Prospectus
July 31, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's securities or determined whether this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Victory Funds
(LOGO)(R)
Equity Fund
Nasdaq-100 Index(R) Fund
Class A and G Shares
Call Victory at:
800-539-FUND
(800-539-3863)
or visit the Victory Funds' website at:
www.victoryfunds.com
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The Victory Portfolios
Table of Contents
Risk/Return Summary of the Fund 2
An analysis which includes the investment objective,
principal strategies, principal risks, and expenses.
Investments 4
Risk Factors 5
Share Price 6
Dividends, Distributions, and Taxes 6
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 15
Additional Information 17
Key to Fund Information
Objective and Strategies
The goals and the strategies that the Fund plans to use to pursue its
investment objective.
Risk Factors
The risks you may assume as an investor in the Fund.
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:
o Not insured by the FDIC;
o Not deposits or other obligations of, or guaranteed by KeyBank, any of
its affiliates, or any other bank;
o Subject to possible investment risks, including possible loss of the
amount invested.
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Risk/Return Summary NASDAQ-100 INDEX(R) FUND
CLASS A SHARES
Cusip#:926464223
CLASS G SHARES
Cusip#:926464215
By matching your investment objective with an acceptable level of risk, you
can create your own customized investment plan.
An investment in the Fund is not a complete investment program.
Investment Objective
The Fund seeks to provide long-term capital appreciation. Principal
Investment Strategies
Principal Investment Strategies
The Fund pursues its investment objective by attempting to duplicate the
performance of the Nasdaq-100 Index(R) (the Index). The stocks that make up
this Index are currently heavily weighted in the technology sector. The
Fund primarily invests in many of the equity securities that are in the
Index, including American Depository Receipts (ADRs), and secondarily in
related futures and options contracts.
The Fund normally will invest in all stocks that comprise the Index in
roughly the same proportions as their weightings in the Index. For example,
if 5% of the Index is made up of a stock of a particular company, the Fund
normally will invest approximately 5% of its assets in that company. To
minimize small positions and transaction expenses, the Fund need not invest
in every stock included in the Index. The Fund may purchase stocks that are
not included in the Index if the Adviser believes that these investments will
reduce "tracking error." Tracking error refers to the difference between the
Fund's investment results, before expenses, and that of the Index. The
Adviser will monitor the performance of the Fund against the Index and will
adjust the Fund's holdings, as necessary, to minimize tracking error. If the
Adviser cannot maintain a correlation of 0.95 or better, the Fund's Board of
Trustees will consider alternative arrangements.
The Fund is not managed in the traditional sense of using economic,
financial, and market analysis. Therefore, the Fund will not sell a stock
that is underperforming as long as it remains in the Index. Brokerage costs,
fees, operating expenses, and tracking errors will normally result in the
Fund's total return being lower than that of the Index.
The Fund is non-diversified, which means that it may devote a larger
portion of its assets to the securities of a single issuer than if it were
diversified. In addition, the Fund may invest more than 25% of its total
assets in a single industry (industry concentration) to the extent necessary
to attempt to track the Index. Under certain circumstances, these policies
would enable the Fund to better track the composition of the Index.
There is no guarantee that the Fund will achieve its objective.
Principal Risks
It is important to keep in mind one basic principle of investing: the greater
the risk, the greater the potential reward. The reverse is also generally
true: the lower the risk, the lower the potential reward.
You may lose money by investing in the Fund. 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.
* The portfolio manager does not execute the Fund's principal investment
strategies effectively.
* Derivative instruments, including futures or options contracts used for
asset substitution, do not perfectly replicate investment in the Index.
* A decline in a stock or industry sector in which the Fund is heavily
invested could cause the Fund to lose more money than if it were
diversified or did not have to concentrate its investments in a single
industry in order to track the Index.
* Smaller, less seasoned companies lose market share or revenue to a
greater extent than larger, established companies as a result of
deteriorating economic conditions.
* Technology companies experience obsolescence of existing technology,
short product cycles, falling prices and profits, and competition from
new market entrants.
In addition, the Fund may purchase, retain, and sell securities when
such transactions would not be consistent with traditional investment
criteria. The Fund generally will remain fully invested in common stocks even
when stock prices generally are falling. Therefore, an investor is exposed to
a greater risk of loss from fluctuations in the value of such securities than
would be the case if the Fund was not fully invested, regardless of market
conditions.
By itself, the Fund does not constitute a complete investment plan and
should be considered a long-term investment for investors looking for an
aggressive growth stock fund and who can afford to weather sudden and
sometimes substantial changes in the value of their investment. Recently, the
Index has shown more volatility in comparison to other broader benchmarks
such as the S&P 500 Index.
An investment in the Fund is not a deposit of KeyBank or any of its
affiliates and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
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Performance of Index
The Fund is new as of the date of this Prospectus and therefore performance
information is not available.
The following chart shows the performance of the Index for the ten years
ending December 31, 1999 and the year-to-date performance for the year 2000.
Past performance of the Index does not indicate how it will perform in the
future. It is unlikely that the performance of the Index during 1999 will be
repeated in the future, especially in the near future. The past performance
of the Index should not be viewed as representative of the Fund's future
performance. Because of expenses, it is expected that the Fund's performance
will be lower than that of the Index.
Performance of Nasdaq-100(R) Index*
Year ended December 31,
1990 -10.41%
1991 64.99%
1992 8.86%
1993 10.58%
1994 1.50%
1995 42.54%
1996 42.54%
1997 20.63%
1998 85.31%
1999 101.95%
1/1/2000-6/30/2000 1.51%
* Does not reflect reinvestment of dividends.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Transaction Expenses
(paid directly from your investment)(1) Class A Class G
Maximum Sales Charge
Imposed on Purchases 5.75% NONE
(as a percentage of offering price)
Maximum Deferred
Sales Charge (as a percentage of NONE(2) NONE
the lower of purchase or sale price)
Maximum Sales Charge Imposed
on Reinvested Dividends NONE NONE
Redemption Fees NONE NONE
Exchange Fees NONE NONE
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.60% 0.60%
Distribution (12b-1) Fees 0.00% 0.00%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to Class G Shares)(3) 0.15% 0.42%
Total Fund Operating Expenses 0.75% 1.02%
Fee Waiver/Expense Reimbursement (0.15)% (0.22)%
Net Expenses(4) 0.60% 0.80%
(1) You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
(2) Except for non-IRA tax deferred retirement accounts, there is no initial
sales charge on purchases of $1 million or more for Class A Shares.
However, if you sell any of such Class A Shares within one year, you
will be charged a contingent deferred sales charge (CDSC) of 1.00%. If
you sell any of such Class A Shares within two years, you will be
charged a CDSC of 0.50%.
(3) Based on estimated expenses for the current fiscal year.
(4) The Adviser has contractually agreed to waive its management fees and to
reimburse expenses, as allowed by law, to the extent necessary to
maintain the net operating expenses of Class A and Class G Shares of the
Fund at a maximum of 0.60% and 0.80%, respectively, for at least one
year from the commencement of the Fund's operations.
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.(1) Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 Year 3 Years
Class A $633 $787
Class G $ 82 $303
(1) This Example assumes that Net Annual Fund Operating Expenses will equal
0.60% and 0.80% for Class A and Class G Shares, respectively, for the
one year period, and will equal 0.75% and 1.02%, respectively,
thereafter.
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Investments
Under normal market conditions, the Fund purchases equity securities,
including common stock and securities that are convertible or exchangeable
into common stock of U.S. and foreign corporations. The Fund may invest in
securities issued by other investment companies, including unit investment
trusts and other exchange-traded funds, if those companies invest in
securities consistent with the Fund's investment objective and policies. The
Fund may invest in futures contracts, which involve the right or obligation
to deliver or receive assets or money depending on the performance of an
index. The Fund may also buy and sell options on futures contracts. To reduce
the effects of leverage, the Fund will set aside liquid assets equal to the
contract commitment to cover the Fund's obligations. The Fund may invest in
futures contracts and options on futures contracts as a temporary substitute
for buying or selling securities.
For cash management or for temporary defensive purposes in response to
emergency market conditions, the Fund may hold all or a portion 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 a more complete description of the types of securities in which the
Fund can invest, see the Statement of Additional Information (SAI).
About the Nasdaq-100 Index(R)
The Nasdaq-100 Index(R) is made up of the 100 largest non-financial stocks
traded on the Nasdaq Stock Market. The Index reflects Nasdaq's largest
companies across major industry groups, including computer hardware and
software, telecommunications, retail/wholesale trade and biotechnology. There
are also minimum trading and listing history requirements. The Index is a
modified market capitalization weighted index; Nasdaq reviews the composition
of the Index quarterly and will adjust weightings using a proprietary
algorithm if certain weight distributions are not met. Because of the
possible concentration in a specific sector or company, high volatility or
poor performance of the sector or company may directly affect the Fund's
performance. Companies issuing individual stocks that make up the Index have
total market capitalizations ranging in size from $1.1 billion to $410
billion as of May 10, 2000.
Nasdaq(R), Nasdaq-100(R), and Nasdaq-100 Index(R) are registered trademarks
of The Nasdaq Stock Market, Inc. (which with its affiliates are the
"Corporations") and are licensed by the Fund. The Fund has not been passed on
by the Corporations as to its legality or suitability. The Fund is not
issued, endorsed, sold, or promoted by the Corporations.
The Corporations make no express or implied warranties, and disclaim all
warranties including all warranties of merchantability or fitness for a
particular purpose with respect to the Fund/Index (meaning the Nasdaq-100
Index, the Fund, their use, the results to be obtained from their use, and/or
any data included therein). The Corporations shall have no liability for any
damages, claims, losses, or expenses with respect to the Fund/Index. The
Corporations shall have no liability for any lost profits or special,
punitive, incidental, indirect, or consequential damages, even if notified of
the possibility of such damages.
For more details, see the disclaimer in the Statement of Additional
Information.
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Risk Factors
This Prospectus describes the principal risks that you may assume as an
investor in the Fund.
The Fund is subject to the principal risks described below.
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 implement
the Fund's investment strategy in a way that does not produce the
intended result.
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. Unlike debt securities, which have preference to
a company's assets 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.
Particular risks of the Fund:
* Non-diversification/concentration risk. The Fund is non-diversified. A
non-diversified fund may invest more of its assets in fewer companies
than if it were a diversified fund. Because each investment has a
greater effect on the Fund's performance, it may be more susceptible to
a single economic, political or regulatory occurrence than a diversified
fund. In addition, in tracking the Index, the Fund may have a
considerable portion of its assets invested in one or more sectors of
the market. This may lead to greater price fluctuation than would occur
with a fund invested in a wider spectrum of industries, and may make the
Fund particularly susceptible to events affecting an industry in which
the Fund concentrates its investments. The Fund will invest more than
25% of its total assets in a particular industry only if necessary to
track the Index.
* Tracking error. The Fund may not track the Index perfectly because
differences between the Index and the Fund's portfolio can cause
differences in performance. The Adviser purchases securities and other
instruments, including futures contracts and options, in an attempt to
replicate the performance of the Index. However, the tools that the
Adviser uses to replicate the Index are not perfect and the Fund's
performance is affected by factors such as the size of the Fund's
portfolio, transaction costs, the extent and timing of cash flows in and
out of the Fund and changes in the Index. In particular, the market
value of futures contracts and options used as a substitute for their
underlying securities may not correspond to the market value of the
underlying securities. In this case, the Fund's investment in these
derivative instruments may actually increase tracking error rather than
reduce it.
* Small company risk. Investment in small and medium companies often
involves greater risks than investments in larger, more established
companies because small and medium companies may lack the management
experience, financial resources, product diversification, and
competitive strengths of larger companies.
* Technology stock risk. Companies in the technology sector currently
comprise a substantial part of the Index. The market value of these
securities has been substantially more volatile than securities in the
broader stock market. An investment in the Fund is subject to the risk
that sudden and severe declines in technology stocks can cause severe
losses in the value of Fund shares.
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Share Price
The Fund calculates its share price, called its "net asset value" (NAV), each
business day at 4:00 p.m. Eastern Time or at the close of trading on the New
York Stock Exchange, Inc. (NYSE), whichever time is earlier. You may buy,
exchange, and sell your shares on any business day at a price that is based
on the NAV that is calculated after you place your order. A business day is a
day on which the NYSE is 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. The Fund calculates the NAV of each class of shares 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.
Total Assets-Liabilities
NAV = ----------------------------
Number of Shares Outstanding
When the Fund reaches a specific number of shareholders or level of
assets, you will be able to find the Fund's net asset value each day in The
Wall Street Journal and other newspapers. You may currently find the Fund's
NAV by calling 800-539-3863 or by accessing the Fund's website at
http:www.victoryfunds.com.
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
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.
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. 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.
Ordinarily, the Fund declares and pays dividends quarterly. Each class of
shares declares and pays dividends separately.
Distributions can be received 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 dividend
payment date.
INCOME EARNED OPTION
You can automatically reinvest your dividends in additional shares of the
Fund and have your capital gains paid in cash, or reinvest capital gains and
have your dividends paid in cash.
6
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Dividends, Distributions, and Taxes (continued)
Your choice of distribution should be set up on the original Account
Application. If you would like to change the option you selected, please call
800-539-FUND.
DIRECTED DIVIDENDS OPTION
In most cases, you can automatically reinvest distributions in shares of
another fund of the Victory Group. If you reinvest your distributions in a
different 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 dividend payment date.
The bank account must have a registration identical to that of your Fund
account.
Important Information about Taxes
The tax information in this Prospectus is provided as general information.
You should consult your own tax advisor about the tax consequences of an
investment in the Fund.
The Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Dividends from the Fund's net income and short-term capital gains are
taxable as ordinary income; dividends from the Fund's long-term capital
gains are taxable as long-term capital gain.
* 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.
* 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.
* The Fund may be required to withhold tax from taxable distributions if
you fail to give your correct social security or taxpayer identification
number, fail to make required certifications, or the Fund is notified by
the Internal Revenue Service that backup withholding is required.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
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INVESTING WITH VICTORY
All you need to do to get started is to fill out an application.
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. "Choosing a Share Class" will help
you decide whether it would be more to your advantage to buy Class A or Class
G Shares of the Fund. The following sections 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 or one of our customer service representatives at 800-539-FUND.
They will be happy to assist you.
Choosing a Share Class
An Investment Professional is an investment consultant, salesperson,
financial planner, investment adviser, or trust officer who provides you with
investment information.
The Fund offers Class A and G Shares. 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 below. There are several ways to
reduce this charge.
* Lower annual expenses than Class G Shares.
CLASS G
* No front-end sales charge. All your money goes to work for you right
away.
* 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 as follows:
Sales Charge Sales Charge
as a % of as a % of
Your Investment in the Fund Offering Price Your Investment
Up to $49,999 5.75% 6.10%
$50,000 up to $99,999 4.50% 4.71%
$100,000 up to $249,999 3.50% 3.63%
$250,000 up to $499,999 2.50% 2.56%
$500,000 up to $999,999 2.00% 2.04%
$1,000,000 and above* 0.00% 0.00%
* Except as indicated in the last sentence of this note, 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% will be charged
to the shareholder if any of such 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. The initial sales charge exemption for
investments of $1 million or more does not apply to tax deferred
retirement accounts (except IRA accounts); the sales charge on
investments by such tax deferred retirement accounts of $1 million or
more is the same as for investments between $500,000 and $999,999.
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Choosing a Share Class (continued)
There are several ways you can combine multiple purchases in the Victory
Funds and take advantage of reduced sales charges.
Sales Charge Reductions and Waivers for Class A Shares
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you 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 at least 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
funds sold without a sales charge) 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. Victory will completely waive the sales charge (for Class A Shares) in
the following cases:
a. Purchases by current and retired Fund Trustees or officers;
directors, trustees, employees, and family members of employees of
KeyCorp or "Affiliated Providers;"* dealers who have an agreement
with the Distributor; and any trade organization to which the
Adviser or the Administrator belong.
b. Purchases for trust or other advisory accounts established with
KeyCorp or its affiliates.
c. Reinvestment of proceeds from a liquidation distribution of Class A
Shares held in a deferred compensation plan, agency, trust, or
custody account that was maintained by KeyBank N.A. and its
affiliates or the Victory Group.
d. Purchases by Investment Professionals for fee-based investment
products or accounts, and selling brokers and their sales
representatives.
e. Purchases in connection with bundled omnibus retirement programs
sponsored by financial institutions.
f. Purchases by participants in the Victory Investment Program.
* Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan for its Class G Shares. The
shareholder servicing agent performs a number of services for its customers
who are shareholders of the Fund. It establishes and maintains accounts and
records, processes dividend payments, arranges for bank wires, assists in
transactions, and changes 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 G Shares serviced by the agent. The Fund may enter into agreements
with various shareholder servicing agents, including KeyBank N.A. 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.
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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 investment required to
open an account is $500 ($100 for IRA accounts), with additional investments
of at least $25. There is no minimum investment required to open an account
or for additional investments for SIMPLE IRAs. 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 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 4:00 p.m. Eastern Time or the close of trading on the NYSE
(whichever time is earlier), 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:
BY REGULAR U.S. MAIL
Send completed Account Applications with your check, bank draft, or money
order to:
Class G Shares
The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202
Class A Shares
The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
BY OVERNIGHT MAIL
Use the following address ONLY for overnight packages.
Class G Shares
The Victory Funds
c/o Gradison McDonald
580 Walnut Street
Cincinnati, OH 45202
Phone: 800-539-FUND
Class A Shares
The Victory Funds
c/o Boston Financial
Data Services
66 Brooks Drive
Braintree, MA 02184
Phone: 800-539-FUND
BY WIRE
The Transfer Agent does not charge a wire fee, but your originating bank may
charge a fee. Always call 800-539-FUND BEFORE wiring funds.
Class G Shares
The Victory Funds
Firstar Bank
ABA #042000013
For Credit to DDA
Account #8355281
(insert Fund name, account number and name)
Class A Shares
The Victory Funds
State Street Bank and Trust Co.
ABA #011000028
For Credit to DDA
Account #9905-201-1
(insert account number, name, and confirmation number assigned by the
Transfer Agent)
BY TELEPHONE
800-539-FUND
(800-539-3863)
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How to Buy Shares (continued)
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.
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, Fund activity will be detailed in that
account's 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 Investment Plan
To enroll in the Systematic Investment Plan, you should check this box on the
Account Application. We will need 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
investment requirement of $500 ($100 for IRA accounts), 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 will not be accepted. You may only buy or
exchange into fund shares legally available in your state. If your account
falls below $500 ($100 for IRA accounts), 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 obtain a list of funds available for exchange by calling
800-539-FUND.
You can sell shares of one fund of the Victory Portfolios to buy shares of
the same class of any other. This is considered an exchange.
You can exchange shares of the Fund by writing the Transfer Agent or calling
800-539-FUND. When you exchange shares of the Fund, you should keep the
following in mind:
* Shares of the fund selected for exchange must be available for sale in
your state of residence.
* The fund whose shares you want to exchange and the fund whose shares you
want to buy must offer the exchange privilege.
* If you acquire Class A Shares of the Fund as a result of an exchange you
pay the percentage point difference, if any, between the Fund's sales
charge and any sales charge that you previously paid in connection with
the shares you are exchanging. For example, if you acquire Class A
Shares of the Fund as a result of an exchange from another fund of the
Victory Group that has a 2.00% sales charge, you would pay the 3.75%
difference in sales charge.
* On certain business days, such as Veterans Day and Columbus Day, the
Federal Reserve Bank of Cleveland is closed. On those days, exchanges to
or from a money market fund will be processed on the exchange date, with
the corresponding purchase or sale of the money market fund shares being
effected on the next business day.
* 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.
* 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.
* Before exchanging, read the prospectus of the fund you wish to purchase
by exchange.
* An exchange of Fund shares constitutes a sale for tax purposes.
12
<PAGE>
How to Sell Shares
There are a number of convenient ways to sell your shares. You can use the
same mailing addresses listed for purchases.
If your request is received in good order by 4:00 p.m. Eastern Time or the
close of trading on the NYSE (whichever time is earlier), your redemption
will be processed the same day.
BY TELEPHONE
The easiest way to sell shares is by calling 800-539-FUND. When you fill out
your original application, be sure to check the box marked "Telephone
Authorization." Then when you are ready to 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;
* Mail a check to a previously designated alternate address; or
* Electronically transfer your redemption via the Automated Clearing House
(ACH).
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 redeem 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 Group
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 receive your proceeds by wire, you must establish a Fund
account that will accommodate wire transactions. If you call by 4:00 p.m.
Eastern Time or the close of trading on the NYSE (whichever time is earlier),
your funds will be wired on the next business day.
BY ACH
Normally, your redemption will be processed on the same day, but will be
processed the next day if received after 4:00 p.m. Eastern Time or the close
of trading on the NYSE (whichever time is earlier). It will be transferred by
ACH as long as the transfer is to a domestic bank.
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. If
the payment is to be sent to an account of yours, we will need a voided check
to activate this feature. If the payment is to be made to an address
different from your account address, we will need a signature guaranteed
letter of instruction. You should be aware that your account eventually may
be depleted. However, you cannot automatically close your account using the
Systematic Withdrawal Plan. If your 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 until the purchase check has cleared, which may take up to 15 days.
* The Fund may suspend your right to redeem your shares in the following
circumstances:
o During non-routine closings of the NYSE;
o When the Securities and Exchange Commission (SEC) determines either
that trading on the NYSE is restricted or that an emergency
prevents the sale or valuation of the Fund's securities; or
o 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 its net assets. The
Fund reserves the right to pay the remaining portion "in kind," that is,
in portfolio securities rather than cash.
14
<PAGE>
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, Sub-Administrator, and Distributor
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 $73 billion for individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114.
KAM's advisory fee is calculated at an annual rate of 0.60% of the
Fund's average daily net assets.
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc.
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.
BISYS Fund Services Limited Partnership, the Fund's Distributor, and its
affiliates may pay amounts, from its own resources, to financial
intermediaries in connection with the distribution of Fund shares.
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 their shareholders. Each of these organizations is paid a
fee for its services.
Portfolio Management
Ernest C. Pelaia is the portfolio manager of the Fund, a position he has held
since its inception. He is a Portfolio Manager and has been with KAM since
July 1991 as an Analyst, Trader, Investment Officer and most recently
Assistant Vice President of Funds Management. He is also the Portfolio
Manager of the Victory Stock Index Fund.
15
<PAGE>
Organization and Management of the Fund (cont.)
The Fund is supervised by the Board of Trustees, which monitors the services
provided to investors.
OPERATIONAL STRUCTURE OF THE FUND
TRUSTEES
ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND THEIR INVESTMENT PROFESSIONALS
Advise current and prospective shareholders on their Fund investments.
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, AND FUND ACCOUNTANT
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219
Markets the Fund, distributes shares through Investment Professionals, and
calculates the value of shares. As Administrator, handles the day-to-day
activities of the Fund.
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
Provides for safekeeping of the Fund's investments and cash, and settles
trades made by the Fund.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain sub-administrative services.
16
<PAGE>
Additional Information
Some additional information you should know about the Fund.
Fund Operations
The Fund currently offers only the classes of shares described in this
Prospectus. At some future date, the Fund may offer additional classes of
shares. In addition, the Fund or any class of the Fund may be terminated at
any time for failure to achieve an economical level of assets or other
reasons.
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, Inc., and
industry publications such as Morningstar, Inc., Business Week, or Forbes.
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 shareholder reports, prospectuses and their supplements, unless you
have instructed us to the contrary. You may request that the Fund send these
documents to each shareholder individually by calling the Fund at
800-539-FUND (800-539-3863).
If you would like to receive additional copies of any materials, please call
the Fund at 800-539-FUND.
17
<PAGE>
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 (when available)
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.
If you would like to receive copies of the SAI at no charge, please call the
Fund at
800-539-FUND
(800-539-3863).
How to Obtain Information
By telephone: Call Victory Funds at 800-539-FUND (800-539-3863).
By mail: The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
You also may obtain copies of materials from the SEC's Public Reference Room
in Washington, D.C. (Call 1-202-942-8090 for information on the operation of
the SEC's Public Reference Room.) Copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following e-mail
address: [email protected], or by writing the SEC's Public Reference
Section, Washington, D.C. 20459-0102.
On the Internet: Fund documents can be viewed on-line or downloaded at
http://www.victoryfunds.com or from the SEC at http://www.sec.gov (text
only).
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.
Victory Funds
(LOGO)(R)
Investment Company Act File Number 811-4852 VF-VNI-PRO (7/00)
<PAGE>
PART B
THE VICTORY PORTFOLIOS
NASDAQ-100 INDEX(R) FUND
Class A and Class G Shares
Supplement dated July 31, 2000
To the Statement of Additional Information dated February 28, 2000
For the following Funds:
<TABLE>
<CAPTION>
<S> <C> <C>
Balanced Fund Intermediate Income Fund Ohio Municipal Bond Fund
Convertible Securities Fund International Growth Fund Ohio Municipal Money Market Fund
Diversified Stock Fund Investment Quality Bond Fund Prime Obligations Fund
Established Value Fund Lakefront Fund Real Estate Investment Fund
Federal Money Market Fund LifeChoice Conservative Investor Small Company Opportunity Fund
Financial Reserves Fund Fund Special Value Fund
Fund for Income LifeChoice Moderate Investor Fund Stock Index Fund
Gradison Government Reserves Fund LifeChoice Growth Investor Fund Tax-Free Money Market Fund
Growth Fund Limited Term Income Fund U.S. Government Obligations Fund
Institutional Money Market Fund National Municipal Bond Fund Value Fund
New York Tax-Free Fund
</TABLE>
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the prospectuses of the Funds listed above, as amended or
supplemented from time to time. The prospectus for the Nasdaq-100 Index(R) Fund
is dated June 1, 2000.
1. On page 2, under "Investment Policies and Limitations," replace the first
paragraph with the following:
Fundamental Investment Policies of Each Fund.
Certain investment policies of each Fund are fundamental and may not be
changed without a vote of the holders of a majority of the Fund's
outstanding voting securities.
Each Fund's investment objective is fundamental. There can be no
assurance that a Fund will achieve its investment objective.
A Fund's classification and sub-classification is a matter of
fundamental policy. Each Fund is classified as an open-end investment
company. Five Funds are sub-classified as non-diversified investment
companies: the Nasdaq-100 Index (R) Fund, National Municipal Bond Fund,
New York Tax-Free Fund, Ohio Municipal Bond Fund and Real Estate
Investment Fund. All the other Funds are sub-classified as diversified
mutual funds.
1
<PAGE>
2. On page 5, under "Investment Policies and Limitations," add the following
information with respect to the Nasdaq-100 Index(R)Fund:
Fundamental Investment Restrictions of the Nasdaq-100 Index(R) Fund
The following investment restrictions are fundamental and may not be
changed without a vote of the holders of a majority of the Fund's
outstanding voting securities.
1. Senior Securities.
The Nasdaq-100 Index(R) Fund may not issue any senior security (as
defined in the Investment Company Act of 1940, as amended (the "1940
Act")), except that (a) the Fund may engage in transactions that may
result in the issuance of senior securities to the extent permitted
under applicable regulations and interpretations of the 1940 Act, an
exemptive order or interpretation of the staff of the Securities and
Exchange Commission ("SEC"); (b) the Fund may acquire other securities,
the acquisition of which may result in the issuance of a senior
security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; (c) subject to the restrictions
described in this SAI, the Fund may borrow money as authorized by the
1940 Act; and (d) the Fund may issue multiple classes of shares in
accordance with regulations of the SEC.
2. Underwriting.
The Nasdaq-100 Index(R) Fund may not underwrite securities issued by
others, except to the extent that the Fund may be considered an
underwriter within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), in the disposition of restricted
securities.
3. Borrowing.
The Nasdaq-100 Index(R) Fund may not borrow money, except that the Fund
may (a) enter into commitments to purchase securities and instruments
in accordance with its investment program, including when-issued and
delayed-delivery transactions, reverse repurchase agreements and
"dollar roll" transactions, provided that the total amount of any
borrowing does not exceed 33-1/3% of the Fund's total assets at the
time of the transaction; (b) borrow money in an amount not to exceed
33-1/3% of the value of its total assets at the time the loan is made;
and (c) borrow money on a short-term basis from investment companies
that are part of the same group of investment companies to the extent
allowed by applicable laws, rules or regulatory orders in an amount not
to exceed 33-1/3% of the value of its total assets at the time the loan
is made. Borrowings representing more than 33-1/3% of the Fund's total
assets must be repaid before it may make additional investments.
Notwithstanding the foregoing, as a non-fundamental policy, the
Nasdaq-100 Index(R) Fund does not intend to borrow money for leveraging
purposes.
4. Real Estate.
The Nasdaq-100 Index(R) Fund may not purchase or sell real estate
unless acquired as a result of direct ownership of securities or other
instruments. This restriction shall not prevent the Fund from investing
in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business, including real estate
investment trusts. This restriction does not preclude the Fund from
buying securities backed by mortgages on real estate or securities of
companies engaged in such activities. This restriction shall not
prevent the Fund from investing
2
<PAGE>
in real estate operating companies and shares of companies engaged in
other real estate related businesses.
5. Lending.
The Nasdaq-100 Index(R) Fund may not make loans, except that the Fund,
consistent with its investment program, may (a) purchase bonds,
debentures, other debt securities and hybrid instruments, including
short-term obligations; (b) enter into repurchase transactions; (c)
lend portfolio securities, provided that the value of loaned securities
does not exceed 33-1/3% of its total assets; and (d) make short-term
loans to other investment companies that are part of the same group of
investment companies, as part of an interfund loan program, as allowed
by applicable laws, rules and regulatory orders.
6. Commodities.
The Nasdaq-100 Index(R) Fund may not purchase or sell physical
commodities unless acquired as a result of ownership of securities or
other instruments (but this shall not prevent the Fund from purchasing
or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities).
7. Concentration.
The Nasdaq-100 Index(R) Fund may not purchase the securities of any
issuer (other than the securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, repurchase
agreements secured thereby, or tax-exempt securities issued by
governments or political subdivisions of governments except tax-exempt
securities backed only by the assets or revenues of non-governmental
issuers) if, as a result, 25% or more of its total assets would be
invested in the securities of companies whose principal business
activities are in the same industry. This restriction shall not prevent
the Fund from investing all of its assets in a "master" fund that has
adopted similar investment objectives, policies and restrictions.
Notwithstanding the foregoing, the Nasdaq-100 Index(R) Fund will
concentrate its investments in a single industry to the extent
necessary to track the broad-based securities market index the
performance of which the Fund attempts to duplicate.
Non-Fundamental Investment Restrictions of the Nasdaq-100 Index(R) Fund
The following investment restrictions are non-fundamental and may be
changed by a vote of a majority of the Board of Trustees of The Victory
Portfolios (the "Trust"). Changing a non-fundamental restriction does
not require a vote of the holders of a majority of the Nasdaq-100
Index(R) Fund's outstanding voting securities.
1. Illiquid Securities.
The Nasdaq-100 Index(R) Fund may not invest more than 15% of its net
assets in illiquid securities. Illiquid securities are securities that
are not readily marketable or cannot be disposed of promptly within
seven days and in the usual course of business at approximately the
price at which the Fund has valued them. Such securities include, but
are not limited to, time deposits and repurchase agreements with
maturities longer than seven days. Securities that may be resold under
Rule 144A, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions or limitations on resale under the
Securities Act shall not be deemed illiquid solely by
3
<PAGE>
reason of being unregistered. The Adviser determines whether a
particular security is deemed to be liquid based on the trading markets
for the specific security and other factors.
2. Other Investment Companies.
The Nasdaq-100 Index(R) Fund may invest up to 5% of its total assets in
the securities of any one investment company, but may not own more than
3% of the securities of any one investment company or invest more than
10% of its total assets in the securities of other investment
companies. Pursuant to an exemptive order received by the Trust from
the SEC, the Fund may invest in the other money market funds of the
Trust. The Adviser will waive the portion of its fee attributable to
the assets of the Fund invested in such money market funds to the
extent required by the laws of any jurisdiction in which shares of the
Fund are registered for sale.
3. Borrowing.
The Nasdaq-100 Index(R) Fund does not intend to borrow money for
leveraging purposes.
3. On page 20, under "Investment Policies" add the following information:
With respect to futures contracts, options on futures contracts and
options, the Nasdaq-100 Index(R) Fund may invest up to 5% of its total
assets in margins and premiums and may hold up to 33-1/3% of its total
assets subject to futures contracts, options thereon.
4. On page 87, under "Additional Purchase, Exchange, and Redemption
Information," add the following information:
Dealer Reallowances. The following table shows the amount of the front
end sales load that is reallowed to dealers as a percentage of the
offering price of Class A Shares of the Nasdaq-100 Index(R) Fund.
Initial Sales Charge: Concession to Dealers:
Amount of Purchase % of Offering Price % of Offering Price
------------------ ------------------- -------------------
Up to $49,999 5.75% 5.00%
$50,000 to $99,999 4.50% 4.00%
$100,000 to $249,999 3.50% 3.00%
$250,000 to $499,999 2.50% 2.00%
$500,000 to $999,999 2.00% 1.75%
$1,000,000 and above 0.00% *
* Except as indicated in the last sentence of this note, there is no
initial sales charge on purchases of $1 million or more. However, a
CDSC of up to 1.00% will be imposed on any of such shares redeemed
within the first year after purchase, or a 0.50% CDSC will be charged
on any of such shares redeemed within two years of purchase. This
charge
4
<PAGE>
will be based on the lower of the cost of the shares or net asset value
at the time of redemption. No CDSC is imposed on reinvested
distributions. Investment professionals may be paid at a rate of 1.00%
of the purchase price on amounts from $1 million to $2,999,999; 0.75%
on amounts from $3 million to $4,999,999; and 0.50% on amounts of $5
million or more. The initial sales charge exemption for investments of
$1 million or more does not apply to tax deferred retirement accounts
(except IRA accounts); the sales charge on investments by such tax
deferred retirement accounts of $1 million or more is the same as for
investments between $500,000 and $999,999.
5. On page 116, under "Additional Information," add the following:
Additional Information about the Nasdaq-100 Index(R) Fund.
The Nasdaq-100 Index(R) Fund is not sponsored, endorsed, sold or
promoted by The Nasdaq Stock Market, Inc. ("Nasdaq" and, with its
affiliates, the "Corporations"). The Corporations have not passed on
the legality or suitability of, or the accuracy or adequacy of
descriptions and disclosures relating to, the Fund. The Corporations
make no representation or warranty, express or implied to the owners of
the Fund or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly, or the
ability of the Nasdaq-100 Index(R) to track general stock market
performance. The Corporations' only relationship to the Trust is in the
licensing of the Nasdaq-100?, Nasdaq-100 Index(R), and Nasdaq(R)
trademarks or service marks, and certain trade names of the
Corporations and the use of the Nasdaq-100 Index(R) which is
determined, composed and calculated by Nasdaq without regard to
Licensee or the Fund. Nasdaq has no obligation to take the needs of the
Licensee or the owners of the Fund into consideration in determining,
composing or calculating the Nasdaq-100 Index(R). The Corporations are
not responsible for and has not participated in the determination of
the timing of, prices at, or quantities of the Fund to be issued or in
the determination or calculation of the equation by which the Fund is
to be converted into cash. The Corporations have no liability in
connection with the administration, marketing or trading of the Fund.
The Corporations do not guarantee the accuracy and/or uninterrupted
calculation of the Nasdaq-100 Index(R) or any data included therein.
The Corporations make no warranty, express or implied, as to results to
be obtained by the Trust, owners of the Nasdaq-100 Index(R) Fund, or
any other person or entity from the use of the Nasdaq-100 Index(R) or
any data included therein. The Corporations make no express or implied
warranties, and expressly disclaim all warranties of merchantability or
fitness for a particular purpose or use with respect to the Nasdaq-100
Index(R) or any data included therein. Without limiting any of the
foregoing, in no event shall the Corporations have any liability for
any lost profits or special, incidental, punitive, indirect, or
consequential damages, even if notified of the possibility of such
damages.
5
<PAGE>
