April 30, 2000
Semi Annual Report
LifeChoice Conservative Investor Fund
LifeChoice Moderate Investor Fund
LifeChoice Growth Investor Fund
Victory Funds
(LOGO)(R)
<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
Financial Highlights 9
Notes to Financial Statements 12
The Victory Portfolios
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.
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.
Victory Funds
(LOGO)(R)
Call Victory at:
800-539-FUND (800-539-3863)
Visit our web site at:
www.victoryfunds.com
1
<PAGE>
Letter to our Shareholders
On behalf of Victory Funds, thank you for your continued support and
confidence in using Victory Funds to help meet your investment goals! We
strive on a daily basis to make sure you have the appropriate information you
need to remain confident in your choice to invest in Victory Funds. To that
end, I am pleased to present the Victory LifeChoice Funds' Semi-Annual Report
for the period ended April 30, 2000. I hope you find this report useful, easy
to read, and a valuable tool.
The past few months have been an exciting time for Victory Funds. Through the
combination of a new sales and marketing literature system, a new and
improved Internet presence, and the support of the many financial
intermediaries offering Victory Funds, we are now over 30 mutual funds strong
with more than $20 billion in assets under management.
Two of Victory Funds' core beliefs are guidance and education. We recognize
it can be a complex decision to invest in securities through mutual funds,
particularly when your hard-earned savings to fund a child's education, a new
home, or a comfortable retirement is on the line. That's why I feel it is
important for our shareholders to know "What Makes Victory Funds Different?"
I am confident that after you review the following points you will be
reassured of your investment in Victory Funds and in a better position to
share the Victory story with your family, friends, and business associates.
So, "What Makes Victory Funds Different?"
Truth in Labeling. Dependability is the essence of Victory Funds. When you
entrust your money to a Victory Fund, you can rest assured that the portfolio
managers of the Funds are known for adhering to a fund's stated management
style and investment objective.
Discipline. A highly rigorous and disciplined investment process, refined
over decades by the wisdom of experienced money managers, guides the
selection of securities for Victory Funds. Key Asset Management, Inc., an
established firm with a 100-year heritage, meticulously implements this
proven process.
Teamwork. A knowledgeable team of investment professionals supports Victory
Fund portfolio managers, who have an average of 17 years of experience.
Guidance. Victory strives to make sure you have the information you need to
make the best investment decisions. The guidance available through investment
professionals, "www.victoryfunds.com," our educational materials, and Victory
Funds Service Center (1-800-539-FUND) all come together for one purpose --
our shareholders.
Performance. The ultimate measure of your investment success is performance.
At Victory Funds, our long-term perspective leads us to pursue the optimal
return with a reasonable level of risk. We are committed to achieving
consistent, rewarding results over time.
Again, thank you for choosing the Victory Funds to help you realize your
financial goals and, as always, we welcome your comments on this report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President
Victory Funds
2
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Conservative Investor Fund April 30, 2000
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (100.1%)
Equity Funds (30.8%):
Victory Value Fund,
Class A 32,630 $ 559
Victory Diversified Stock Fund,
Class A 43,494 733
INVESCO Dynamics Fund 9,461 255
Victory Small Company Opportunity
Fund, Class A (b) 6,215 145
Berger Small Company Growth Fund 18,734 129
Victory International Growth Fund,
Class A 19,874 322
2,143
Fixed Income/Specialty Funds (66.8%):
Victory Real Estate Investment Fund,
Class A 41,533 446
Victory Convertible Securities Fund,
Class A 78,050 1,059
Loomis Sayles Bond Fund,
Institutional Class 70,295 806
Victory Investment Quality Bond Fund,
Class A 76,672 703
Victory Intermediate Income Fund,
Class A 76,902 703
Victory Fund For Income,
Class A 72,989 917
4,634
Money Market Funds (2.5%):
Victory Financial Reserves Fund 176,337 176
Total Mutual Funds (Cost $6,907) 6,953
Total Investments (Cost $6,907) (a)-- 100.1% 6,953
Liabilities in excess of other assets -- (0.1)% (6)
TOTAL NET ASSETS -- 100.0% $6,947
(a) Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $ 197
Unrealized depreciation (151)
Net unrealized appreciation $ 46
(b) Non-income producing securities.
See notes to financial statements
3
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Moderate Investor Fund April 30, 2000
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (100.0%)
Equity Funds (51.6%):
Victory Value Fund, Class A 160,657 $ 2,752
Victory Diversified Stock Fund,
Class A 207,654 3,499
Victory Special Value Fund, Class A 33,512 480
INVESCO Dynamics Fund 46,645 1,255
Victory Small Company Opportunity
Fund, Class A (b) 30,621 717
Berger Small Company Growth Fund 123,188 850
Victory International Growth Fund,
Class A 130,613 2,112
11,665
Fixed Income/Specialty Funds (45.9%):
Victory Real Estate Investment Fund,
Class A 136,360 1,463
Victory Convertible Securities Fund,
Class A 188,020 2,552
Loomis Sayles Bond Fund,
Institutional Class 153,910 1,765
Victory Investment Quality Bond Fund,
Class A 251,751 2,309
Victory Intermediate Income Fund,
Class A 252,510 2,308
10,397
Money Market Funds (2.5%):
Victory Financial Reserves Fund 571,312 571
Total Mutual Funds (Cost $22,155) 22,633
Total Investments (Cost $22,155) (a) -- 100.0% 22,633
Other assets in excess of liabilities -- 0.0% 7
TOTAL NET ASSETS -- 100.0% $22,640
(a) Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $ 940
Unrealized depreciation (462)
Net unrealized appreciation $ 478
(b) Non-income producing securities.
See notes to financial statements.
4
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
LifeChoice Growth Investor Fund April 30, 2000
(Amounts in Thousands, Except Shares) (Unaudited)
Market
Security Description Shares Value
Mutual Funds (99.6%)
Equity Funds (73.3%):
Victory Value Fund, Class A 154,353 $ 2,644
Victory Diversified Stock Fund, Class A 215,122 3,625
Victory Special Value Fund, Class A 36,224 519
INVESCO Dynamics Fund 44,841 1,207
Victory Small Company Opportunity
Fund, Class A (b) 36,774 861
Berger Small Company Growth Fund 111,081 766
Victory International Growth Fund,
Class A 141,154 2,282
11,904
Fixed Income/Specialty Funds (23.7%):
Victory Real Estate Investment Fund,
Class A 98,248 1,054
Victory Convertible Securities Fund,
Class A 86,216 1,170
Loomis Sayles Bond Fund,
Institutional Class 69,303 795
Victory Investment Quality Bond Fund,
Class A 90,684 832
3,851
Money Market Funds (2.6%):
Victory Financial Reserves Fund 422,001 422
Total Mutual Funds (Cost $15,704) 16,177
Total Investments (Cost $15,704) (a) -- 99.6% 16,177
Other assets in excess of liabilities -- 0.4% 59
TOTAL NET ASSETS -- 100.0% $16,236
(a) Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows (amounts in thousands):
Unrealized appreciation $ 731
Unrealized depreciation (258)
Net unrealized appreciation $ 473
(b) Non-income producing securities.
See notes to financial statements.
5
<PAGE>
THE VICTORY PORTFOLIOS Statements of Assets and Liabilities
LifeChoice Funds April 30, 2000
(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 $6,907; $22,155 & $15,704) $6,953 $22,633 $16,177
Dividends receivable 1 2 2
Receivable from affiliates 7 6 7
Receivable for capital shares issued 9 14 67
Unamortized organization costs 16 16 16
Prepaid expenses and other assets 7 16 17
Total Assets 6,993 22,687 16,286
LIABILITIES:
Payable for organization costs 16 16 16
Accrued expenses and other payables:
Investment advisory fees 1 2 1
Transfer agent fees 3 3 5
Other 26 26 28
Total Liabilities 46 47 50
NET ASSETS:
Capital 6,832 20,995 14,544
Undistributed (distribution in excess of) net investment income (35) (198) (197)
Net unrealized appreciation/depreciation from investments 46 478 473
Accumulated undistributed net realized gains
from investment transactions 104 1,365 1,416
Net Assets $6,947 $22,640 $16,236
Outstanding units of beneficial interest (shares) 626 1,889 1,280
Net asset value
Offering and Redemption price per share $11.10 $ 11.99 $ 12.68
</TABLE>
See notes to financial statements.
6
<PAGE>
THE VICTORY PORTFOLIOS Statements of Operations
LifeChoice Funds For the Six Months Ended April 30, 2000
(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 $141 $ 313 $ 117
Total Income 141 313 117
Expenses:
Investment advisory fees 7 23 16
Administration fees 6 6 6
Shareholder service fees -- 2 1
Accounting fees 21 21 19
Custodian fees 1 1 1
Legal and audit fees 1 2 1
Amortization of organization costs 5 5 5
Transfer agent fees 4 6 8
Registration and filing fees 5 6 5
Printing fees -- 1 2
Other 1 -- 2
Total Expenses 51 73 66
Expenses voluntarily reduced (3) (11) (8)
Expenses before reimbursement
from distributor 48 62 58
Expenses reimbursed (41) (39) (42)
Total Expenses 7 23 16
Net Investment Income 134 290 101
Realized/Unrealized Gains (Losses)
from Investments:
Net realized gains (losses) from
investment transactions 274 1,631 1,650
Change in unrealized appreciation/
depreciation from investments 55 5 (100)
Net realized/unrealized gains
from investments 329 1,636 1,550
Change in net assets resulting
from operations $463 $1,926 $1,651
</TABLE>
See notes to financial statements.
7
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
Six Six Six
Months Year Months Year Months Year
Ended Ended Ended Ended Ended Ended
April 30, October 31, April 30, October 31, April 30, October 31,
2000 1999 2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 134 $ 312 $ 290 $ 579 $ 101 $ 197
Net realized gains/(losses) from
investment transactions 274 (13) 1,631 499 1,650 463
Net change in unrealized appreciation/
depreciation from investments 55 315 5 1,379 (100) 1,220
Change in net assets resulting
from operations 463 614 1,926 2,457 1,651 1,880
Distributions to Shareholders:
From net investment income (196) (411) (536) (676) (310) (295)
From net realized gains from
investment transactions (60) (162) (754) (434) (684) (338)
Change in net assets from
distributions to shareholders (256) (573) (1,290) (1,110) (994) (633)
Capital Transactions:
Proceeds from shares issued 1,123 2,737 1,210 11,834 2,065 7,578
Dividends reinvested 256 573 1,290 1,110 994 633
Cost of shares redeemed (1,325) (4,298) (3,294) (10,621) (3,594) (5,362)
Change in net assets from
capital transactions 54 (988) (794) 2,323 (535) 2,849
Change in net assets 261 (947) (158) 3,670 122 4,096
Net Assets:
Beginning of period 6,686 7,633 22,798 19,128 16,114 12,018
End of period $ 6,947 $ 6,686 $22,640 $ 22,798 $16,236 $16,114
Share Transactions:
Issued 104 251 102 1,032 165 635
Reinvested 23 53 110 98 81 55
Redeemed (121) (396) (279) (923) (288) (452)
Change in shares 6 (92) (67) 207 (42) 238
</TABLE>
See notes to financial statements.
8
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Conservative Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six
Months Year Period Period
Ended Ended Ended Ended
April 30, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.78 $10.72 $10.89 $10.00
Investment Activities
Net investment income 0.22 0.45 0.37 0.31
Net realized and unrealized gains (losses)
from investments 0.52 0.41 (0.12) 0.84<F6>
Total from Investment Activities 0.74 0.86 0.25 1.15
Distributions
Net investment income (0.32) (0.58) (0.39) (0.26)
Net realized gains (0.10) (0.22) (0.03) --
Total Distributions (0.42) (0.80) (0.42) (0.26)
Net Asset Value, End of Period $11.10 $10.78 $10.72 $10.89
Total Return 6.90%<F4> 8.24% 2.29%<F4> 11.62%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $6,947 $6,686 $7,633 $9,137
Ratio of expenses to average net assets 0.20%<F5> 0.19% 0.23%<F5> 0.29%<F5>
Ratio of net investment income to average net assets 3.87%<F5> 3.97% 3.72%<F5> 3.41%<F5>
Ratio of expenses to average net assets<F1> 1.48%<F5> 1.46% 1.50%<F5> 5.18%<F5>
Ratio of net investment income to average net assets<F1> 2.59%<F5> 2.70% 2.45%<F5> (1.48)%<F5>
Portfolio Turnover 37% 57% 78% 19%
<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> Not annualized
<F5> Annualized
<F6> 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.
9
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Moderate Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six
Months Year Period Period
Ended Ended Ended Ended
April 30, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.66 $ 10.94 $ 11.19 $10.00
Investment Activities
Net investment income 0.15 0.30 0.24 0.20
Net realized and unrealized gains (losses)
from investments 0.84 1.03 (0.14) 1.16
Total from Investment Activities 0.99 1.33 0.10 1.36
Distributions
Net investment income (0.28) (0.36) (0.26) (0.17)
Net realized gains (0.39) (0.25) (0.09) --
Total Distributions (0.67) (0.61) (0.35) (0.17)
Net Asset Value, End of Period $ 11.98 $ 11.66 $ 10.94 $11.19
Total Return 8.67%<F4> 12.42% 0.90%<F4> 13.64%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $22,640 $22,798 $19,128 $7,728
Ratio of expenses to average net assets 0.20%<F5> 0.20% 0.22%<F5> 0.27%<F5>
Ratio of net investment income to average net assets 2.56%<F5> 2.53% 2.32%<F5> 2.26%<F5>
Ratio of expenses to average net assets<F1> 0.64%<F5> 0.71% 0.93%<F5> 3.32%<F5>
Ratio of net investment income to average net assets<F1> 2.12%<F5> 2.02% 1.61%<F5> (.79)%<F5>
Portfolio Turnover 34% 69% 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 Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F4> Not annualized
<F5> Annualized
</FN>
</TABLE>
See notes to financial statements.
10
<PAGE>
THE VICTORY PORTFOLIOS
LifeChoice Growth Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Six
Months Year Period Period
Ended Ended Ended Ended
April 30, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
(Unaudited)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.19 $ 11.08 $ 11.44 $10.00
Investment Activities
Net investment income 0.08 0.16 0.13 0.11
Net realized and unrealized gains (losses)
from investments 1.18 1.51 (0.07) 1.43
Total from Investment Activities 1.26 1.67 0.06 1.54
Distributions
Net investment income (0.24) (0.25) (0.14) (0.10)
Net realized gains (0.53) (0.31) (0.28) --
Total Distributions (0.77) (0.56) (0.42) (0.10)
Net Asset Value, End of Period $ 12.68 $ 12.19 $ 11.08 $11.44
Total Return 10.62%<F4> 15.33% 0.52%<F4> 15.46%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $16,236 $16,114 $12,018 $7,515
Ratio of expenses to average net assets 0.20%<F5> 0.20% 0.23%<F5> 0.30%<F5>
Ratio of net investment income to average net assets 1.25%<F5> 1.31% 1.19%<F5> 0.81%<F5>
Ratio of expenses to average net assets<F1> 0.82%<F5> 1.01% 1.16%<F5> 3.67%<F5>
Ratio of net investment income to average net assets<F1> 0.63%<F5> 0.50% 0.26%<F5> (2.56)%<F5>
Portfolio Turnover 46% 52% 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 Growth Fund became the Victory
LifeChoice Growth Investor Fund. Financial highlights prior to March 23, 1998
represent the KeyChoice Growth Fund.
<F4> Not annualized
<F5> Annualized
</FN>
</TABLE>
See notes to financial statements.
11
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements
LifeChoice Funds April 30, 2000
(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. 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.
Continued
12
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements--continued
LifeChoice Funds April 30, 2000
(Unaudited)
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. Organization costs were paid by
the Distributor on behalf of the Funds and are being amortized over a
five-year period with a corresponding payable from the Funds to the
Distributor to repay such cost at the conclusion of the amortization period.
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for the
six months ended April 30, 2000 were as follows (amounts in thousands):
Purchases Sales
LifeChoice Conservative Investor Fund $2,847 $2,514
LifeChoice Moderate Investor Fund $7,591 $7,967
LifeChoice Growth Investor Fund $7,334 $7,475
4. Related Party Transactions:
Investment advisory services are provided to the Funds by Key Asset
Management, Inc. ("the Adviser"), 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, 2000:
Investment Advisory Fees
Maximum
Percentage
of Average Voluntary
Daily Fee
Net Assets Reductions
(000)
LifeChoice Conservative Investor Fund 0.20% $ 3
LifeChoice Moderate Investor Fund 0.20% $11
LifeChoice Growth Investor Fund 0.20% $ 8
Continued
13
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements--continued
LifeChoice Funds April 30, 2000
(Unaudited)
5. Federal Income Tax Information:
For the year ended October 31, 1999, the Funds' most recent fiscal year end
for federal income tax purposes, the following percentages of income
dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Qualified Dividend Income
LifeChoice Conservative Investor Fund 33.71%
LifeChoice Moderate Investor Fund 24.28%
LifeChoice Growth Investor Fund 25.61%
During the taxable year ended October 31, 1999, the following Funds paid
long-term capital gain distributions:
Capital Gains Distributions
(000)
LifeChoice Conservative Investor Fund $162
LifeChoice Moderate Investor Fund 293
LifeChoice Growth Investor Fund 273
These amounts are included in distributions to shareholders from net realized
gains from investment transactions in the accompanying statements of changes
in net assets.
6. Voting Results of a Special Shareholder meeting:
A Shareholder meeting was held on March 27, 2000. At the meeting,
shareholders voted on the following matters with the following results as
indicated below (amounts in thousands):
Proposal 1
For the Trust to elect the Board of Trustees of the Trust.
For Withheld Election Results
Theodore H. Emmerich 7,017,357 181,560 Passed
Dr. Harry Gazelle 7,014,923 183,993 Passed
Frankie D. Hughes 7,032,333 166,584 Passed
Roger Noall 6,959,362 239,556 Passed
Eugene J. McDonald 7,032,245 166,672 Passed
Dr. Thomas F. Morrissey 7,030,565 168,352 Passed
Patrick Swygert 7,029,446 169,471 Passed
Frank A. Weil 7,032,067 166,850 Passed
Donald E. Weston 6,965,594 233,324 Passed
Leigh A. Wilson 7,031,424 167,494 Passed
Proposal 2
For the Trust,(1) to approve an Amendment and Restatement of seven sections of
the Trust Instrument as follows: a) Reorganizations, b) voting powers, c)
required redemptions, d) record date, e) master/feeder structure, f)
derivative actions, and g) future amendments.
For Against Abstain Election Results
a) Reorganizations 5,263,551 215,415 304,093 Passed
b) Voting Powers 5,340,482 138,463 304,093 Passed
c) Required Redemptions 5,402,281 80,335 306,691 Passed
d) Record Date 5,406,116 68,996 306,119 Passed
e) Master/Feeder Structure 5,371,967 103,145 306,119 Passed
f) Derivative Actions 5,382,740 94,249 303,976 Passed
g) Future Amendments 5,195,718 193,193 304,216 Passed
1 This was Proposal 3 for Victory Government Mortgage Fund and Victory Ohio
Regional Stock Fund shareholders.
Proposal 3
To approve an Amended and Restated Rule 12b-1 Distribution Plan.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 422 -- 24 Passed
LifeChoice Moderate Investor Fund 1,431 -- 9 Passed
LifeChoice Growth Investor Fund 1,075 -- -- Passed
Continued
14
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements--continued
LifeChoice Funds April 30, 2000
(Unaudited)
Proposal 4
For the Trust to approve a series of proposals to change certain fundamental
investment restrictions applicable to each fund. The separate proposals
associated with the changes in the fundamental investment restrictions are as
follows:
a) The elimination of investment restrictions relating to diversification of
investments for all Funds.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
b) To clarify and standardize the restriction on borrowing which will give
the Fund the flexibility to engage in certain security transactions for any
purpose that does not involve leveraging.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
c) To update the lending restriction to clarify that the Funds may lend their
portfolio securities and engage in certain types of security transactions
that might be construed as "lending" transactions.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
d) To clarify and modernize the language concerning senior securities to make
it consistent with permitted activities approved by the SEC.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
e) To modernize the current language of the real estate investment
restriction by allowing the Fund to invest in certain newer financial
instruments that were precluded under the prior restriction.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
f) To revise the restriction relating to underwriting.
For Against Abstain Election
Results
LifeChoice Conservative Investor Fund 416 -- 12 Passed
LifeChoice Moderate Investor Fund 1,326 -- 11 Passed
LifeChoice Growth Investor Fund 1,007 -- 7 Passed
15
<PAGE>
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16
<PAGE>
The Victory Funds PRSRT STD
127 Public Square U.S. Postage
OH-01-27-1612 PAID
Cleveland, Ohio 44114 Cleveland, OH
Permit No. 1535
Victory Funds
(LOGO)(R)
Call Victory at: Visit our web site at:
800-539-FUND (800-539-3863) www.victoryfunds.com
1VF-LCHF-SEM 6/00
