund by comparing it to
other mutual funds with similar objectives and policies. Performance information
also may appear in various publications. Any fees charged by Investment
Professionals may not be reflected in these performance calculations.
Advertising information will include the average annual total return of the Fund
calculated on a compounded basis for specified periods of time. Total return
information will be calculated according to rules established by the SEC. Such
information may include performance rankings and similar information from
independent organizations, such as Lipper Analytical Services, Inc., and
industry publications such as Morningstar, Business Week, or Forbes. You also
should see "Investment Performance."
- - YEAR 2000 ISSUES
Like all mutual funds, the Fund could be adversely affected if the computer
systems used by its service providers, including shareholder servicing agents,
are unable to recognize dates after 1999. The Fund's service providers have been
actively updating their systems to be able to process Year 2000 data. There can
be no assurance, however, that these steps will be adequate to avoid a temporary
service disruption or other adverse impact on the Fund. In addition, an issuer's
failure to process accurately Year 2000 data may cause that issuer's securities
to decline in value or delay the payment of interest to the Fund.
- - SHAREHOLDER COMMUNICATIONS
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
any financial reports, prospectuses, and their supplements.
Some additional information you should know about the Fund.
If you would like to receive additional copies of any materials, please call the
Fund at 800-539-FUND, or Gradison McDonald at 513-579-5999 or 800-869-5999.
17
<PAGE>
OTHER SECURITIES AND INVESTMENT PRACTICES
The following table describes some of the types of securities the Fund may
choose to buy under normal market conditions. The Fund primarily invests in debt
securities. However, for cash management or for temporary defensive purposes in
response to market conditions, the Fund may hold all of its assets in cash or
short-term money market instruments. This may reduce the benefit from any
upswing in the market and may cause the Fund to fail to meet its investment
objective. For more information on ratings and detailed descriptions of each of
the investments, see the SAI.
U.S. GOVERNMENT SECURITIES. Notes and bonds issued or guaranteed by the 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 or
instrumentality.
*MORTGAGE-BACKED SECURITIES. Instruments secured by a mortgage or pools of
mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS. Debt obligations that are secured by
mortgage-backed certificates. Some are issued by U.S. government agencies and
instrumentalities.
SHORT-TERM DEBT OBLIGATIONS. Includes bankers' acceptances, certificates of
deposit, prime quality commercial paper, Eurodollar obligations, variable and
floating rate notes, cash, and cash equivalents.
*VARIABLE & FLOATING RATE SECURITIES. The interest rate offered by a variable
rate security adjusts (resets) on particular dates (such as the last day of a
month or calendar quarter). The interest rate offered by a floating rate
security adjusts whenever a specified interest rate (such as a bank's prime
leading rate) changes. Upon adjustment, the market value of a variable or
floating rate security can reasonably be expected to equal its amortized cost.
Some of these securities may be illiquid.
RECEIPTS. Separately traded interest or principal components of U.S. Government
securities.
REPURCHASE AGREEMENTS. An agreement involving the Fund's purchase of a security
and the seller's agreement to repurchase the same security at a stated price
plus interest. The seller's obligation to the Fund is secured by the instrument.
Subject to an exemptive order from the SEC, the Adviser may combine repurchase
transactions among one or more Victory Funds into a single transaction.
*FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Contracts involving the
right or obligation to deliver or receive assets or money depending on the
performance of one or more assets or a securities index. To reduce the effects
of leverage, liquid assets equal to the contract commitment are set aside to
cover the commitment. The Fund may invest in futures in an effort to hedge
against market risk.
*OPTIONS. The Fund may write, or sell, a covered call option on a security that
it owns or on an index to hedge its position or generate additional income.
SECURITIES LENDING. To generate additional income, the Fund may lend its
portfolio securities. The Fund will receive collateral for the value of the
security plus any interest due. The Fund only will enter into securities lending
arrangements with entities that the Adviser has determined are credit-worthy.
Subject to an exemptive order from the SEC, Key Trust Company of Ohio, N.A., the
Fund's 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 similar
investment objectives. The following limitations apply: (1) No more than 5% of
the Fund's total assets may be invested in one mutual fund, (2) the 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 the Fund's total assets may be invested in combined
mutual fund holdings.
*Derivative Instruments: Indicates a "derivative instrument," whose value is
linked to, or derived from another security, instrument, or index.
The Fund may, but is not required to, use derivative instruments for any of the
following reasons:
- To hedge against adverse changes in the market value of securities
- As a temporary substitute for purchasing or selling securities
- In limited situations, to attempt to profit from anticipated market
developments
18
<PAGE>
FINANCIAL HIGHLIGHTS FUND FOR INCOME
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information shows the
results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about the
Gradison Government Income Fund, the predecessor to the Fund. The financial
highlights for the five fiscal years ended December 31, 1998 were audited by
Arthur Andersen LLP, whose report, along with the financial statements of the
Fund, are included in the Fund's annual report, which is available by calling
the Fund at 800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999.
The Fund for Income assumed the performance and accounting history of Gradison
Government Income Fund after the reorganization.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.139 $ 12.884 $ 13.214 $ 12.018 $ 13.373
- ----------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income .766 .775 .778 .786 .755
Net realized and unrealized gain
(loss) on investments .168 .256 (.340) 1.232 (1.244)
- ----------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations .934 1.031 .438 2.018 (.489)
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders
Dividends from net investment income (.757) (.776) (.768) (.787) (.779)
Dividends in excess of net
investment income -- -- -- -- (0.13)
Dividends from realized capital gains -- -- -- -- (.053)
Distributions from paid-in capital -- -- -- (.035) (.021)
- ----------------------------------------------------------------------------------------------------------
Total Distributions
to Shareholders (.757) (.776) (.768) (.822) (.866)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 13.316 $ 13.139 $ 12.884 $ 13.214 $ 12.018
- ----------------------------------------------------------------------------------------------------------
Total Return (a) 7.37% 8.36% 3.51% 17.20% (3.69%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in millions) $ 159.7 $ 155.1 $ 162.9 $ 185.4 $ 184.0
Ratio of gross expenses to average
net assets(b) .90% .90% .90% .92% --
Ratio of net investment income
to average net assets .89% .90% .90% .92% .90%
Ratio of net investment income
to average net assets 5.79% 6.04% 6.06% 6.19% 6.03%
Portfolio turnover rate 36% 12% 13% 16% 21%
(a) Total return is based upon an initial investment purchased without a sales
charge.
(b) Effective December 31, 1995, this ratio reflects gross expenses before
reduction for earnings credits on cash balances; such reductions are
included in the ratio of net expenses.
</TABLE>
19
<PAGE>
This page is intentionally left blank.
20
<PAGE>
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
If you would like a free copy of any of the following documents or would like to
request other information regarding the Fund, you can call or write the Fund or
your Investment Professional.
- - STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more details describing the Fund and its policies. The SAI has
been filed with the Securities and Exchange Commission (SEC), and is
incorporated by reference in this Prospectus.
- - ANNUAL AND SEMI-ANNUAL REPORTS
Describes the Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
- - HOW TO OBTAIN INFORMATION
BY TELEPHONE: Call Victory Funds at 800-539-FUND (800-539-3863) or
Gradison McDonald at 513-579-5999 or 800-869-5999. You also may obtain
copies of materials from the SEC's Public Reference Room in Washington,
D.C. (Call 800-SEC-0330 for information on the operation of the SEC's
Public Reference Room.)
BY MAIL: The Victory Funds OR: Gradison McDonald
P. O. Box 8527 580 Walnut Street
Boston, MA 02266-8527 Cincinnati, Ohio 45202
You also may write the Public Reference Section of the SEC, 450 Fifth St., N.W.,
Washington, D.C. 20549-6009, and pay the costs of duplication.
On the Internet: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov.
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 copies of
the annual and
semi-annual reports
and/or the SAI at no
charge, please call
the Fund at
800-539-FUND
or Gradison McDonald at
513-579-5999
or
800-869-5999.
[Key Logo]
VICTORY FUNDS
Investment Company Act File Number 811-4852
<PAGE>
VICTORY FUNDS
PROSPECTUS
SMALL COMPANY
OPPORTUNITY
FUND
March 29, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved the Fund's securities or determined whether this Prospectus is accurate
or complete. Anyone who tells you otherwise is committing a crime.
Call Victory at:
800-539-FUND (800-539-3863)
Or Call Gradison McDonald at:
800-869-5999 or 513-579-5999
<PAGE>
THE VICTORY PORTFOLIOS
PROSPECTUS FOR:
SMALL COMPANY
OPPORTUNITY FUND
TABLE OF CONTENTS
RISK/RETURN SUMMARY OF THE FUND 2
An analysis which includes the investment objective, principal
strategies, principal risks, performance, and expenses
Risk Factors 4
Share Price 5
Dividends, Distributions, and Taxes 5
INVESTING WITH VICTORY 8
- Choosing a Share Class 8
- How to Buy Shares 10
- How to Exchange Shares 12
- How to Sell Shares 13
Organization and Management of the Fund 14
Additional Information 17
Other Securities and Investment Practices 18
Financial Highlights 19
KEY TO FUND INFORMATION
[ICON] OBJECTIVE AND STRATEGIES
The goals and the strategies that the Fund plans to use to pursue its
investment objective.
[ICON] RISK FACTORS
The risks you may assume as an investor in the Fund.
[ICON] PERFORMANCE
A summary of the historical performance of the Fund in comparison to
an unmanaged index.
[ICON] EXPENSES
The costs you will pay, directly or indirectly, as an investor in the
Fund, including sales charges and ongoing expenses.
[GRAPHIC]
Shares of the Fund are:
- Not insured by the FDIC;
- Not deposits or other obligations of KeyBank or any of its
affiliates;
- Subject to investment risk, including possible loss of the
amount invested.
<PAGE>
SMALL COMPANY OPPORTUNITY FUND
RISK/RETURN SUMMARY
[ICON] Investment Objective
The Fund seeks to provide capital appreciation.
[ICON] Principal Investment Strategies
The Fund invests primarily in common stocks of smaller companies that show the
potential for high earnings growth in relation to their price-earnings ratio. Of
the 5,000 U.S. companies with the largest market capitalizations, Key Asset
Management Inc., the Fund's investment adviser (KAM or the Adviser), considers
those in the lower 80% to be "small companies." Currently, the upper end of
market capitalizations of small companies is approximately $1.2 billion. The
Adviser uses a computer model to select securities that appear favorably priced.
Under normal market conditions, the Fund:
*Will invest at least 80% of its total assets in
equity securities of small companies. These
equity investments include:
-Common stock
-Convertible preferred stock
-Debt convertible or exchangeable into
equity securities
*May invest up to 20% of its total assets in:
-Equity securities of larger companies
(those with market capitalizations in the
top 20% of the 5,000 largest U.S. companies)
-Investment-grade debt securities
-Preferred stocks
-Short-term debt obligations
-Repurchase agreements
[ICON] Principal Risks
The Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Fund's net asset value, yield and/or total return may be
adversely affected if any of the following occurs:
*The market value of securities acquired by the
Fund declines
-Value stocks decline in price faster than growth stocks and other types of
stocks
-Smaller, less seasoned companies lose market share or profits to a
greater extent than larger, established companies as a result of
deteriorating economic conditions
* A particular strategy does not produce the intended result or the portfolio
manager does not execute the strategy effectively
* A company's earnings do not increase as expected
An investment in the Fund is not a deposit of KeyBank or any of its
affiliates and is not insured or guaranteed by the FDIC or any other government
agency.
By itself, the 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.
2
<PAGE>
[ICON] SMALL COMPANY OPPORTUNITY FUND RISK/RETURN SUMMARY
Investment Performance
The chart and table shown below give an indication of the risks of investing in
the Fund by showing changes in the Fund's performance as of December 31 from
year to year for the last ten years. The table below shows how the Fund's
average annual returns for one year, five years, and ten years compare to the
returns of a broad-based securities market index. The figures shown assume
reinvestment of dividends and distributions.
On March 5, 1999, shareholders of Gradison Opportunity Value Fund approved
the reorganization of their fund into Class G Shares of the Special Growth Fund.
At the time of the reorganization, the Special Growth Fund changed its name to
the "Small Company Opportunity Fund" and assumed the performance and accounting
history of Gradison Opportunity Value Fund.
The performance information below reflects the performance of Class G Shares
of the Fund. Class A Shares have a sales charge and different expense ratio. If
the sales charge was reflected, returns would be less than those shown.
[BAR GRAPH]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.13% -13.05% 35.92% 14.31% 11.07% -2.18% 26.76% 19.47% 31.18% -6.93%
</TABLE>
Past performance does not indicate future results.
During the ten year period shown in the bar chart, the highest return for a
quarter was 20.24% (quarter ending March 31, 1991) and the lowest return for a
quarter was -19.96% (quarter ending September 30, 1998).
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1998) One Year 5 Years 10 Years
- ------------------ -------- ------- --------
C Class A Shares -12.27% 11.26% 12.15%
Class G Shares -6.93% 12.58% 12.82%
Russell 2000 Index(*) -2.55% 11.87% 12.92%
*The Russell 2000 Index is a broad-based unmanaged index that represents the
general performance of domestically traded common stocks of small companies.
[ICON] Fund Expenses
This section will help you understand the costs and expenses you would pay,
directly or indirectly, if you invest in the Fund.
Shareholder Transaction Expenses
(paid directly from your investment)* Class A Class G
- ------------------------------------- ------- ---------
Maximum Sales Charge
Imposed on Purchases 5.75% NONE
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends NONE NONE
- --------------------------------------------------------------------------------
Deferred Sales Charge NONE** NONE
- --------------------------------------------------------------------------------
Redemption Fees NONE NONE
- --------------------------------------------------------------------------------
Exchange Fees NONE NONE
(*)You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
(**)Except for investments of $1 million or more. See "Calculation of Sales
Charge."
The Annual Fund Operating Expenses table below illustrates the operating
expenses that you will incur as a shareholder of the Fund. THE FUND PAYS THESE
EXPENSES FROM ITS ASSETS.
Annual Fund Operating Expenses Class A Class G
- ------------------------------ ------- ---------
Management Fees (1) 0.62% 0.62%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses 0.53% (2) 0.31%
------ -------
Total Fund Operating Expenses (3) 1.15% 1.43%
------ -------
Fee Waiver (0.13%)% (0.13%)
------ -------
Net Expenses 1.02% (4) 1.30%(5)
====== ========
(1) Management fees are based on the average daily net assets of the Fund at an
annual rate of 0.65% on the first $100 million,0.55% on the next $100 million
and 0.45% in excess of $200 million. (2) Includes a shareholder servicing fee of
0.25%. (3) The expenses shown are based on historical expenses of the Fund
adjusted to reflect current expenses. (4) For the fiscal year ended October 31,
1998, the Adviser waived a portion of its fee so that the Fund's net operating
expenses equaled 1.39% for Class A Shares. The Adviser has agreed to waive its
management fee to the same extent that the fee is waived for Class G Shares
until at least April 1, 2001. (5) The Adviser has agreed to waive its management
fee and/or reimburse expenses, as allowed by law, to the extent necessary to
maintain the Fund's Class G net operating expenses at a maximum of 1.30% until
at least April 1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
Example assumes that you invest $10,000 in the Fund for the time periods shown
and then redeem all of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A $673 $881 $1,106 $1,751
Class G* $132 $426 $ 756 $1,690
*This Example assumes that Total Annual Fund Operating Expenses will equal 1.30%
until April 1, 2001 and will equal 1.43% thereafter.
3
<PAGE>
By matching your investment objective with an acceptable level of risk, you
can create your own customized investment plan.
It is important to keep in mind one basic principle of investing: in
general, the greater the risk, the greater the potential reward. The reverse is
also generally true: the lower the risk, the lower the potential reward.
An investment in the Fund is not a complete investment program.
[ICON] RISK FACTORS
This Prospectus describes the principal risks that you may assume as an investor
in the Fund. The "Other Securities and Investment Practices" section in this
Prospectus provides additional information on the securities mentioned in the
Risk/Return Summary for the Fund. As with any mutual fund, there is no
guarantee that the Fund will earn income or show a positive total return over
time. The Fund's price, yield, and total return will fluctuate. You may lose
money if the Fund's investments do not perform well.
General risks:
*Market risk is the risk that the market value of a security may 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 the Fund
originally paid for the security, or more or less than the security was worth
at an earlier time. Market risk may affect a single issuer, an industry, a
sector of the economy, or the entire market and is common to all investments.
*Manager risk is the risk that the Fund's portfolio manager may use a strategy
that does not produce the intended result. Manager risk also refers to the
possibility that the portfolio manager may fail to execute the Fund's
investment strategy effectively and, thus, fail to achieve its objective.
Risk associated with investing in equity securities:
*Equity risk is the risk that the value of the security will fluctuate in
response to changes in earnings or other conditions affecting the issuer's
profitability or as a result of a general market decline. Unlike debt
securities, which have preference to a company's earnings and cash flow in case
of liquidation, equity securities are entitled to the residual value after the
company meets its other obligations. For example, in the event of bankruptcy,
holders of debt securities have priority over holders of equity securities to a
company's assets.
4
<PAGE>
SHARE PRICE
The Fund calculates its share price, called its "net asset value" (NAV), each
business day, at the close of trading on the New York Stock Exchange, Inc.
(NYSE), which is normally at 4:00 p.m. Eastern Time. You may buy, exchange, and
sell your shares on any business day at the NAV that is calculated after you
place your order. A business day is a day on which the Federal Reserve Bank of
Cleveland and the NYSE are open or any day in which enough trading has occurred
in the securities held by the Fund to materially affect the NAV. You may not be
able to buy or sell shares on certain holidays when the Federal Reserve Bank of
Cleveland is closed, but the NYSE and other financial markets are open.
The Fund values its investments based on market value. When market quotations
are not readily available, the Fund values its investments based on fair value
methods approved by the Board of Trustees of The Victory Portfolios. Each class
of the Fund calculates its NAV by adding up the total value of its investments
and other assets, subtracting its liabilities, and then dividing that figure by
the number of outstanding shares of the class.
Total Assets-Liabilities
NAV= ----------------------------
Number of Shares Outstanding
You can find the Fund's net asset value each day in The Wall Street Journal
and other newspapers.
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 value of your investment.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Fund passes its earnings along to investors in
the form of dividends. Dividend distributions are the net income earned on
investments after expenses.
Ordinarily, the Fund declares and pays dividends quarterly. Each class of shares
declares and pays dividends separately. Generally, the Fund will distribute
short-term gains, as necessary, and if the Fund makes a capital gain
distribution, it is normally paid once a year. As with any investment, you
should consider the tax consequences of an investment in the Fund.
Buying a Dividend. You should check the Fund's distribution schedule before you
invest. If you buy shares of the Fund shortly before it makes a distribution,
some of your investment may come back to you as a taxable distribution.
5
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)
You can receive distributions in one of the following ways.
Reinvestment Option
- -------------------
You can have distributions automatically reinvested in additional shares
of the Fund. If you do not indicate another choice on your Account
Application, you will be assigned this option automatically.
Cash Option
- -----------
A check will be mailed to you no later than seven days after the pay
date.
Income Earned Option
- --------------------
You can automatically reinvest your dividends in your Fund and have your
capital gains paid in cash, or reinvest capital gains and have your
dividends paid in cash.
Directed Dividends Option
- -------------------------
In most cases, you can automatically reinvest distributions in shares of
another fund of The Victory Portfolios. If you reinvest your distributions
in a different class of another fund, you may pay a sales charge on the
reinvested distributions.
Directed Bank Account Option
- ----------------------------
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Fund will
transfer your distributions within seven days of the pay date. The bank
account must have a registration identical to that of your Fund account.
6
<PAGE>
DIVIDENDS, DISTRIBUTIONS, AND TAXES (CONTINUED)
* IMPORTANT INFORMATION ABOUT TAXES
The Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Ordinary dividends from the Fund are taxable to shareholders as ordinary
income; dividends from the Fund's long-term capital gains are taxable as
capital gain. Capital gains may be taxable at different rates depending upon
how long the Fund holds certain assets.
* Dividends are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares. They also may be
subject to state and local taxes.
* Dividends from the Fund 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 these U.S.
Government obligations will be provided on the tax statements you receive from
the Fund.
* An exchange of the Fund's shares for shares of another fund will be treated as
a sale. When you sell or exchange shares of the Fund, you must recognize any
gain or loss.
* Certain dividends paid to you in January will be taxable as if they had been
paid to you the previous December.
* Tax statements will be mailed from the Fund every January showing the amounts
and tax status of distributions made to you.
* Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your
tax.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
The following table provides general guidelines for potential federal income
tax liability when you sell or exchange shares of the Fund (unless your
investment is in a tax-deferred retirement plan like an IRA). In general,
distributions are taxable as follows:
Tax Rate for
Tax Rate for 28% Bracket
Type of Distribution 15% Bracket or Above
- -------------------- ----------- --------
Income Ordinary Ordinary
dividends income rate income rate
Short-term capital
gains (Shares sold Ordinary Ordinary
up to 12 months income rate income rate
after purchase)
Long-term capital
gains (Shares sold 10% 20%
more than 12 months
after purchase)
The tax information in this Prospectus is provided as general information. You
should consult your own tax adviser about the tax consequences of an investment
in the Fund.
7
<PAGE>
All you need to do to get started is to fill out an application.
An Investment Professional is an investment consultant, salesperson, financial
planner, investment adviser, or trust officer who provides you with investment
information.
INVESTING WITH VICTORY
If you are looking for a convenient way to open an account or to add money
to an existing account, Victory can help. The sections that follow will
serve as a guide to your investments with Victory. The following sections
will describe how to open an account, how to access information on your
account, and how to buy, exchange and sell shares of the Fund. We want to
make it simple for you to do business with us. If you have questions about
any of this information, please call your Investment Professional, a
representative of the Gradison Division of McDonald Investments Inc., an
affiliate of KAM (Gradison McDonald), at 513-579-5999 or 800-869-5999, or
one of our customer service representatives at 800-539-FUND. They will be
happy to assist you.
CHOOSING A SHARE CLASS
The Fund offers both Class A and Class G Shares. Class A Shares have a front end
sales charge of 5.75%. Class G shares have no front end sales charge. Class G
Shares are available only through certain broker-dealers.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your Investment Professional also can help you decide.
Class A
-------
* Front-end sales charge, as described
later. There are several ways to reduce
this charge.
* Lower annual expenses than Class G
Shares.
*Calculation of Sales Charges - Class A Shares are sold at their public offering
price, which is the NAV plus the applicable initial sales charge. The sales
charge as a percentage of your investment decreases as the amount you invest
increases. The current sales charge rates are as follows:
Class G
-------
* No front-end sales charge. All your
money goes to work for you right
away.
* No deferred sales charge.
* Higher annual expenses than Class A
Shares.
* No automatic conversion to Class A
Shares.
* Class G Shares are sold only by certain
broker-dealers.
Sales Charge Sales Charge
as a % of as a % of
Your Investment in the Fund Offering Price Your Investment
Up to $50,000 5.75% 6.10%
$50,000 up to $100,000 4.50% 4.71%
$100,000 up to $250,000 3.50% 3.63%
$250,000 up to $500,000 2.50% 2.56%
$500,000 up to $1,000,000 2.00% 2.04%
$1,000,000 and above* 0.00% 0.00%
* 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.
8
<PAGE>
CHOOSING A SHARE CLASS (CONTINUED)
* 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 buy Class A Shares of the Fund over a 13-month
period and receive the same sales charge as if all shares had been purchased
at one time. You must start with a minimum initial investment of 5% of the
total amount.
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.
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.
f. Participants in tax-deferred retirement plans that meet at least one of
the following requirements: more than $1 million in plan assets; or 100
eligible employees; or if all of the plan's transactions are executed
through a single financial institution or service organization which has
an agreement to sell the Victory Funds in connection with such accounts.
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
*Affiliated Providers are affiliates and subsidiaries of KeyCorp,and any
organization that provides services to the Victory Group.
9
<PAGE>
HOW TO BUY SHARES
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500 ($100 for IRAs), with additional investments of at
least $25. You can send in your payment by check, wire transfer, exchange from
another Victory Fund, or through arrangements with your Investment Professional.
Sometimes an Investment Professional will charge you a fee for these services.
This fee will be in addition to, and unrelated to, the fees and expenses charged
by the Fund.
If you buy shares directly from the Fund and your investment is received and
accepted by the close of trading on the NYSE (usually 4:00 p.m. Eastern Time),
your purchase will be processed the same day using that day's share price.
Make your check payable to:
The Victory Funds
Keep the following addresses handy for purchases, exchanges, or redemptions:
<TABLE>
<CAPTION>
[ICON] BY THE REGULAR U.S. MAIL CLASS A SHARES CLASS G SHARES
------------------------- -------------- --------------
<S> <C> <C>
Send a completed Account The Victory Funds The Victory Funds
Application with your check, P.O.Box 8527 c/o Gradison McDonald
bank draft,or money order to: Boston,MA 02266-8527 580 Walnut Street
Cincinnati,OH 45202
[ICON] BY THE MAIL CLASS A SHARES CLASS G SHARES
----------------- -------------- --------------
Use this address The Victory Funds The Victory Funds
ONLY for overnight packages. c/o Boston Financial c/o Gradison McDonald
Data Services 580 Walnut Street
66 Brooks Drive Cincinnati,OH 45202
Braintree,MA 02184
PHONE: 800-539-FUND PHONE:513-579-5999
or: 800-869-5999
[ICON] BY WIRE CLASS A SHARES CLASS G SHARES
------- -------------- --------------
The Transfer Agent does not The Victory Funds 800-539-FUND The Victory Funds
charge a wire fee,but your State Street Bank and Trust Co. c/o Gradison McDonald
originating bank may charge ABA #011000028 513-579-5999 or 800-869-5999
a fee. Always call the Transfer
Agent BEFORE wiring funds and For Credit to DDA Firstar Bank
to obtain a confirmation number. Account #9905-201-1 ABA #042000013
For Further Credit to Account # For Credit to
DDA (insert account number, name Account #9307745
and confirmation number assigned by
the Transfer Agent)
[ICON] BY TELEPHONE CLASS A SHARES CLASS G SHARES
------------ -------------- --------------
Victory at: Gradison McDonald at:
800-539-FUND 513-579-5999
(800-539-3863) or 800-869-5999
</TABLE>
10
<PAGE>
HOW TO BUY SHARES (CONTINUED)
* 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 an ACH account. Currently, the Fund does 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 conFormation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, account activity will be detailed in your account
statements. Share certificates are not issued. Twice a year, you will receive
the financial reports of the Fund. By January 31 of each year, you will be
mailed an IRS form reporting distributions for the previous year, which also
will be filed with the IRS.
* SYSTEMATIC AND AUTOMATIC INVESTMENT PLAN
To enroll in the Systematic or Automatic Investment Plan, you should check this
box on the Account Application or complete a separate Automatic Investment Plan
Application. We will need both your bank 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 initial investment
requirement of $500 ($100 for IRAs), then we will make automatic withdrawals of
the amount you indicate ($25 or more) from your bank account and invest it in
shares of the Fund.
* RETIREMENT PLANS
You can use the Fund as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-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.
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 will be charged for any resulting fees and/or
losses. Third party checks may not be accepted. You may only buy or exchange
into fund shares legally available in your state. If your account falls below
$500, we may ask you to re-establish the minimum investment. If you do not do so
within 60 days, we may close your account and send you the value of your
account.
If you would like to make additional investments after your account has been
established, use the Investment Stub attached to your confirmation statement and
send it with your check to the address indicated.
11
<PAGE>
HOW TO EXCHANGE SHARES
You can sell shares of one fund of the Victory Portfolios to buy shares of
another. This is considered an exchange. 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 exchange shares of the Fund by writing or calling the Transfer Agent at
800-539-FUND or Gradison McDonald at 513-579-5999 or 800-869-5999. When you
exchange shares of the Fund, you should keep the following in mind:
*Shares of the fund selected for exchange must be available
for sale in your state of residence.
*Both funds must offer the exchange privilege.
*Shares of the Fund may be exchanged at relative net asset value. This
means that if you own Class A Shares of the Fund, you can only exchange
them for Class A Shares of another fund and not pay a sales charge.
*If you bought Class G Shares after the reorganization of the Gradison
Funds into Victory Funds, you can exchange into Class G Shares, Select
Shares, or any single class money market fund shares of a fund without
paying a sales charge. If a fund has both Class G and Class A Shares, a
Class G shareholder can exchange into only Class G Shares. However, if you
owned Class G Shares before the reorganization, you can exchange into Class
A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
*Exchange orders will be accepted up to 4:00 P.M. Eastern Time.
*You must meet the minimum purchase requirements for the fund you purchase
by exchange.
*The registration and tax identification numbers of the two accounts must be
identical.
*You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them; after the account is open
seven days, you can exchange shares on any business day.
*Effective April 1, 1999, the Fund may refuse any exchange purchase request
if the Adviser determines that the request is associated with a market
timing strategy. The Fund may terminate or modify the exchange privilege at
any time on 30 days' notice to shareholders.
*An exchange of Fund shares constitutes a sale for tax purposes.
*Before exchanging, read the prospectus of the fund you wish to purchase by
exchange.
You can obtain a list of funds available for exchange by calling the Transfer
Agent at 800-539-FUND or Gradison McDonald at 513-579-5999 or 513-579-5999.
12
<PAGE>
HOW TO SELL SHARES
If your request is received and accepted by the close of trading on the NYSE
(usually 4:00 p.m. Eastern Time), your redemption will be processed the same
day.
[ICON] BY TELEPHONE
The easiest way to sell shares is by calling 800-539-FUND or Gradison McDonald
at 513-579-5999 or 800-869-5999. When you fill out your original application, be
sure to check the box marked "Telephone Authorization." Then when you are ready
to sell, call and tell us which one of the following options you would like to
use:
*Mail a check to the address of record;
*Wire funds to a domestic financial
institution;
*Electronically transfer your redemption via the Automated Clearing House
(ACH). This feature is available only to certain accounts.
The Transfer Agent records all telephone calls for your protection and takes
measures to verify the identity of the caller. If the Transfer Agent properly
acts on telephone instructions and follows reasonable procedures to ensure
against unauthorized transactions, neither Victory, its servicing agents, the
Adviser, nor the Transfer Agent will be responsible for any losses. If the
Transfer Agent does not follow these procedures, it may be liable to you for
losses resulting from unauthorized instructions.
If there is an unusual amount of market activity and you cannot reach the
Transfer Agent or your Investment Professional by telephone, consider placing
your order by mail.
[ICON] BY MAIL
Use the Regular U.S. Mail or Overnight Mail Address to sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
*Redemptions over $10,000;
*Your account registration has changed within the last 15 days;
*The check is not being mailed to the address on your account;
*The check is not being made payable to the owner of the account;
*The redemption proceeds are being transferred to another Victory Fund account
with a different registration; or
*The check or wire is being sent to a different bank account.
You can get a signature guarantee from a financial institution such as a
bank, broker-dealer, credit union, clearing agency, or savings association.
[ICON] BY WIRE
If you want to sell shares by wire, you must establish a Fund account that will
accommodate wire transactions. If you call by 4:00 p.m. Eastern time, your funds
will be wired on the next business day.
[ICON] BY ACH
Normally, if this feature is available for your account, your redemption will be
processed on the same day or the next day if received after 4:00 p.m. Eastern
Time. It will be transferred by ACH as long as the transfer is to a domestic
bank, and the ACH feature is available for your account.
There are a number of convenient ways to sell your shares. You can use the same
mailing addresses listed for purchases.
13
<PAGE>
HOW TO SELL SHARES (CONTINUED)
* 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 a balance of $5,000 or more. Once
again, we will need a voided personal check to activate this feature. You should
be aware that your account eventually may be depleted and that each withdrawal
will be a taxable transaction. However, you cannot automatically close your
account using the Systematic Withdrawal Plan. If your balance falls below $500,
we may ask you to bring the account back to the minimum balance. If you decide
not to increase your account to the minimum balance, your account may be closed
and the proceeds mailed to you.
* Additional Information about Redemptions
*Redemption proceeds from the sale of shares purchased by a check may be held up
to 15 business days until the purchase check has cleared.
*The Fund may suspend your right to redeem your shares in the following
circumstances:
-During non-routine closings of the NYSE;
-When the Securities and Exchange Commission (SEC) determines that (a)
trading on the NYSE is restricted or (b) an emergency prevents the sale or
valuation of the Fund's securities; or
-When the SEC orders a suspension to protect the Fund's shareholders.
*The Fund will pay redemptions by any one shareholder during any 90-day period
in cash up to the lesser of $250,000 or 1% of the Fund's net assets. The Fund
reserves the right to pay the remaining portion "in kind," that is, in
portfolio securities rather than cash.
ORGANIZATION AND MANAGEMENT OF THE FUND
* ABOUT VICTORY
The Fund is a member of The Victory Portfolios, a group of over 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.
*THE INVESTMENT ADVISER
AND SUB-ADMINISTRATOR
The Fund has an Advisory Agreement, which is one of its most important
contracts. Key Asset Management Inc. (KAM), a New York corporation registered as
an investment adviser with the SEC, is the Adviser to the Fund. KAM, a
subsidiary of KeyCorp, oversees the operations of the Fund according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $68 billion for a limited number of
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114. For the fiscal year ended October 31, 1998, KAM was paid
a management fee based on a percentage of the average daily net assets of the
Fund (after waivers) at an annual rate of 0.86% for Class A Shares.
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the Fund's
administrator, pays KAM a fee at the annual rate of up to 0.05% of the Fund's
average daily net assets to perform some of the administrative duties for the
Fund.
14
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)
* PORTFOLIO MANAGEMENT
William J. Leugers, Jr., Daniel R. Shick, and Gary H. Miller have been the
Co-Portfolio Managers of the Fund since November 1998, and together are
primarily responsible for the day-to-day management of the Fund's portfolio.
They are Portfolio Managers and Managing Directors of Gradison McDonald, and
also have served as Co-Portfolio Managers of the Gradison Established Value
Fund, Mr. Leugers since 1984 and Mr. Shick since 1993. Mr. Miller has been a
Vice President and Portfolio Manager of Gradison McDonald since June 1998, prior
to which he served as a Portfolio Trader with Gradison McDonald since 1993.
* SHAREHOLDER SERVICING PLAN
The Fund has adopted a Shareholder Servicing Plan for its Class A Shares. The
shareholder servicing agents perform a number of services for their customers
who are shareholders of the Fund. They establish and maintain accounts and
records, process dividend payments, arrange for bank wires, assist in
transactions, and change account information. For these services the Fund pays a
fee at an annual rate of up to 0.25% of the average daily net assets of Class A
Shares serviced by the agent. The Fund may enter into agreements with various
shareholder servicing agents, including KeyBank National Association and its
affiliates, other financial institutions, and securities brokers. The Fund 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 AND SERVICE PLAN
According to Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for Class A Shares of the Fund. The
Fund does not pay expenses under this plan for Class A Shares.
Victory also has adopted a Rule 12b-1 Distribution and Service Plan for
Class G Shares of the Fund, under which, these Shares will pay to the
Distributor a monthly service fee at an annual rate of 0.25% of the average
daily net assets of the Fund. The service fee is paid to securities broker
dealers or other financial intermediaries for providing personal services to
shareholders of the Funds, including responding to inquiries, providing
information to shareholders about their Fund accounts, establishing and
maintaining accounts and records, processing dividend and distribution payments,
arranging for bank wires, assisting in transactions, and changing account
information. The Fund may enter into agreements with various shareholder
servicing agents, including KeyCorp and its affiliates, and with other financial
institutions that provide such services.
Under this Plan Class G Shares of the Fund also annually pay the
Distributor a monthly distribution fee in an additional amount up to 0.25% of
the Fund's average daily net assets. The distribution fee is paid to the
Distributor for general distribution services and for selling shares of the
Fund. The Distributor makes payments to agents who provide these services.
Because 12b-1 fees are paid out of the Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Fund to
provide services to the Fund's shareholders. Each of these organizations is paid
a fee for services.
15
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUND (CONTINUED)
OPERATIONAL STRUCTURE OF THE FUND
TRUSTEES ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND GRADISON DIVISION
THEIR INVESTMENT PROFESSIONALS OF MCDONALD
INVESTMENTS INC.
Advise current and prospective Provides
shareholders on their Fund investments. services to certain
shareholders.
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 shareholder accounts.
ADMINISTRATOR, DISTRIBUTOR, CUSTODIAN
AND FUND ACCOUNTANT
BISYS Fund Services Key Trust Company of Ohio, N.A.
and its affiliates 127 Public Square
3435 Stelzer Road Cleveland, OH 44114
Columbus, OH 43219
Markets the Fund, distributes shares Provides for safekeeping of the
through Investment Professionals, Fund's investments and cash, and
and calculates the value of shares. settles trades made by the Fund.
As Administrator, handles the
day-to-day activities of the Fund.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain
sub-administrative services.
The Fund is supervised by the Board of Trustees who monitors the services
provided to investors.
16
<PAGE>
ADDITIONAL INFORMATION
*SHARE CLASSES
The Fund offers only the classes of shares described in this Prospectus. At some
future date, the Fund may offer additional classes of shares through a separate
prospectus.
*CODE OF ETHICS
The Fund and the Adviser have each adopted a Code of Ethics to
which all investment personnel and all other access persons of 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
The Adviser is a subsidiary of a bank holding company. Banking laws, including
the Glass-Steagall Act, currently 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 an
investment adviser, transfer agent, custodian, or shareholder servicing agent.
They also may pay third parties for performing these functions and buy shares of
such an investment company for their customers. Should these laws change in the
future, the Trustees would consider selecting another qualified firm so that all
services would continue.
[ICON] PERFORMANCE
The Victory Funds may advertise the performance of the Fund by comparing it to
other mutual funds with similar objectives and policies. Performance information
also may appear in various publications. Any fees charged by Investment
Professionals may not be reflected in these performance calculations.
Advertising information will include the average annual total return of the Fund
calculated on a compounded basis for specified periods of time. Total return
information will be calculated according to rules established by the SEC. Such
information may include performance rankings and similar information from
independent organizations, such as Lipper Analytical Services, Inc., and
industry publications such as Morningstar, Business Week, or Forbes. You also
should see "Investment Performance."
*YEAR 2000 ISSUES
Like all mutual funds, the Fund could be adversely affected if the computer
systems used by its service providers, including shareholder servicing agents,
are unable to recognize dates after 1999. The Fund's service providers have been
actively updating their systems to be able to process Year 2000 data. There can
be no assurance, however, that these steps will be adequate to avoid a temporary
service disruption or other adverse impact on the Fund. In addition, an issuer's
failure to process accurately Year 2000 data may cause that issuer's securities
to decline in value or delay the payment of interest to the Fund.
*SHAREHOLDER COMMUNICATIONS
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
any financial reports, prospectuses and their supplements.
Some additional information you should know about the Fund
If you would like to receive additional copies of any materials, please call the
Fund at 800-539-FUND, or Gradison McDonald at 513-579-5999 or 800-869-5999.
17
<PAGE>
OTHER SECURITIES AND INVESTMENT PRACTICES
The following table describes some of the types of securities the Fund may
choose to buy under normal market conditions. The Fund primarily invests in
equity securities. However, for cash management or for temporary defensive
purposes in response to market conditions, the Fund may hold all of its assets
in cash or short-term money market instruments. This may reduce the benefit from
any upswing in the market and may cause the Fund to fail to meet its investment
objective. For more information on ratings and detailed descriptions of each of
the investments, see the SAI.
U.S. EQUITY SECURITIES. Includes common stock, preferred stock, and securities
that are convertible or exchangeable into common stock of U.S. corporations.
PREFERRED STOCK. A class of stock that pays dividends at a 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. public
corporations. They may be secured or unsecured.
U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed by the 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, certificates of
deposit, prime quality commercial paper, Eurodollar obligations, variable and
floating rate notes, cash, and cash equivalents.
SECURITIES LENDING. To generate additional income, the Fund may lend its
portfolio securities. The Fund will receive collateral for the value of the
security plus any interest due. The Fund only will enter into loan arrangements
with entities that the Adviser has determined are creditworthy. According to an
exemptive order received from the SEC, Key Trust Company of Ohio, N.A., the
Fund's Custodian and lending agent, may earn a fee based on the amount of income
earned on the investment of collateral.
REPURCHASE AGREEMENTS. An agreement involving the Fund's purchase of a security
and the seller's agreement to repurchase the same security at a stated price
plus interest. The seller's obligation to the Fund is secured by the instrument.
Subject to an exemptive order from the SEC, the Adviser may combine repurchase
transactions among one or more Victory funds into a single transaction.
18
<PAGE>
[ICON] FINANCIAL HIGHLIGHTS SMALL COMPANY OPPORTUNITY FUND
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information shows the
results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about the
Gradison Opportunity Value Fund, the predecessor to the Fund. The financial
highlights for the three fiscal years and one period ended March 31, 1998 and
the year ended April 30, 1994, were audited by Arthur Andersen LLP, whose
report, along with the financial statements of the Fund, are included in the
Fund's annual report, which is available by calling the Fund at 800-539-FUND or
Gradison McDonald at 513-579-5999 or 800-869-5999. The Special Growth Fund
assumed the performance and accounting history of Gradison Opportunity Value
Fund after the reorganization.
<TABLE>
<CAPTION>
6 Months
Ended Year Year Year 11 Months Year
Sept. 30, Ended Ended Ended Ended Ended
1998 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Apr. 30,
(unaudited) 1998 1997 1996 1995(a) 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 27.893 $ 22.771 $ 22.264 $ 18.100 $ 18.348 $ 17.547
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment income .107 .227 .203 .193 .136 .086
Net realized and unrealized gain
(loss) on investments (6.309) 8.725 2.509 4.731 .176 1.585
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from
Investment Operations (6.202) 8.952 2.712 4.924 .312 1.671
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
Dividends from net
investment income (.090) (.270) (.165) (.185) (.120) (.070)
Distributions from realized
capital gains (1.030) (3.560) (2.040) (.575) (.440) (.800)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions to Shareholders (1.120) (3.830) (2.205) (.760) (.560) (.870)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 20.571 $ 27.893 $ 22.771 $ 22.264 $ 18.100 $ 18.348
=========================================================================================================================
Total Return (22.96%)(b) 42.02% 12.46% 28.00% 1.75%(c) 9.75%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in millions) $ 137.0 $ 175.7 $ 114.5 $ 103.0 $ 84.7(b) $ 83.3
Ratio of gross expenses to average
net assets(d) 1.29%(c) 1.31% 1.36% 1.41% -- --
Ratio of net expenses to average
net assets 1.29%(c) 1.31% 1.36% 1.41% 1.37%(c) 1.38%
Ratio of net investment income
to average net assets .84%(c) .86% .90% .95% .84%(c) .47%
Portfolio turnover rate 12% 42% 35% 24% 32% 40%
</TABLE>
(a) The Gradison Opportunity Value Fund changed its fiscal year to March 31.
(b) Total return represents the actual return over the period and has not been
annualized.
(c) Annualized.
(d) Effective March 31, 1996, this ratio reflects gross expenses before
reduction for earnings credits; such reductions are included in the ratio
of net expenses.
19
<PAGE>
This page is intentionally left blank.
20
<PAGE>
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
If you would like a free copy of any of the following documents or would like to
request other information regarding the Fund, you can call or write the Fund or
your Investment Professional.
- - STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more details describing the Fund and its policies. The SAI has
been filed with the Securities and Exchange Commission (SEC), and is
incorporated by reference in this Prospectus.
- - ANNUAL AND SEMI-ANNUAL REPORTS
Describes the Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
- - HOW TO OBTAIN INFORMATION
BY TELEPHONE: Call Victory Funds at 800-539-FUND (800-539-3863) or
Gradison McDonald at 513-579-5999 or 800-869-5999. You also may obtain
copies of materials from the SEC's Public Reference Room in Washington,
D.C. (Call 800-SEC-0330 for information on the operation of the SEC's
Public Reference Room.)
BY MAIL: The Victory Funds OR: Gradison McDonald
P. O. Box 8527 580 Walnut Street
Boston, MA 02266-8527 Cincinnati, Ohio 45202
You also may write the Public Reference Section of the SEC, 450 Fifth St., N.W.,
Washington, D.C. 20549-6009, and pay the costs of duplication.
On the Internet: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov.
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 copies of
the annual and
semi-annual reports
and/or the SAI at no
charge, please call
the Fund at
800-539-FUND
or Gradison McDonald at
513-579-5999
or
800-869-5999.
[Key Logo]
VICTORY FUNDS
Investment Company Act File Number 811-4852
<PAGE>
Registrant's Statement of Additional Information dated March 1, 1999 is
incorporated herein by reference to the definitive Statement of Additional
Information filed with the Securities and Exchange Commission on March 5, 1999
pursuant to Rule 497(c) under the Securities Act of 1933, as amended, accession
no. 0000922423-99-000394.
<PAGE>
Registration Statement
of
THE VICTORY PORTFOLIOS
----------------------
on
Form N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits:
(a)(1) Certificate of Trust (1)
(a)(2) Delaware Trust Instrument dated December 6, 1995, as amended. (2)
(b) Bylaws, Amended and Restated as of August 28, 1998.(3)
(c) The rights of holders of the securities being registered are set
out in Articles II, VII, IX and X of the Trust Instrument
referenced in Exhibit (a)(2) above and in Article IV of the Bylaws
referenced in Exhibit (b) above.
(d)(1) Investment Advisory Agreement dated as of March 1, 1997 between
Registrant and Key Asset Management Inc. ("KAM"), with Schedule A
amended as of March 1, 1997, March 2, 1998 and May 29, 1998. (4)
(d)(2) Investment Advisory Agreement dated March 1, 1997 between
Registrant and KAM regarding Lakefront Fund and Real Estate
Investment Fund. (5)
(d)(3) Form of Schedule A to the Investment Advisory Agreement between
Registrant and KAM amended as of April 1, 1999, including the
Gradison Government Reserves Fund and Established Value Fund. (6)
(d)(4) Investment Sub-Advisory Agreement dated March 1, 1997 between KAM
and Lakefront Capital Investors, Inc. regarding the Lakefront
Fund. (5)
- --------------------------------
1 Filed as an Exhibit to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A filed
electronically on December 28, 1995, accession number
0000950152-95-003085.
2 Filed as an Exhibit to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A filed
electronically on February 26, 1998, accession number
0000922423-98-000264.
3 Filed as an Exhibit to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A filed
electronically on November 19, 1998, accession number
0000922423-98-001323.
4 Filed as an Exhibit to Post-Effective Amendment No. 42 to
Registrant's Registration Statement on Form N-1A filed
electronically on July 29, 1998, accession number
0000922423-98-000725.
5 Filed as an Exhibit to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A filed
electronically on December 12, 1997, accession number
0000922423-97-001015.
6 Filed as an Exhibit to Post-Effective Amendment No. 46 to
Registrant's Registration Statement on Form N-1A filed
electronically on February 9, 1999, accession number
0000922423-99-000095.
C-1
<PAGE>
(d)(5) Investment Advisory Agreement dated June 1, 1998 between
Registrant and KAM regarding the International Growth Fund. (4)
(d)(6) Portfolio Management Agreement dated June 1, 1998 between
Registrant, KAM and Indocam International Investment Services,
S.A. regarding the International Growth Fund. (7)
(e) Distribution Agreement dated June 1, 1996 between Registrant and
BISYS Fund Services Limited Partnership, with Schedule I amended
as of March 2, 1998 and May 29, 1998. (4)
(f) None.
(g)(1) Amended and Restated Mutual Fund Custody Agreement dated August 1,
1996 between Registrant and Key Trust of Ohio, Inc., with Schedule
A revised as of March 1998 and May 29, 1998 and Attachment B
revised as of March 2, 1998. (4)
(g)(2) Custody Agreement dated May 31, 1996 between Morgan Stanley Trust
Company and Key Trust Company of Ohio. (8)
(h)(1) Form of Broker-Dealer Agreement. (9)
(h)(2) Administration Agreement dated October 1, 1997 between Registrant
and BISYS Fund Services Limited Partnership ("BISYS"), with
Schedule I amended as of March 2, 1998 and May 29, 1998 and
Schedule II-B amended as of March 2, 1998. (4)
(h)(3) Sub-Administration Agreement dated October 1, 1997 between BISYS
and KAM, with Schedule A amended as of March 2, 1998 and May 29,
1998. (4)
(h)(4) Transfer Agency and Service Agreement dated July 12, 1996 between
Registrant and State Street Bank and Trust Company, with Schedule
A revised as of August 1, 1996, March 2, 1998 and May 29, 1998.
(4)
(h)(5) Fund Accounting Agreement dated May 31, 1995 between Registrant
and BISYS Fund Services Ohio, Inc., with Amended Schedule A as of
February 19, 1997 and March 2, 1998 and May 29, 1998, and Schedule
B as of March 2, 1998. (4)
(h)(6) Purchase Agreement is incorporated herein by reference to Exhibit
13(c) to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A filed on December 1, 1989.
(i)(1) Opinion of Morris, Nichols, Arsht & Tunnell, Delaware Counsel to
Registrant. (3)
- --------------------------------
7 Filed as an Exhibit to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A filed
electronically on June 12, 1998, accession number
0000922423-98-000602.
8 Filed as an Exhibit to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A filed
electronically on July 30, 1996, accession number
0000922423-96-000344.
9 Filed as an Exhibit to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A filed
electronically on January 31, 1996, accession number
0000922423-96-000047.
C-2
<PAGE>
(i)(2) Opinion of Kramer Levin Naftalis & Frankel LLP ("Kramer Levin") as
to the legality of the securities being registered. (3)
(i)(3) Consent of Kramer Levin.
(j)(1) Consent of PricewaterhouseCoopers LLP.
(j)(2) Consent of Arthur Andersen LLP.
(k) Not applicable.
(l)(1) Purchase Agreement dated November 12, 1986 between Registrant and
Physicians Insurance Company of Ohio is incorporated herein by
reference to Exhibit 13 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on November
13, 1986.
(l)(2) Purchase Agreement dated October 15, 1989 is incorporated herein
by reference to Exhibit 13(b) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed on December
1, 1989.
(m)(1) Distribution and Service Plan dated June 5, 1995 for the Class A
Shares of Registrant with Schedule I amended as of February 19,
1997, March 2, 1998 and May 29, 1998. (4)
(m)(2) Distribution Plan dated June 5, 1995 for Class B Shares of
Registrant with Schedule I amended as of February 1, 1996. (7)
(m)(3) Distribution and Service Plan dated December 11, 1998 for Class G
Shares of Registrant. (10)
(m)(4) Shareholder Servicing Plan dated June 5, 1995 with Schedule I
amended as of March 1, 1997, March 2, 1998 and May 29, 1998. (4)
(m)(5) Form of Shareholder Servicing Agreement. (1)
(n) Financial Data Schedules.
(o) Amended and Restated Rule 18f-3 Multi-Class Plan as of December
11, 1998. (9)
Powers of Attorney of Roger Noall and Frank A. Weil. (11 )
Powers of Attorney of Leigh A. Wilson, Harry Gazelle, Thomas F.
Morrissey, H. Patrick Swygert and Eugene J. McDonald. (2)
Item 24. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
None.
- -----------------------------------
10 Filed as an Exhibit to Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A filed
electronically on January 26, 1999, accession number
0000922423-99-000059.
11 Filed as an Exhibit to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-14 filed
electronically on February 3, 1998, accession number
0000922423-98-000095.
C-3
<PAGE>
Item 25. Indemnification
---------------
Article X, Section 10.02 of Registrant's Delaware Trust Instrument, as amended,
incorporated herein as Exhibit (a)(2) hereto, provides for the indemnification
of Registrant's Trustees and officers, as follows:
Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified by
the Trust to the fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in Subsection
(a) of this Section 10.02 may be paid by the Trust or Series from time to time
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter,
C-4
<PAGE>
or independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a trial-type inquiry or
full investigation), that there is reason to believe that such Covered Person
will be found entitled to indemnification under this Section 10.02."
Indemnification of the Fund's principal underwriter, custodian, fund accountant,
and transfer agent is provided for, respectively, in Section V of the
Distribution Agreement incorporated by reference as Exhibit 6(a) hereto, Section
28 of the Custody Agreement incorporated by reference as Exhibit 8(a) hereto,
Section 5 of the Fund Accounting Agreement incorporated by reference as Exhibit
9(d) hereto, and Section 7 of the Transfer Agency Agreement incorporated by
reference as Exhibit 9(c) hereto. Registrant has obtained from a major insurance
carrier a trustees' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant indemnify any of its trustees,
officers, employees or agents against any liability to which such person would
otherwise be subject by reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of the duties involved in the conduct of his office or under his
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers, and controlling persons or
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Investment Company
Act of 1940, as amended, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
KAM is the investment adviser to each Fund of The Victory Portfolios. KAM is a
wholly-owned indirect subsidiary of KeyCorp, a bank holding company which had
total assets of approximately $78 billion as of September 30, 1998. KeyCorp is a
leading financial institution doing business in 13 states from Maine to Alaska,
providing a full array of trust, commercial, and retail banking services. Its
non-bank subsidiaries include investment advisory, securities brokerage,
insurance, bank credit card processing, mortgage and leasing companies. KAM and
its affiliates have over $68 billion in assets under management, and provides a
full range of investment management services to personal and corporate clients.
Lakefront Capital Investors, Inc. ("Lakefront"), sub-adviser of the Lakefront
Fund, 127 Public Square, Cleveland, Ohio 44114, was incorporated in 1991.
Indocam International Investment Services, S.A. ("IIIS") serves as the
sub-adviser to the International Growth Fund. IIIS and its advisory affiliates
("Indocam") are the global asset management component of the Credit Agricole
banking and financial services group. IIIS is a registered investment adviser
with the SEC and also serves as the investment adviser to the France Growth Fund
and as subadviser for the BNY Hamilton International Equity Fund and the John
Hancock European Equity Fund. Indocam
C-5
<PAGE>
has affiliates which are engaged in the brokerage business. The principal office
of IIIS is 9, rue Louis Murat, Paris, France 75008.
To the knowledge of Registrant, none of the directors or officers of KAM,
Lakefront, or IIIS, except those set forth below, is or has been at any time
during the past two calendar years engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers of KAM also hold positions with KeyCorp or its subsidiaries.
The principal executive officers and directors of KAM are as follows:
- ---------------------------------------------------------------------
Directors:
- ----------
<TABLE>
<CAPTION>
<S> <C> <C>
William G. Spears o Senior Managing Director and Chairman
Richard J. Buoncore o Senior Managing Director, President and Chief Executive Officer.
Bradley E. Turner o Senior Managing Director and Chief Operating Officer
Anthony Aveni o Senior Managing Director and Chief Investment Officer of Society Asset
Management Division.
Vincent DeP. Farrell o Senior Managing Director and Chief Investment Officer of Spears, Benzak,
Salomon & Farrell Division.
Richard E. Salomon o Senior Managing Director.
Gary R. Martzolf o Senior Managing Director.
Other Officers:
Charles G. Crane o Senior Managing Director and Chief Market Strategist.
James D. Kacic o Chief Financial Officer, Chief Administrative Officer, and Senior Managing
Director.
William R. Allen o Managing Director.
Michael Foisel o Assistant Treasurer.
Michael Stearns o Chief Compliance Officer.
William J. Blake o Secretary.
Steven N. Bulloch o Assistant Secretary. Also, Senior Vice President and Senior Counsel of
KeyCorp Management Company.
Kathleen A. Dennis o Senior Managing Director.
</TABLE>
The business address of each of the foregoing individuals is 127 Public Square,
Cleveland, Ohio 44114.
The principal executive officer and director of Lakefront is:
- -------------------------------------------------------------
Nathaniel E. Carter o President and Chief Investment Officer.
The business address of the foregoing individual is 127 Public Square,
Cleveland, Ohio 44114.
C-6
<PAGE>
The principal executive officers and directors of IIIS are as follows:
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Jean-Claude Kaltenbach o Chairman and CEO.
Ian Gerald McEvatt o Director. Claude Doumic o Director.
Didier Guyot de la Pommeraye o Director. Charles Vergnot o Director.
Eric Jostrom o Director. Gerard Sutterlin o Secretary General.
</TABLE>
The business address of each of the foregoing individuals is 90 Blvd. Pasteur,
75730 Paris, CEDEX 15 -- France.
Item 27. Principal Underwriter
---------------------
(a) BISYS Fund Services, Registrant's administrator, also acts as the
distributor for the following investment companies as of December 22, 1998.
<TABLE>
<CAPTION>
<S> <C>
Alpine Equity Trust The Kent Funds
American Performance Funds Magna Funds
AmSouth Mutual Funds Meyers Investment Trust
The ARCH Fund, Inc. MMA Praxis Mutual Funds
The BB&T Mutual Funds Group M.S.D. & T. Funds
The Coventry Group Pacific Capital Funds
ESC Strategic Funds, Inc. The Parkstone Advantage Fund
The Eureka Funds Pegasus Funds
Gradison-McDonald Cash Reserves Trust Puget Sound Alternative Investment Series Trust
Gradison-McDonald Municipal Custodian Trust Republic Advisor Funds Trust
Gradison Custodian Trust Republic Funds Trust
Gradison Growth Trust The Riverfront Funds, Inc.
Fifth Third Funds Sefton Funds
Hirtle Callaghan Trust SSgA Liquidity Fund
HSBC Funds Trust The Sessions Group
HSBC Mutual Funds Trust Summit Investment Trust
The Infinity Mutual Funds, Inc. Variable Insurance Funds
INTRUST Funds Trust The Victory Variable Insurance Funds
Vintage Mutual Funds, Inc.
</TABLE>
(b) Directors, officers and partners of BISYS Fund Services, Inc., the General
Partner of BISYS Fund Services, as of June 15, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lynn J. Mangum o Chairman and CEO. William Tomko o Senior Vice
President.
Dennis Sheehan o Director, Executive Vice Michael D. Burns o Vice President.
President and Treasurer.
J. David Huber o President. David Blackmore o Vice President.
Kevin J. Dell o Vice President and Secretary. Steve Ludwig o Compliance Officer.
Mark Rybarczyk o Senior Vice President. Robert Tuch o Assistant Secretary.
</TABLE>
The business address of each of the foregoing individuals is BISYS Fund
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43215.
C-7
<PAGE>
Item 28. Location of Accounts and Records
--------------------------------
(1) Key Asset Management Inc., 127 Public Square, Cleveland, Ohio 44114-1306
(records relating to its functions as investment adviser and
sub-administrator).
(2) Lakefront Capital Investors, Inc., 127 Public Square, Cleveland, Ohio
44114 (records relating to its function as investment sub-adviser for the
Lakefront Fund only).
(3) Indocam International Investment Services, S.A., 9, rue Louis Murat,
Paris, France 75008 (records relating to its function as investment
sub-adviser for the International Growth Fund only).
(4) KeyBank National Association, 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its function as shareholder servicing
agent).
(5) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as administrator and fund accountant).
(6) BISYS Fund Services Limited Partnership, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its function as distributor).
(7) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110-3875 (records relating to its function as transfer
agent).
(8) Boston Financial Data Services, Inc. Two Heritage Drive, Quincy,
Massachusetts 02171 (records relating to its functions as dividend
disbursing agent and shareholder servicing agent).
(9) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as custodian and securities
lending agent).
(10) Morgan Stanley Trust Company, 1585 Broadway, New York, New York 10036
(records relating to its function as sub-custodian of the Balanced Fund,
Convertible Securities Fund, International Growth Fund, Lakefront Fund,
and Real Estate Investment Fund).
Item 29. Management Services
-------------------
None.
Item 30. Undertakings
------------
None.
NOTICE
A copy of the Certificate of Trust of Registrant is on file with the Secretary
of State of Delaware and notice is hereby given that this Post-Effective
Amendment to Registrant's Registration Statement has been executed on behalf of
Registrant by officers of, and Trustees of, Registrant as officers and as
Trustees, respectively, and not individually, and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders of Registrant individually but are binding only upon
the assets and property of Registrant.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the
Investment Company Act, Registrant certifies that it meets all of the
requirements of effectiveness of this registration statement under Rule 485(b)
under the Securities Act and has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of New
York, and the State of New York on this 26th day of March, 1999.
THE VICTORY PORTFOLIOS
By: /s/ Leigh A. Wilson
-------------------
Leigh A. Wilson, President and Trustee
Pursuant to the requirements of the Securities Act, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C> <C>
/s/ Roger Noall Chairman of the Board and Trustee March 26, 1999
- ---------------
Roger Noall
/s/ Leigh A. Wilson Trustee March 26, 1999
- -------------------
Leigh A. Wilson
/s/ Joel B. Engle Treasurer March 26, 1999
- -----------------
Joel B. Engle
/s/ Harry Gazelle* Trustee March 26, 1999
- ------------------
Harry Gazelle
/s/ Thomas F. Morissey* Trustee March 26, 1999
- -----------------------
Thomas F. Morrissey
/s/ H. Patrick Swygert* Trustee March 26, 1999
- -----------------------
H. Patrick Swygert
/s/ Frank A. Weil* Trustee March 26, 1999
- ------------------
Frank A. Weil
/s/ Eugene J. McDonald* Trustee March 26, 1999
- -----------------------
Eugene J. McDonald
</TABLE>
- --------------------------------
*
By: /s/ Carl Frischling
--------------------
Carl Frischling
Attorney-in-fact
<PAGE>
THE VICTORY PORTFOLIOS
INDEX TO EXHIBITS
Item 23.
Exhibit Number
- --------------
EX-99.B10 Consent of Kramer Levin Naftalis & Frankel LLP.
EX-99.B11.1 Consent of Arthur Andersen LLP.
EX-99.B11.2 Consent of PricewaterhouseCoopers LLP.
EX.99.B27.1-2 Financial Data Schedules.
[LETTERHEAD OF KRAMER LEVIN NAFTALIS & FRANKEL LLP]
FAX
(212) 715-8000
-----
WRITER'S DIRECT NUMBER
(212) 715-9100
March 26, 1999
The Victory Portfolios
3435 Stelzer Road
Columbus, Ohio 43219
Re: Post-Effective Amendment No. 49 to
Registration Statement on Form N-1A
File Nos. 33-8892;811-4582
-----------------------------------
Dear Ladies and Gentlemen:
We hereby consent to the reference of our firm as Counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Post Effective Amendment No.49 Form N-1A filing of the Victory
Portfolios of our auditors' reports on the financial statements of Gradison
Government Income Fund dated January 28, 1999 and Gradison Opportunity Value
Fund dated May 6, 1998 and to all references to our Firm included in or made a
part of this Post Effective Amendment No.49 Form N-1A.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 25, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 49
to the Registration Statement of The Victory Portfolios on Form N-1A (File No.
33-8982) of our reports dated December 11, 1998 on our audits of the financial
statements and financial highlights of The Victory Portfolios (comprising,
respectively, the U.S. Government Obligations Fund, Prime Obligations Fund,
Financial Services Fund, Tax Free Money Market Fund, Ohio Municipal Money Market
Fund, Limited Term Income Fund, Intermediate Income Fund, Fund for Income,
Government Mortgage Fund, Investment Quality Bond Fund, National Municipal Bond
Fund, New York Tax Free Fund, Ohio Municipal Bond Fund, Balanced Fund,
Convertible Securities Fund, Real Estate Investment Fund, Value Fund, Lakefront
Fund, Diversified Stock Fund, Stock Index Fund, Growth Fund, Special Value Fund,
Ohio Regional Stock Fund, International Growth Fund, and Special Growth Fund,
Institutional Money Market Fund, Federal Money Market Fund, LifeChoice Moderate
Growth Fund, LifeChoice Growth Fund and LifeChoice Conservative Growth Fund),
which reports are included in the Annual Reports to Shareholders for the year
ended October 31, 1998, which are incorporated by reference in the
Post-Effective Amendment to the Registration Statement. We also consent to the
references to our Firm under the captions "Financial Statements" and
"Independent Accountants" in the Statement of Additional Information
incorporated by reference in this Post-Effective Amendment No. 49 to
Registration Statement of The Victory Portfolios on Form N1-A (File No.
33-8982).
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> OPPORTUNITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 122524263
<INVESTMENTS-AT-VALUE> 138864001
<RECEIVABLES> 201150
<ASSETS-OTHER> 28871
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139094022
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2115342
<TOTAL-LIABILITIES> 2115342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118943957
<SHARES-COMMON-STOCK> 6658785
<SHARES-COMMON-PRIOR> 6298471
<ACCUMULATED-NII-CURRENT> 329976
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1365009
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16339738
<NET-ASSETS> 136978680
<DIVIDEND-INCOME> 497525
<INTEREST-INCOME> 1253300
<OTHER-INCOME> 0
<EXPENSES-NET> 1059790
<NET-INVESTMENT-INCOME> 691035
<REALIZED-GAINS-CURRENT> 1398609
<APPREC-INCREASE-CURRENT> (42712653)
<NET-CHANGE-FROM-OPS> (40623009)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 567485
<DISTRIBUTIONS-OF-GAINS> 6494547
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4118561
<NUMBER-OF-SHARES-REDEEMED> 4034930
<SHARES-REINVESTED> 276683
<NET-CHANGE-IN-ASSETS> (38705569)
<ACCUMULATED-NII-PRIOR> 206426
<ACCUMULATED-GAINS-PRIOR> 6460947
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 502828
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1061164
<AVERAGE-NET-ASSETS> 164165091
<PER-SHARE-NAV-BEGIN> 27.893
<PER-SHARE-NII> .107
<PER-SHARE-GAIN-APPREC> (6.309)
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 1.03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.571
<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> GRADISON GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 155926260
<INVESTMENTS-AT-VALUE> 158412844
<RECEIVABLES> 2041801
<ASSETS-OTHER> 16859
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 160471504
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 759765
<TOTAL-LIABILITIES> 759765
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162950183
<SHARES-COMMON-STOCK> 11993852
<SHARES-COMMON-PRIOR> 11802228
<ACCUMULATED-NII-CURRENT> 44320
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5769348)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2486584
<NET-ASSETS> 159711739
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10647531
<OTHER-INCOME> 0
<EXPENSES-NET> 1422716
<NET-INVESTMENT-INCOME> 9224815
<REALIZED-GAINS-CURRENT> 226566
<APPREC-INCREASE-CURRENT> 1815747
<NET-CHANGE-FROM-OPS> 11267128
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9112745
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3957991
<NUMBER-OF-SHARES-REDEEMED> 4337959
<SHARES-REINVESTED> 571592
<NET-CHANGE-IN-ASSETS> 4640131
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5995914)
<OVERDISTRIB-NII-PRIOR> 67750
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 796226
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1425613
<AVERAGE-NET-ASSETS> 159245278
<PER-SHARE-NAV-BEGIN> 13.139
<PER-SHARE-NII> .766
<PER-SHARE-GAIN-APPREC> .168
<PER-SHARE-DIVIDEND> .757
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.316
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
