THE LIFECHOICE FUNDS
SEMIANNUAL
REPORT
APRIL 30,
1999
(LOGO) (R)
Victory Funds
<PAGE>
TABLE OF CONTENTS
Shareholder Letter 2
Financial Statements
Schedules of Investments 3
Statements of Assets and Liabilities 6
Statements of Operations 7
Statements of Changes in Net Assets 8
Notes to Financial Statements 9
Financial Highlights 12
NOT FDIC INSURED
Shares of The Victory Funds are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, any KeyCorp bank, Key Asset
Management Inc., or their affiliates, and are subject to investment risks,
including possible loss of the principal amount invested.
Year 2000 Issues. Like all mutual funds, the Funds 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
risk of such a computer failure may be greater as it relates to investments
in foreign countries. The Funds' 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 Funds. 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 Funds.
Key Asset Management Inc. (KAM), a subsidiary of KeyCorp, is the investment
adviser to The Victory Funds. The Victory Funds are sponsored and distributed
by BISYS Fund Services, which is not affiliated with KeyCorp or its
subsidiaries. KAM receives a fee for its services from The Victory Funds.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus of the Victory
LifeChoice Funds.
(LOGO) (R)
Victory Funds
Call Victory at:
800-539-FUND (800-539-3863)
Or Call Gradison McDonald at:
800-869-5999 or 513-579-5999
1
<PAGE>
Letter
to our Shareholders
On behalf of the Victory Funds, thank you for your continued confidence in
Victory. If you are new to the Victory Funds, welcome! We are pleased to
present the April 30, 1999, Semi-Annual Report for the Victory LifeChoice
Funds, three unique investment portfolios broadly diversified across
different mutual funds. We hope you find this report useful, easy to read,
and a valuable tool provided by the Victory Funds. But, before you delve into
the report, we would like to share some highlights from the first half of the
fiscal year 1999 and some brief economic commentary.
Since our last report, KeyCorp completed its acquisition of McDonald
Investments, Inc. and its related dealer, McDonald & Company Securities, a
full-service investment banking and securities brokerage firm. Soon after
that acquisition, the Gradison Funds, the proprietary mutual fund offering of
McDonald-Gradison Investments, Inc., were merged into the Victory Funds. The
combined assets of the Victory Funds, advised by Key Asset Management, an
affiliate of KeyCorp, are now over $18 billion dollars, spread across 32
distinct funds giving the Victory Funds the ability to serve an even wider
variety of investors. We have every hope that these recent additions and
structural changes will serve to enhance the Victory Funds' ability to meet
your specific investment objectives.
Currently, Key Asset Management reports the domestic economy is in great
shape. Unemployment is low, and real income growth is high. News from Asia
seems to be getting better, a prerequisite for global acceleration. Consumer
confidence is high, and investor sentiment is almost as buoyant. Cash flows
into equities are strong. The Dow Jones recently hit 10,000, and the S&P 500
spent much of the Funds' second fiscal quarter in record territory, too.
This healthy economic picture may be ideal for investors focused on the long
term. The LifeChoice Funds may be a practical investment vehicle for the
long-term investor because of diversification across asset classes. You also
have the opportunity to further diversify your holdings among the broad
investment options of the expanded Victory Fund complex. As you may know,
diversification can be a powerful tool in helping investors manage risk and
achieving one's investment objectives, through good and bad economic periods.
Again, thank you for choosing the Victory Funds to help you realize your
investment goals and, as always, we welcome your comments on this report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President
The Victory Funds
Dow Jones Industrial Average: A price weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are noted on the
New York Stock Exchange.
The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based unmanaged
index that represents the general performance of domestically traded common
stocks of mid- to large-size companies.
2
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Conservative Investor Fund April 30, 1999
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (100.0%)
Equity Funds (31.8%):
Victory Value Fund 33,344 $ 634
Victory Diversified Stock Fund,
Class A 39,654 730
Victory Special Value Fund,
Class A 29,663 400
Victory Small Company
Opportunity Fund, Class A 7,225 162
Neuberger Berman Genesis Fund (b) 23,063 320
Victory International Growth Fund,
Class A 26,946 391
2,637
Fixed Income/Specialty Funds (59.9%):
Victory Real Estate Investment Fund 46,375 498
Victory Convertible Securities Fund 87,843 1,170
Loomis Sayles Bond Fund,
Institutional Class 75,234 945
Victory Investment Quality
Bond Fund 116,402 1,137
Victory Intermediate Income Fund 55,286 532
Victory Fund For Income, Class A 52,147 685
4,967
Money Market Funds (8.3%):
Victory Financial Reserves Fund 689,762 690
Total Mutual Funds (Cost $8,209) 8,294
Total Investments (Cost $8,209) (a) -- 100.0% 8,294
Liabilities in excess of other assets -- 0.0% (2)
TOTAL NET ASSETS -- 100.0% $8,292
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $161
Unrealized depreciation (76)
Net unrealized appreciation $ 85
(b) Non-income producing securities.
See notes to financial statements.
3
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Moderate Investor Fund April 30, 1999
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (100.0%)
Equity Funds (52.2%):
Victory Value Fund 143,242 $ 2,724
Victory Diversified Stock Fund,
Class A 178,831 3,294
Victory Special Value Fund,
Class A 92,342 1,245
PBHG Growth Fund (b) 38,054 892
Victory Small Company
Opportunity Fund, Class A 22,476 504
Neuberger Berman Genesis Fund (b) 145,101 2,013
Victory International Growth Fund,
Class A 203,118 2,947
13,619
Fixed Income/Specialty Funds (39.3%):
Victory Real Estate Investment Fund 145,369 1,560
Victory Convertible Securities Fund 201,629 2,686
Loomis Sayles Bond Fund,
Institutional Class 97,855 1,229
Victory Investment Quality
Bond Fund 267,397 2,612
Victory Intermediate Income Fund 98,957 952
Victory Fund For Income, Class A 90,724 1,191
10,230
Money Market Funds (8.5%):
Victory Financial Reserves Fund 2,203,588 2,204
Total Mutual Funds (Cost $25,525) 26,053
Total Investments (Cost $25,525) (a) -- 100.0% 26,053
Other assets in excess of liabilities -- 0.0% 5
TOTAL NET ASSETS -- 100.0% $26,058
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $ 742
Unrealized depreciation (214)
Net unrealized appreciation $ 528
(b) Non-income producing securities.
See notes to financial statements.
4
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Growth Investor Fund April 30, 1999
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (99.9%)
Equity Funds (67.1%):
Victory Value Fund 106,710 $ 2,030
Victory Diversified Stock Fund,
Class A 128,749 2,371
Victory Special Value Fund,
Class A 75,763 1,021
PBHG Growth Fund (b) 39,145 918
Victory Small Company
Opportunity Fund, Class A 39,832 894
Neuberger Berman Genesis Fund (b) 74,212 1,029
Victory International Growth Fund,
Class A 178,533 2,590
10,853
Fixed Income/Specialty Funds (19.7%):
Victory Real Estate Investment Fund 85,121 913
Victory Convertible Securities Fund 64,434 858
Loomis Sayles Bond Fund,
Institutional Class 34,309 431
Victory Investment Quality
Bond Fund 99,746 975
3,177
Money Market Funds (13.1%):
Victory Financial Reserves Fund 2,117,518 2,118
Total Mutual Funds (Cost $15,843) 16,148
Total Investments (Cost $15,843) (a) -- 99.9% 16,148
Other assets in excess of liabilities -- 0.1% 10
TOTAL NET ASSETS -- 100.0% $16,158
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $ 525
Unrealized depreciation (220)
Net unrealized appreciation $ 305
(b) Non-income producing securities.
See notes to financial statements.
5
<PAGE>
THE VICTORY PORTFOLIOS Statements of Assets and Liabilities
LifeChoice Funds April 30, 1999
(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
<TABLE>
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $8,209; $25,525 & $15,843) $8,294 $26,053 $16,148
Interest and dividends receivable 1 3 2
Receivable for capital shares issued 1 1 4
Unamortized organization costs 27 27 27
Prepaid expenses and other assets 1 9 11
Total Assets 8,324 26,093 16,192
LIABILITIES:
Payable for organization costs 27 27 27
Accrued expenses and other payables:
Investment advisory fees 1 4 2
Transfer agent fees 2 2 2
Other 2 2 3
Total Liabilities 32 35 34
NET ASSETS:
Capital 8,180 24,941 15,366
Undistributed net investment income 28 44 11
Net unrealized appreciation/depreciation
from investments 85 528 305
Accumulated undistributed net realized gains
(losses) from investment transactions (1) 545 476
Net Assets $8,292 $26,058 $16,158
Outstanding units of beneficial
interest (shares) 750 2,233 1,351
Net asset value
Redemption price per share $11.05 $ 11.67 $ 11.96
Maximum sales charge 5.75% 5.75% 5.75%
Maximum offering price per share
(100%/(100%-maximum sales charge)
of net asset value adjusted to
nearest cent) -- Class A $11.72 $ 12.38 $ 12.69
</TABLE>
See notes to financial statements.
6
<PAGE>
THE VICTORY PORTFOLIOS Statements of Operations
LifeChoice Funds For the Six Months Ended April 30, 1999
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
<S> <C> <C> <C>
Investment Income:
Dividend income $175 $ 299 $ 105
Total Income 175 299 105
Expenses:
Investment advisory fees 8 21 13
Administration fees 6 6 6
Accounting fees 21 21 19
Custodian fees 1 1 1
Legal and audit fees 2 3 2
Amortization of organization costs 5 5 5
Transfer agent fees 4 6 8
Registration and filing fees 10 11 11
Printing fees 1 2 3
Other -- 2 1
Total Expenses 58 78 69
Expenses voluntarily reduced (4) (11) (7)
Expenses before reimbursement
from distributor 54 67 62
Expenses reimbursed (46) (45) (49)
Net Expenses 8 22 13
Net Investment Income 167 277 92
Realized/Unrealized Gains (Losses) from
Investments and Foreign Currencies:
Net realized gains (losses) from
investment transactions 96 556 489
Change in unrealized appreciation/depreciation
from investments 409 1,434 952
Net realized/unrealized gains (losses)
from investments 505 1,990 1,441
Change in net assets resulting
from operations $672 $2,267 $1,533
</TABLE>
See notes to financial statements.
7
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Statements of Changes in Net Assets
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
LifeChoice LifeChoice
Conservative Moderate
Investor Fund Investor Fund
Six Eleven Six Eleven
Months Months Period Months Months Period
Ended Ended Ended Ended Ended Ended
April 30, October 31, November 30, April 30, October 31, November 30,
1999 1998<F1> 1997<F4> 1999 1998<F2> 1997<F4>
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 167 $ 254 $ 76 $ 277 $ 289 $ 86
Net realized gains from
investment transactions 96 92 95 556 457 137
Net change in unrealized
appreciation/depreciation
from investments 409 (223) (101) 1,434 (1,156) 250
Change in net assets resulting
from operations 672 123 70 2,267 (410) 473
Distributions to Shareholders:
From net investment income (265) (277) (31) (378) (283) (62)
From net realized gains from
investment transactions (162) (22) -- (434) (60) --
Change in net assets from
distributions to shareholders ( 427) (299) (31) (812) (343) (62)
Capital Transactions:
Proceeds from shares issued 1,519 3,682 9,405 8,871 14,522 8,443
Dividends reinvested 427 299 30 812 342 60
Cost of shares redeemed (1,532) (5,309) (337) (4,208) (2,711) (1,186)
Change in net assets from
capital transactions 414 (1,328) 9,098 5,475 12,153 7,317
Change in net assets 659 (1,504) 9,137 6,930 11,400 7,728
Net Assets:
Beginning of period 7,633 9,137 -- 19,128 7,728 --
End of period $8,292 $ 7,633 $9,137 $26,058 $19,128 $ 7,728
Share Transactions:
Issued 140 330 867 783 1,266 796
Reinvested 40 28 3 72 31 5
Redeemed (142) (485) (31) (371) (239) (110)
Change in shares 38 (127) 839 484 1,058 691
<FN>
<F1> Effective March 23,1998, the KeyChoice Income & Growth Fund became the Victory
LifeChoice Conservative Investor Fund. Changes in net assets prior to March
23, 1998 represent the KeyChoice Income & Growth Fund
<F2> Effective March 23, 1998, the KeyChoice Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Changes in net assets prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F3> Effective March 23, 1998, the KeyChoice Growth Fund became the Victory
LifeChoice Growth Investor Fund. Changes in net assets prior to March 23,
1998 represent the KeyChoice Growth Fund
<F4> For the period December 31,1996 (commencement of operations) through
November 30,1997.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Statements of Changes in Net Assets
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
LifeChoice
Growth
Investor Fund
Six Eleven
Months Months Period
Ended Ended Ended
April 30, October 31, November 30,
1999 1998<F3> 1997<F4>
(Unaudited)
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 92 $ 110 $ 25
Net realized gains from
investment transactions 489 368 291
Net change in unrealized
appreciation/depreciation
from investments 952 (646) (1)
Change in net assets resulting
from operations 1,533 (168) 315
Distributions to Shareholders:
From net investment income (191) (117) (19)
From net realized gains from
investment transactions (338) (227) --
Change in net assets from
distributions to shareholders (529) (344) (19)
Capital Transactions:
Proceeds from shares issued 4,264 6,322 9,564
Dividends reinvested 529 340 19
Cost of shares redeemed (1,658) (1,647) (2,364)
Change in net assets from
capital transactions 3,136 5,015 7,219
Change in net assets 4,140 4,503 7,515
Net Assets:
Beginning of period 12,018 7,515 --
End of period $16,158 $12,018 $ 7,515
Share Transactions:
Issued 364 536 863
Reinvested 46 31 2
Redeemed (144) (139) (207)
Change in shares 266 428 658
<FN>
<F1> Effective March 23,1998, the KeyChoice Income & Growth Fund became the Victory
LifeChoice Conservative Investor Fund. Changes in net assets prior to March
23, 1998 represent the KeyChoice Income & Growth Fund
<F2> Effective March 23, 1998, the KeyChoice Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Changes in net assets prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F3> Effective March 23, 1998, the KeyChoice Growth Fund became the Victory
LifeChoice Growth Investor Fund. Changes in net assets prior to March 23,
1998 represent the KeyChoice Growth Fund
<F4> For the period December 31,1996 (commencement of operations) through
November 30,1997.
</FN>
</TABLE>
See notes to financial statements.
8
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements
LifeChoice Funds April 30, 1999
(Unaudited)
1. Organization:
The Victory Portfolios (the "Trust") was organized on December 6, 1995 as a
successor to a company of the same name organized as a Massachusetts business
trust on February 5, 1986. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end investment
company established as a Delaware business trust. The Trust is authorized to
issue an unlimited number of shares which are units of beneficial interest
with a par value of $0.001. The Trust presently offers shares of 32 active
funds. Included are the financial statements and financial highlights of the
LifeChoice Conservative Investor Fund, LifeChoice Moderate Investor Fund, and
the LifeChoice Growth Investor Fund (collectively, the "Funds").
The LifeChoice Conservative Investor Fund seeks to provide current income
combined with moderate growth of capital by allocating its assets primarily
among registered investment companies that invest in fixed income securities
and, to a lesser extent, equity securities. The LifeChoice Moderate Investor
Fund seeks to provide growth of capital combined with a moderate level of
current income by allocating its assets primarily among registered investment
companies that invest in equity securities and, to a lesser extent, fixed
income securities. The LifeChoice Growth Investor Fund seeks to provide
growth of capital by allocating its assets primarily among registered
investment companies that invest in equity securities.
2. Reorganization:
The Trust entered an Agreement and Plan of Reorganization with The SBSF
Funds, Inc. d/b/a Key Mutual Funds pursuant to which all of the assets and
liabilities of each Key Mutual Fund transferred to a Fund of the Victory
Portfolios in exchange for shares of the corresponding Fund. The KeyChoice
Income & Growth Fund transferred its assets and liabilities to the Victory
LifeChoice Conservative Investor Fund. The KeyChoice Moderate Growth Fund
transferred its assets and liabilities to the Victory LifeChoice Moderate
Investor Fund. The KeyChoice Growth Fund transferred its assets and
liabilities to the Victory LifeChoice Growth Investor Fund. The
reorganization, which qualified as a tax-free exchange for federal income tax
purposes, was completed on March 23, 1998, following approval by shareholders
of SBSF Funds, Inc. d/b/a Key Mutual Funds at a special shareholder meeting
held on March 6, 1998. The following is a summary of shares outstanding, net
assets, net asset value per share and unrealized appreciation immediately
before and after the reorganization:
<TABLE>
<CAPTION>
Before Reorganization After Reorganization
Victory Victory
KeyChoice LifeChoice LifeChoice
Income & Growth Conservative Investor Conservative Investor
Fund Fund Fund
<S> <C> <C> <C>
Shares (000) 578 -- 578
Net Assets (000) $6,590 -- $6,590
Net Asset Value $11.40 -- $11.40
Unrealized appreciation (000) $ 84 -- $ 84
</TABLE>
<TABLE>
<CAPTION>
Before Reorganization After Reorganization
Victory Victory
KeyChoice LifeChoice LifeChoice
Moderate Growth Moderate Investor Moderate Investor
Fund Fund Fund
<S> <C> <C> <C>
Shares (000) 983 -- 983
Net Assets (000) $11,698 -- $11,698
Net Asset Value $ 11.90 -- $ 11.90
Unrealized appreciation (000) $ 708 -- $ 708
</TABLE>
<TABLE>
<CAPTION>
Before Reorganization After Reorganization
Victory Victory
KeyChoice LifeChoice LifeChoice
Growth Growth Investor Growth Investor
Fund Fund Fund
<S> <C> <C> <C>
Shares (000) 800 -- 800
Net Assets (000) $9,859 -- $9,859
Net Asset Value $12.33 -- $12.33
Unrealized appreciation (000) $ 495 -- $ 495
</TABLE>
9
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements -- continued
LifeChoice Funds April 30, 1999
(Unaudited)
3. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
Securities Valuation:
Investments in registered investment companies are valued at the closing net
asset value per share on the day of valuation. Short-term investments of the
Funds are valued at amortized cost, which approximates market value or at
original cost which, combined with accrued interest, approximates market
value.
Securities Transactions and Related Income:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium or
accretion of discount. Dividend income is recorded on the ex-dividend date.
Gains or losses realized on sales of securities are determined by comparing
the identified cost of the security lot sold with the net sales proceeds.
Repurchase Agreements:
The Funds may acquire repurchase agreements from financial institutions such
as banks and broker-dealers which the Funds' investment adviser deems
creditworthy under guidelines approved by the Board of Trustees, subject to
the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying Fund
securities. The seller, under a repurchase agreement, is required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). Securities subject to
repurchase agreements are held by the Funds' custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by a Fund under the 1940 Act.
Dividends to Shareholders:
Dividends payable to shareholders are declared and distributed quarterly.
Distributable net realized capital gains, if any, are declared and
distributed at least annually.
The amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with Federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the components of net assets based on their Federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions to shareholders which exceed net investment
income and realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment income
or distributions in excess of net realized gains. To the extent they exceed
net investment income and net realized gains for tax purposes, they are
reported as distributions of capital.
Federal Income Taxes:
It is the policy of each Fund to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code of 1986, as amended, and to make distributions of net investment
income and net realized capital gains sufficient to relieve it from all, or
substantially all, Federal income taxes.
Other:
Expenses that are directly related to one of the Funds are charged directly
to that Fund. Other operating expenses of the Funds are prorated to each Fund
on the basis of relative net assets or other appropriate basis.
Costs incurred in connection with the organization of the Funds are being
amortized on a straight-line basis over a period not to exceed sixty months
from the date the Funds commenced operations.
10
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements -- continued
LifeChoice Funds April 30, 1999
(Unaudited)
4. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for the
six months ended April 30, 1999 were as follows (amounts in thousands):
Purchases Sales
LifeChoice Conservative Investor Fund $ 2,166 $2,220
LifeChoice Moderate Investor Fund 10,031 5,778
LifeChoice Growth Investor Fund 4,105 2,479
5. Related Party Transactions:
Investment advisory services are provided to the Funds by Key Asset
Management, Inc. ("the Adviser"), a wholly owned subsidiary of KeyBank
National Association ("Key"), a wholly owned subsidiary of KeyCorp. Under the
terms of the investment advisory agreements, the Adviser is entitled to
receive fees based on a percentage of the average daily net assets of the
Funds. KeyTrust Company of Ohio, N.A., a subsidiary of KeyCorp and an
affiliate of the Adviser, serving as custodian for the Funds, receives
custodian fees in addition to reimbursement of actual out-of-pocket expenses
incurred.
Key and its affiliated brokerage and banking companies also serve as a
Shareholder Servicing Agent for the Funds. As such, Key and its affiliates
provide support services to their clients who are shareholders, which may
include establishing and maintaining accounts and records, processing
dividend and distribution payments, providing account information, assisting
in processing of purchase, exchange and redemption requests, and assisting
shareholders in changing dividend options, account designations and
addresses. For providing such services, Key and its affiliates may receive a
fee of up to 0.25% of the average daily net assets of the Funds.
BISYS Fund Services (the "Administrator"), an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. ("BISYS") serves as the administrator and
distributor to the Funds. Certain officers of the Funds are affiliated with
BISYS. Such officers receive no direct payments or fees from the Funds for
serving as officers.
Under the terms of the administration agreement, the Administrator's fee is
computed at the annual rate of 0.01% of the average daily net asset of each
of the Funds with a minimum of $12,000 per fund per year.
BISYS Fund Services, Ohio Inc., an affiliate of BISYS, serves the Funds as
Mutual Fund Accountant. Under the terms of the Fund Accounting Agreement, the
fee is based on a percentage of the average daily net assets of the Funds
with a minimum monthly fee of $1,666.66 per Fund.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
Additional information regarding related party transactions is as follows for
the six months ended April 30, 1999:
<TABLE>
<CAPTION>
Investment Advisory Fees Administration Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
(000) (000)
<S> <C> <C> <C>
LifeChoice Conservative Investor Fund 0.20% $ 4 --
LifeChoice Moderate Investor Fund 0.20% $11 --
LifeChoice Growth Investor Fund 0.20% $ 7 --
</TABLE>
11
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Financial Highlights
<TABLE>
<CAPTION>
LifeChoice LifeChoice
Conservative Moderate
Investor Fund Investor Fund
Six Six
Months Period Period Months Period Period
Ended Ended Ended Ended Ended Ended
April 30, October 31, November 30, April 30, October 31, November 30,
1999 1998<F3> 1997<F2> 1999 1998<F4> 1997<F2>
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.72 $10.89 $10.00 $ 10.94 $ 11.19 $10.00
Investment Activities
Net investment income 0.22 0.37 0.31 0.15 0.24 0.20
Net realized and
unrealized gains (losses)
from investments 0.69 (0.12) 0.84<F8> 1.04 (0.14) 1.16
Total from
Investment Activities 0.91 0.25 1.15 1.19 0.10 1.36
Distributions
Net investment income (0.36) (0.39) (0.26) (0.21) (0.26) (0.17)
Net realized gains (0.22) (0.03) 0.00 (0.25) (0.09) 0.00
Total Distributions (0.58) (0.42) (0.26) (0.46) (0.35) (0.17)
Net Asset Value,
End of Period $11.05 $10.72 $10.89 $ 11.67 $ 10.94 $11.19
Total Return 3.51%<F6> 2.29%<F6> 11.62%<F6> 2.84%<F6> 0.85%<F6> 13.64%<F6>
Ratios/Supplementary Data:
Net Assets at end
of period (000) $8,292 $7,633 $9,137 $26,058 $19,128 $7,728
Ratio of expenses to
average net assets 0.20%<F7> 0.23%<F7> 0.29%<F7> 0.21%<F7> 0.22%<F7> 0.27%<F7>
Ratio of net investment
income to average
net assets 4.21%<F7> 3.72%<F7> 3.41%<F7> 2.60%<F7> 2.32%<F7> 2.26%<F7>
Ratio of expenses to
average net assets<F1> 1.46%<F7> 1.50%<F7> 5.18%<F7> 0.73%<F7> 0.93%<F7> 3.32%<F7>
Ratio of net investment
income to average
net assets<F1> 2.95%<F7> 2.45%<F7> (1.48)%<F7> 2.08%<F7> 1.61%<F7> (.79)% <F7>
Portfolio Turnover 28% 78% 19% 28% 42% 50%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or expense reimbursements had not
occurred, the ratios would have been as indicated.
<F2> For the period December 31, 1996 (commencement of operations) through November
30, 1997.
<F3> Effective March 23, 1998, the KeyChoice Income & Growth Fund became the
Victory LifeChoice Conservative Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Income & Growth Fund.
<F4> Effective March 23, 1998, the KeyChoice Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F5> Effective March 23, 1998, the KeyChoice Growth Fund became the Victory
LifeChoice Growth Investor Fund. Financial highlights prior to March 23, 1998
represent the KeyChoice Growth Fund.
<F6> Not annualized.
<F7> Annualized.
<F8> The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio of
securities during the period because of the timing of sales and purchases of
fund shares in relation to fluctuating market values during the period.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Financial Highlights
<TABLE>
<CAPTION>
LifeChoice Growth Investor Fund
Six
Months Period Period
Ended Ended Ended
April 30, October 31, November 30,
1999 1998<F5> 1997<F2>
(Unaudited)
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.08 $ 11.44 $10.00
Investment Activities
Net investment income 0.08 0.13 0.11
Net realized and
unrealized gains (losses)
from investments 1.28 (0.07) 1.43
Total from
Investment Activities 1.36 0.06 1.54
Distributions
Net investment income (0.17) (0.14) (0.10)
Net realized gains (0.31) (0.28) 0.00
Total Distributions (0.48) (0.42) (0.10)
Net Asset Value,
End of Period $ 11.96 $ 11.08 $11.44
Total Return 2.60%<F6> 0.52%<F6> 15.46%<F6>
Ratios/Supplementary Data:
Net Assets at end
of period (000) $16,158 $12,018 $7,515
Ratio of expenses to
average net assets 0.20%<F7> 0.23%<F7> 0.30%<F7>
Ratio of net investment
income to average
net assets 1.40%<F7> 1.19%<F7> 0.81%<F7>
Ratio of expenses to
average net assets<F1> 1.05%<F7> 1.16%<F7> 3.67%<F7>
Ratio of net investment
income to average
net assets<F1> 0.55%<F7> 0.26%<F7> (2.56)% <F7>
Portfolio Turnover 19% 30% 106%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or expense reimbursements had not
occurred, the ratios would have been as indicated.
<F2> For the period December 31, 1996 (commencement of operations) through November
30, 1997.
<F3> Effective March 23, 1998, the KeyChoice Income & Growth Fund became the
Victory LifeChoice Conservative Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Income & Growth Fund.
<F4> Effective March 23, 1998, the KeyChoice Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F5> Effective March 23, 1998, the KeyChoice Growth Fund became the Victory
LifeChoice Growth Investor Fund. Financial highlights prior to March 23, 1998
represent the KeyChoice Growth Fund.
<F6> Not annualized.
<F7> Annualized.
<F8> The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the portfolio of
securities during the period because of the timing of sales and purchases of
fund shares in relation to fluctuating market values during the period.
</FN>
</TABLE>
See notes to financial statements.
12
<PAGE>
The Victory Funds Bulk Rate
127 Public Square U.S. Postage
OH-01-27-1612 PAID
Cleveland, Ohio 44114 Cleveland, OH
Permit No. 469
(LOGO) (R)
Victory Funds
Call Victory at: Or Call Gradison McDonald at:
800-539-FUND (800-539-3863) 800-869-5999 or 513-579-5999
1VF-LCHF-SEM 6/99
