As filed with the Securities and Exchange Commission on February 28, 2000
File No. 33-8982
ICA No. 811-4852
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 59 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 60
The Victory Portfolios
(Exact name of Registrant as Specified in Trust Instrument)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Office)
(800) 362-5365
(Area Code and Telephone Number)
Copy to:
George Stevens, Esq. Carl Frischling, Esq.
BISYS Fund Services Kramer Levin Naftalis & Frankel LLP
3435 Stelzer Road 919 Third Avenue
Columbus, Ohio 43219 New York, New York 10022
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
registration statement becomes effective.
It is proposed that this filing will become effective:
<TABLE>
<CAPTION>
<S> <C>
|X| Immediately upon filing pursuant to paragraph (b) |_| on ------- pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1) |_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2) |_| on (date) pursuant to paragraph (a)(2) of rule 485.
</TABLE>
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
The statement of additional information for each series of The Victory
Portfolios, dated February 28, 2000, is incorporated by reference to
post-effective amendment no. 58 to its registration statement on Form N-1A filed
electronically with the Securities and Exchange Commission on December 30, 1999
(accession number 0000922423-99-001542).
<PAGE>
Prospectus
Equity Funds
Value Fund
Class A and G Shares
Established Value Fund
Class A and G Shares
Diversified Stock Fund
Class A and G Shares
Stock Index Fund
Class A and G Shares
Growth Fund
Class A and G Shares
Special Value Fund
Class A and G Shares
Small Company Opportunity Fund
Class A and G Shares
International Growth Fund
Class A and G Shares
February 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any 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)
Call Victory at:
800-539-FUND
(800-539-3863)
or visit the Victory Funds' website at:
www.victoryfunds.com
<PAGE>
The Victory Portfolios
Table of Contents
Introduction 1
Risk/Return Summary for each of the Funds An analysis which includes the
investment objective, principal strategies, principal risks, performance, and
expenses of each Fund
Value Fund
Class A and G Shares 2
Established Value Fund
Class A and G Shares 4
Diversified Stock Fund
Class A and G Shares 6
Stock Index Fund
Class A and G Shares 8
Growth Fund
Class A and G Shares 10
Special Value Fund
Class A and G Shares 12
Small Company Opportunity Fund
Class A and G Shares 14
International Growth Fund
Class A and G Shares 16
Investments 18
Risk Factors 19
Share Price 21
Dividends, Distributions, and Taxes 21
Investing with Victory
- - Choosing a Share Class 23
- - How to Buy Shares 26
- - How to Exchange Shares 28
- - How to Sell Shares 29
Organization and Management of the Funds 31
Additional Information 34
Financial Highlights
Value Fund 35
Established Value Fund 36
Diversified Stock Fund 37
Stock Index Fund 38
Growth Fund 39
Special Value Fund 40
Small Company Opportunity Fund 41
International Growth Fund 42
Key to Financial Information
Objective and Strategies
The goals and the strategies that a Fund plans to use to pursue its investment
objective.
Risk Factors
The risks you may assume as an investor in a Fund.
Performance
A summary of the historical performance of a Fund in comparison to an unmanaged
index.
Expenses
The costs you will pay, directly or indirectly, as an investor in a Fund,
including sales charges and ongoing expenses.
Shares of the Funds are:
- - Not insured by the FDIC;
- - Not deposits or other obligations of, or guaranteed by KeyBank, any of
its affiliates, or any other bank;
- - Subject to possible investment risks, including possible loss of the amount
invested.
<PAGE>
Introduction
This Prospectus explains the objectives, policies, risks, performance,
strategies, and expenses of the Shares of the Victory Funds described in this
Prospectus (the Funds).
Investment Objective and Strategy
Each Fund pursues its investment objective by investing primarily in equity
securities. Each Fund generally seeks to provide long-term growth of capital. In
addition, the Value Fund and Special Value Fund each seeks to provide dividend
income. The Stock Index Fund seeks to achieve its investment performance by
attempting to match the investment performance of the Standard & Poor's 500
Composite Stock Index. However, each Fund has unique investment strategies and
its own risk/reward profile. Please review the "Risk/Return Summary" for each
Fund and the "Investments" section for an overview.
Risk Factors
Each Fund invests primarily in equity securities. The value of equity securities
may fluctuate in response to the activities of an individual company, or in
response to general market or economic conditions. There are other potential
risks discussed in each "Risk/Return Summary" and in "Risk Factors."
Who May Want to Invest in the Funds
* Investors who want a diversified portfolio
* Investors willing to accept the risk of price and dividend fluctuations
* Investors willing to accept higher short-term risk along with higher
potential long-term returns
* Long-term investors with a particular goal, like saving for retirement or a
child's education
Share Classes
Each Fund offers Class A and G Shares. See "Choosing a Share Class."
Key Asset Management Inc., which we will refer to as the "Adviser" or "KAM"
throughout this Prospectus, manages the Funds.
Please read this Prospectus before investing in the Funds and keep it for future
reference.
The following pages provide you with an overview of each of the Funds. Please
look at the objective, policies, strategies, risks, and expenses to determine
which Fund will suit your risk tolerance and investment needs.
1
<PAGE>
Risk/Return Summary
VALUE FUND
CLASS A SHARES
Cusip#: 926464868
SVLSX
CLASS G SHARES
Cusip#: 926464249
Investment Objective
The Value Fund seeks to provide long-term growth of capital and dividend income.
Principal Investment Strategies
The Value Fund pursues its investment objective by investing primarily in a
diversified group of equity securities with an emphasis on companies with above
average total return potential. The securities in the Value Fund usually are
listed on a national exchange.
KAM seeks equity securities of under-valued companies that are inexpensive in
light of the following measurements: below-average price-to-earnings ratios,
below-average price-to-book ratios, lower-than-average price-to-cash-flow ratios
and above-average dividend yields. KAM may consider factors such as a company's
earnings growth, return on equity, stock price volatility relative to the
market, management, the general business cycle, the company's position within a
specific industry and the company's responsiveness to changing conditions.
Under normal market conditions, the Value Fund will invest at least 80% of its
total assets in equity securities and securities convertible or exchangeable
into common stock.
There is no guarantee that the Value Fund will achieve its objectives.
Principal Risks
You may lose money by investing in the Value Fund. The Value Fund is subject to
the following principal risks, more fully described in "Risk Factors." The Value
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 Value Fund declines.
- Value stocks fall out of favor relative to growth stocks.
* The portfolio manager does not execute the Value Fund's principal investment
strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Value 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.
By itself, the Value Fund does not constitute a complete investment plan and
should be considered a long-term investment for investors who can afford to
weather changes in the value of their investment.
2
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Value Fund by showing changes in its performance for various
time periods ending December 31st. The figures shown in the bar chart and table
assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Value Fund. Sales loads
are not reflected on the bar chart (or highest and lowest returns below) and if
they were reflected, returns would be lower than those shown.
1994 0.26%
1995 33.73%
1996 22.40%
1997 27.51%
1998 26.33%
1999 11.07%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
18.21% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 9.06% (quarter ending September 30, 1999).
The table shows how the average annual total returns for Class A Shares of the
Value Fund for one year, five years and since inception, including maximum sales
charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999)(1) One Year 5 Years (12/3/93)
Class A 4.70% 22.52% 18.45%
S&P 500 Index(2) 21.04% 28.55% 23.30%
1 The Value Fund did not offer Class G Shares prior to December 15, 1999.
2 The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Value 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(3) 0.75% 0.75%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
Shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.45% 0.26%
Total Fund Operating Expenses 1.20%(4) 1.51%(5)
Fee Waiver/Expense Reimbursement (0.00)% (0.06)%
Net Expenses 1.20% 1.45%(6)
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 Management fees have been restated to reflect reduction from 1.00% to 0.75%.
4 The Adviser may waive its management fee and reimburse expenses , as allowed
by law, so that the net operating expenses of Class A Shares do not exceed
1.15%. The Adviser may terminate this waiver/reimbursement at any time to the
extent allowed by law.
5 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year.
6 The Adviser has agreed to waive its management fee or to reimburse expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses of Class G Shares of the Value Fund at a maximum of 1.45% until at
least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Value Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Value Fund for the time
periods shown and then sell all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Value 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 5 Years 10 Years
Class A $690 $934 $1,197 $1,946
Class G $148 $471 $ 818 $1,796
1 This Example assumes that net annual operating expenses for Class G Shares of
the Value Fund will equal 1.45% until February 28, 2001 and will equal 1.51%
thereafter.
3
<PAGE>
Risk/Return Summary
ESTABLISHED VALUE FUND
CLASS A SHARES
Cusip#: 926464231
CLASS G SHARES
Cusip#: 926464371
GETGX
Investment Objective
The investment objective of the Established Value Fund is long-term capital
growth by investing primarily in common stocks.
Principal Investment Strategies
The Established Value Fund pursues its investment objective by investing
primarily in equity securities of companies with market capitalization, at the
time of purchase, of $2 billion or more. The companies are usually selected from
those in the Standard & Poor's Composite Stock Price Index (S&P 500).
In making investment decisions, the Adviser looks for companies whose stock is
trading at prices below what the Adviser believes represent their true value.
When selecting investments for the Established Value Fund's portfolio, the
Adviser looks for the following characteristics, among others: consistent
earnings growth; stable earnings growth combined with dividend yield, rising
earnings prospects; price-to-book ratios and price-to-earnings ratios that are
generally lower than those prevalent in the market; and the rate at which a
stock's price is rising. The Adviser uses a computer model that examines the
characteristics described above, among others, to assist in selecting securities
that appear favorably priced.
Under normal market conditions, the Established Value Fund :
* Will invest at least 80% of its total assets in equity securities of
companies with market capitalization of $2 billion or more.
There is no guarantee that the Established Value Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Established Value Fund. The Established
Value Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Established Value 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 Established Value Fund
declines.
* Value stocks decline in price faster than growth stocks.
* The portfolio manager does not execute the Established Value Fund's principal
investment strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Established Value 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.
By itself, the Established Value Fund does not constitute a complete investment
plan and should be considered a long-term investment for investors who can
afford to weather changes in the value of their investment.
4
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Established Value Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class G Shares of the Established Value Fund.
1990 -8.11%
1991 22.23%
1992 10.20%
1993 20.78%
1994 0.32%
1995 26.44%
1996 19.32%
1997 22.65%
1998 6.12%
1999 17.07%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
14.12% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 13.22% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class G Shares of the
Established Value Fund for one year, five years and ten years compared to those
of a broad-based market index.
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1999) One Year 5 Years 10 Years
Class G(1) 17.07% 18.12% 13.18%
S&P 500 Index(2) 21.04% 28.55% 18.21%
1 The Established Value Fund did not offer Class A Shares as of December 31,
1999. Performance prior to March 26, 1999 reflects performance of the Gradison
Established Value Fund.
2 The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Established Value 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 0.51% 0.51%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
Shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.54% 0.26%
Total Fund Operating Expenses 1.05% 1.27%
Fee Waiver/Expense Reimbursement (0.17)% (0.17)%
Net Expenses 0.88%(3) 1.10%(4)
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 Other expenses of Class A Shares are based on estimated amounts for the
current fiscal year. KAM was agreed to waive its management fee or to reimburse
expenses, as allowed by law, to the extent necessary to maintain the net
operating expenses of Class A Shares of the Established Value Fund at a maximum
of 0.88% until at least February 28, 2001.
4 KAM has agreed to waive its management fee or to reimburse expenses, as
allowed by law, to the extent necessary to maintain the net operating expenses
of Class G Shares of the Established Value Fund at a maximum of 1.10% until at
least April 1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Established Value Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Established
Value 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 Established Value 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 5 Years 10 Years
Class A $660 $874 $1,106 $1,769
Class G $112 $386 $ 681 $1,519
1 This Example assumes that net annual operating expenses for Class A Shares of
the Established Value Fund will equal 0.88% until February 28, 2001 and will
equal 1.05% thereafter and that net annual operating expenses for Class G Shares
of the Established Value Fund will equal 1.10% until April 1, 2001 and will
equal 1.27% thereafter.
5
<PAGE>
Risk/Return Summary
DIVERSIFIED STOCK FUND
CLASS A SHARES
Cusip#: 926464603
SRVEX
CLASS G SHARES
Cusip#: 926464421
GRINX
Investment Objective
The Diversified Stock Fund seeks to provide long-term growth of capital.
Principal Investment Strategies
The Diversified Stock Fund pursues its investment objective by investing
primarily in equity securities and securities convertible into common stocks
traded on U.S. exchanges and issued by large, established companies.
The Adviser seeks to invest in both growth and value securities. In making
investment decisions, the Adviser may consider cash flow, book value, dividend
yield, growth potential, quality of management, adequacy of revenues, earnings,
capitalization, relation to historical earnings, the value of the issuer's
underlying assets, and expected future relative earnings growth. The Adviser
will pursue investments that provide above average dividend yield or potential
for appreciation.
Under normal market conditions, the Diversified Stock Fund will invest at least
80% of its total assets in equity securities of large, established companies and
securities convertible or exchangeable into common stock, including:
* Growth stocks, which are stocks of companies that the Adviser believes will
experience earnings growth; and
* Value stocks, which are stocks that the Adviser believes are intrinsically
worth more than their market value.
There is no guarantee that the Diversified Stock Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Diversified Stock Fund. The Diversified
Stock Fund is subject to the following principal risks, more fully described in
"Risk Factors." The Diversified Stock 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 Diversified Stock Fund
declines.
- Growth stocks fall out of favor because the companies' earnings growth does
not meet expectations.
* Value stocks fall out of favor relative to growth stocks.
* The portfolio manager does not execute the Diversified Stock Fund's principal
investment strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Diversified Stock 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.
By itself, the Diversified Stock Fund does not constitute a complete investment
plan and should be considered a long-term investment for investors who can
afford to weather changes in the value of their investment.
6
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Diversified Stock Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Diversified Stock Fund.
Sales loads are not reflected on the bar chart (or highest and lowest returns
below) and if they were reflected, returns would be lower than those shown.
1990 0.57%
1991 23.98%
1992 9.43%
1993 9.97%
1994 3.96%
1995 35.37%
1996 24.72%
1997 28.28%
1998 23.15%
1999 20.96%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
17.60% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 12.43% (quarter ending September 30, 1990).
The table shows how the average annual total returns for Class A Shares of the
Diversified Stock Fund for one year, five years and ten years, including maximum
sales charges, compare to those of a broad-based market index.
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1999)(1) One Year 5 Years 10 Years
Class A 14.02% 24.91% 16.84%
S&P 500 Index(2) 21.04% 28.55% 18.21%
(1) The Diversified Stock Fund did not offer Class G Shares prior to March
29, 1999.
2 The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Diversified Stock 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 0.65% 0.65%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.45% 0.23%
Total Fund Operating Expenses(3) 1.10% 1.38%
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 The Adviser may waive its management fee and reimburse expenses, as allowed by
law, so that the net operating expenses of Class A and Class G Shares of the
Diversified Stock Fund will equal 1.07% and 1.29% respectively. The Adviser may
terminate these waivers/reimbursements at any time to the extent allowed by law.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Diversified Stock Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Diversified
Stock Fund for the time periods shown and then sell all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Diversified Stock Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class A $681 $905 $1,146 $1,838
Class G $140 $437 $ 755 $1,657
7
<PAGE>
Risk/Return Summary
STOCK INDEX FUND
CLASS A SHARES
Cusip#: 926464850
SSTIX
CLASS G SHARES
Cusip#: 926464355
VINGX
Investment Objective
The Stock Index Fund seeks to provide long-term capital appreciation by
attempting to match the investment performance of the Standard & Poor's 500
Composite Stock Index (S&P 500 Index).(1)
Principal Investment Strategies
The Stock Index Fund pursues its investment objective by attempting to duplicate
the capital performance and dividend income of the S&P 500 Index. The Stock
Index Fund primarily invests in many of the equity securities that are in the
S&P 500 Index, including American Depository Receipts (ADRs), and secondarily in
related futures and options contracts.
The S&P 500 Index is comprised of 500 common stocks. To minimize small positions
and transactions expenses, the Stock Index Fund need not invest in every stock
included in the S&P 500 Index. The Stock Index Fund may purchase stocks that are
not included in the S&P 500 Index if the Adviser believes that these investments
will reduce "tracking error" (the difference between the Stock Index Fund's
investment results, before expenses, and that of the S&P 500 Index).
The Stock Index Fund is not managed in the traditional sense using economic,
financial, and market analysis. Therefore, the Stock Index Fund will not sell a
stock that is underperforming as long as it remains in the S&P 500 Index.
Brokerage costs, fees, operating expenses, and tracking errors will normally
result in the Stock Index Fund's total return being lower than that of the S&P
500 Index.
There is no guarantee that the Stock Index Fund will achieve its objectives.
Principal Risks
You may lose money by investing in the Stock Index Fund. The Stock Index Fund is
subject to the following principal risks, more fully described in "Risk
Factors." The Stock Index 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 Stock Index Fund declines.
* The portfolio manager does not execute the Stock Index Fund's principal
investment strategies effectively.
* Hedges created by using derivative instruments, including futures or options
contracts, do not respond to economic or market conditions as expected.
In addition, the Stock Index Fund may purchase, retain, and sell securities when
such transactions would not be consistent with traditional investment criteria.
The Stock Index Fund generally will remain fully invested in common stocks even
when stock prices generally are falling. Accordingly, an investor is exposed to
a greater risk of loss (or conversely, a greater prospect of gain) from
fluctuations in the value of such securities than would be the case if the Stock
Index Fund was not fully invested, regardless of market conditions.
An investment in the Stock Index 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.
By itself, the Stock Index Fund does not constitute a complete investment plan
and should be considered a long-term investment for investors who can afford to
weather sudden and sometimes substantial changes in the value of their
investment .
1 "Standard & Poor's 500" is a registered service mark of Standard and Poor's,
which does not sponsor and is in no way affiliated with the Stock Index Fund.
8
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Stock Index Fund by showing changes in its performance for
various time periods ending December 31st. The figures shown in the bar chart
and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Stock Index Fund. Sales
loads are not reflected on the bar chart (or highest and lowest returns below)
and if they were reflected, returns would be lower than those shown.
1994 0.92%
1995 36.47%
1996 22.18%
1997 32.40%
1998 27.70%
1999 20.23%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
21.11% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 10.01% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
Stock Index Fund for one year, five years and since inception, including maximum
sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999)(1) One Year 5 Years (12/3/93)
Class A 13.30% 26.16% 21.35%
S&P 500 Index(2) 21.04% 28.55% 23.30%
(1) The Stock Index Fund did not offer Class G Shares prior to June 30, 1999.
(2) The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Stock Index 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) 0.21% 1.13%
Total Fund Operating Expenses 0.81% 1.73%
Fee Waiver/Expense Reimbursement (0.00)% (0.91)%
Net Expenses 0.81%(3) 0.82%(4)
(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) The Adviser may waive its management fee and reimburse expenses , as allowed
by law, so that the net operating expenses of Class A Shares of the Stock Index
Fund will equal 0.57%. The Adviser may terminate this waiver/reimbursement at
any time to the extent allowed by law.
(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 G Shares of the Stock Index Fund at a maximum of
0.82% until at least February 28, 2001. Other expenses of Class G Shares are
based on estimated amounts for the current fiscal year.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Stock Index Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Stock Index 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 Stock Index 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 5 Years 10 Years
Class A $653 $819 $999 $1,519
Class G $ 84 $456 $853 $1,965
1 This Example assumes that Net Annual Fund Operating Expenses for Class G
Shares will equal 0.82% until February 28, 2001 and will equal 1.73% thereafter.
9
<PAGE>
Risk/Return Summary
GROWTH FUND
CLASS A SHARES
Cusip#: 926464793
SGRSX
CLASS G SHARES
Cusip#: 926464256
Investment Objective
The Growth Fund seeks to provide long-term growth of capital .
Principal Investment Strategies
The Growth Fund pursues its investment objective by investing primarily in
equity securities of companies with superior prospects for long-term earnings
growth and price appreciation. The issuers usually are listed on a nationally
recognized exchange.
In making investment decisions, the Adviser will look for above average growth
rates, high return on equity, issuers that reinvest their earnings in their
business, and strong balance sheets.
Under normal market conditions, the Growth Fund will invest at least 80% of its
total assets in common stocks and securities convertible into common stocks.
There is no guarantee that the Growth Fund will achieve its objectives.
Principal Risks
You may lose money by investing in the Growth Fund. The Growth Fund is subject
to the following principal risks, more fully described in "Risk Factors." The
Growth 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 Growth Fund declines.
- Growth stocks fall out of favor because the companies' earnings growth does
not meet expectations.
* The portfolio manager does not execute the Growth Fund's principal investment
strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Growth 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.
By itself, the Growth Fund does not constitute a complete investment plan and
should be considered a long-term investment for investors who can afford to
weather changes in the value of their investment and do not require significant
current income from their investments.
10
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Growth Fund by showing changes in its performance for various
time periods ending December 31st. The figures shown in the bar chart and table
assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Growth Fund. Sales loads
are not reflected on the bar chart (or highest and lowest returns below) and if
they were reflected, returns would be lower than those shown.
1994 -0.50%
1995 31.47%
1996 24.95%
1997 31.35%
1998 37.18%
1999 17.90%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
22.84% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 6.70% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
Growth Fund for one year, five years and since inception, including maximum
sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999)(1) One Year 5 Years (12/3/93)
Class A 11.13% 26.88% 21.62%
S&P 500 Index(2) 21.04% 28.55% 23.30%
(1) The Growth Fund did not offer Class G Shares prior to December 15, 1999.
(2) The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Growth 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(3) 0.75% 0.75%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.49% 0.27%
Total Fund Operating Expenses 1.24% 1.52%(4)
Fee Waiver/Expense Reimbursement (0.04)% (0.07)%
Net Expenses(5) 1.20% 1.45%
(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) Management fees have been restated to reflect reduction from 1.00% to 0.75%.
(4) Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year.
(5) The Adviser has contractually agreed to waive its management fee 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 Growth Fund at a
maximum of 1.20% and 1.45%, respectively, until at least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Growth Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Growth Fund for the time
periods shown and then sell all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Growth 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 5 Years 10 Years
Class A $690 $942 $1,213 $1,985
Class G $148 $473 $ 822 $1,807
(1) This Example assumes that Net Annual Fund Operating Expenses for Class A
Shares will equal 1.20% until February 28, 2001 and will equal 1.24% thereafter
and that Net Annual Fund Operating Expenses for Class G Shares will equal 1.45%
until February 28, 2001 and will equal 1.52% thereafter.
11
<PAGE>
Risk/Return Summary
SPECIAL VALUE FUND
CLASS A SHARES
Cusip#: 926464843
SSVSX
CLASS G SHARES
Cusip#: 926464264
Investment Objective
The Special Value Fund seeks to provide long-term growth of capital and dividend
income.
Principal Investment Strategies
The Special Value Fund pursues its investment objective by investing primarily
in equity securities of small- and medium-sized companies listed on a national
exchange. Small-sized companies are defined as those having market
capitalization of less than $1 billion at the time of purchase, and medium-size
companies are defined as those having a market capitalization of between $1
billion and $5 billion at the time of purchase.
The Adviser looks for companies with above average total return potential whose
equity securities are under-valued. KAM looks for equity securities that have
relatively low price-to-book ratios, low price-to-earnings ratios or
lower-than-average price-to-cash-flow ratios. KAM may consider factors such as a
company's earnings growth, dividend payout ratio, return on equity, stock price
volatility relative to the market, new management and upcoming corporate
restructuring, the general business cycle, the company's position within a
specific industry and the company's responsiveness to changing conditions.
Under normal market conditions the Special Value Fund will invest at least 80%
of its total assets in common stocks and securities convertible into common
stock of small- and medium-sized companies.
There is no guarantee that the Special Value Fund will achieve its objectives.
Principal Risks
You may lose money by investing in the Special Value Fund. The Special Value
Fund is subject to the following principal risks, more fully described in "Risk
Factors." The Special Value 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 Special Value Fund declines.
- Smaller, less seasoned companies lose market share or profits to a greater
extent than larger, established companies as a result of deteriorating
economic conditions.
- Value stocks fall out of favor relative to growth stocks.
* The portfolio manager does not execute the Special Value Fund's principal
investment strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Special Value 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.
By itself, the Special Value Fund does not constitute a complete investment plan
and should be considered a long-term investment for investors who can afford to
weather changes in the value of their investment.
12
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Special Value Fund by showing changes in its performance for
various time periods ending December 31st. The figures shown in the bar chart
and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Special Value Fund. Sales
loads are not reflected on the bar chart (or highest and lowest returns below)
and if they were reflected, returns would be lower than those shown.
1994 1.27%
1995 26.80%
1996 19.22%
1997 27.79%
1998 -9.08%
1999 -1.26%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
14.13% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 20.87% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
Special Value Fund for one year, five years and since inception, including
maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999)(1) One Year 5 Years (12/3/93)
Class A -6.96% 10.34% 9.17%
S&P 400 Mid-Cap Index(2) 14.72% 23.05% 17.90%
(1) The Special Value Fund did not offer Class G Shares prior to December 15 ,
1999.
(2) The Standard & Poor's 400 Mid-Cap Index is a broad-based unmanaged index
that represents the general performance of domestically traded common stocks of
mid-size companies. Index returns do not include any brokerage commissions,
sales charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Special Value 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(3) 0.80% 0.80%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.53% 0.33%
Total Fund Operating Expenses 1.33% 1.63%(4)
Fee Waiver/Expense Reimbursement (0.00)% (0.03)%
Net Expenses 1.33%(5) 1.60%(6)
(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) Management fees have been restated to reflect the reduction from 1.00% to
0.80%.
(4) Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year.
(5) The Adviser may waive its management fee and reimburse expenses, as allowed
by law, so that the net operating expenses of Class A Shares will equal 1.30%.
The Adviser may terminate this waiver/reimbursement at any time to the extent
allowed by law.
(6) The Adviser has agreed to waive its management fee or to reimburse expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses of Class G Shares of the Special Value Fund at a maximum of 1.60% until
at least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Special Value Fund with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Special Value Fund for
the time periods shown and then sell all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Special Value 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 5 Years 10 Years
Class A $703 $972 $1,262 $2,084
Class G $163 $511 $ 884 $1,930
(1) This Example assumes that net operating expenses for Class G Shares of the
Value Fund will equal 1.60% until February 28, 2001 and will equal 1.63%
thereafter.
13
<PAGE>
Risk/Return Summary
SMALL COMPANY OPPORTUNITY FUND
CLASS A SHARES
Cusip#: 926464835
SSGSX
CLASS G SHARES
Cusip#: 926464389
GOGFX
Investment Objective
The Small Company Opportunity Fund seeks to provide capital appreciation.
Principal Investment Strategies
The Small Company Opportunity Fund invests primarily in common stocks of smaller
companies that show the potential for high earnings growth in relation to their
price-earnings ratio. The Adviser considers small companies to be companies with
capitalizations of $2 billion or less. The Small Company Opportunity Fund may
continue to hold an investment made in a small company after its market
capitalization exceeds this level. The Adviser uses a computer model to select
securities that appear favorably priced.
Under normal market conditions, the Small Company Opportunity Fund:
* Will invest at least 80% of its total assets in equity securities of small
companies. These equity investments include:
- Common stock
- Convertible preferred stock
- Debt convertible or exchangeable into equity securities
There is no guarantee that the Small Company Opportunity Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Small Company Opportunity Fund. The Small
Company Opportunity Fund is subject to the following principal risks, more fully
described in "Risk Factors." The Small Company Opportunity 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 Small Company Opportunity Fund
declines.
- Value stocks fall out of favor relative to growth stocks.
- Smaller, less seasoned companies lose market share or profits to a greater
extent than larger, established companies as a result of deteriorating
economic conditions.
* The portfolio manager does not execute the Small Company Opportunity Fund's
principal investment strategies effectively.
* A company's earnings do not increase as expected.
An investment in the Small Company Opportunity 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.
By itself, the Small Company Opportunity Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
14
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Small Company Opportunity Fund by showing changes in its
performance for various time periods ending December 31st. The figures shown in
the bar chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class G Shares of the Small Company Opportunity
Fund.
1990 -13.05%
1991 35.92%
1992 14.31%
1993 11.07%
1994 -2.18%
1995 26.76%
1996 19.47%
1997 31.18%
1998 -6.93%
1999 -1.08%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
20.24% (quarter ending March 31, 1991) and the lowest return for a quarter was
- -19.96% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A and Class G
Shares of the Small Company Opportunity Fund for one year, five years and ten
years compare to those of a broad-based market index.
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1999) One Year 5 Years 10 Years
Class G(1) -1.08% 12.83% 10.38%
Russell 2000 Index(2) 21.26% 16.69% 13.40%
(1) The Small Company Opportunity Fund did not offer Class A Shares prior to
March 26, 1999. Performance prior to March 26, 1999 reflects performance of the
Gradison Opportunity Value Fund.
(2) The Russell 2000 Index is a broad-based unmanaged index that represents the
general performance of domestically traded common stocks of small companies.
Index returns do not include any brokerage commissions, sales charges, or other
fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Small Company Opportunity 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 0.62% 0.62%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.55% 0.35%
Total Fund Operating Expenses 1.17% 1.47%
Fee Waiver/Expense Reimbursement (0.00)% (0.17)%
Net Expenses 1.17%(3) 1.30%(4)
(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) The Adviser may waive its management fee and reimburse expenses, as allowed
by law, so that the net operating expenses of Class A Shares of the Small
Company Opportunity Fund will equal 1.15%. The Adviser may terminate this
waiver/reimbursement at any time to the extent allowed by law.
(4) KAM has contractually agreed to waive its management fee or to reimburse
expenses, as allowed by law, to the extent necessary to maintain the net
operating expenses of Class G Shares of the Small Company Opportunity Fund at a
maximum of 1.30% until at least April 1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Small Company Opportunity Fund with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in the Small
Company Opportunity 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 Small Company Opportunity
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 5 Years 10 Years
Class A $687 $925 $1,182 $1,914
Class G $132 $426 $ 756 $1,690
(1) This Example assumes that net annual operating expenses for Class G Shares
will equal 1.30% until April 1, 2001 and will equal 1.47% thereafter.
15
<PAGE>
Risk/Return Summary
INTERNATIONAL GROWTH FUND
CLASS A SHARES
Cusip#: 926464702
SIDSX
CLASS G SHARES
Cusip#: 926464439
INTFX
Investment Objective
The International Growth Fund seeks to provide capital growth consistent with
reasonable investment risk.
Principal Investment Strategies
The International Growth Fund pursues its objective by investing primarily in
equity securities of foreign corporations, most of which are denominated in
foreign currencies.
The International Growth Fund will invest most of its assets in securities of
companies traded on exchanges outside of the U.S., including developed and
emerging countries. In making investment decisions, KAM and Indocam
International Investment Services, S.A., the International Growth Fund's
sub-adviser, may analyze the economies of foreign countries and the growth
potential for individual sectors and securities.
Under normal market conditions, the International Growth Fund:
* Will invest at least 65% of its total assets in:
- Securities (including "sponsored" and "unsponsored" ADRs) of companies that
derive more than 50% of their gross revenues from, or have more than 50% of
their assets, outside the United States; and
- Securities for which the principal trading markets are located in at least
three different countries (excluding the United States); and
* The International Growth Fund may invest up to 20% of its total assets in
securities of companies located in emerging countries.
There is no guarantee that the International Growth Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the International Growth Fund. The
International Growth Fund is subject to the following principal risks, more
fully described in "Risk Factors." The International Growth Fund's net asset
value, yield and/or total return may be adversely affected if any of the
following occurs:
* Foreign securities experience more volatility than their domestic
counterparts, in part because of higher political and economic risks, lack of
reliable information, fluctuations in currency exchange rates, and the risks
that a foreign government may take over assets, restrict the ability to exchange
currency or restrict the delivery of securities.
* The prices of foreign securities issued in emerging countries experience more
volatility because the securities markets in these countries may not be well
established.
* The market value of securities acquired by the International Growth Fund
declines.
* The portfolio manager does not execute the International Growth Fund's
principal investment strategies effectively.
An investment in the International Growth 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.
The International Growth Fund may be appropriate for investors who are
comfortable with assuming the added risks associated with stocks that do not pay
out significant portions of their earnings as dividends. It also may be
appropriate for investors who are comfortable with assuming the added risks
associated with investments in foreign countries and investments denominated in
foreign currencies. By itself, the International Growth Fund does not constitute
a complete investment plan and should be considered a long-term investment for
investors who can afford to weather changes in the value of their investment and
do not require significant current income from their investments.
16
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the International Growth Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the International Growth Fund.
Sales loads are not reflected on the bar chart (or highest and lowest returns
below) and if they were reflected, returns would be lower than those shown.
1991 9.75%
1992 -6.41%
1993 35.91%
1994 2.72%
1995 7.71%
1996 6.29%
1997 2.33%
1998 17.48%
1999 41.92%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
29.84% (quarter ending December 31, 1999) and the lowest return for a quarter
was -15.23% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
International Growth Fund for one year, five years and since inception,
including maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999)(1) One Year 5 Years (5/18/90)
Class A 33.72% 12.98% 9.84%
MSACWI Free ex US Index(2) 30.90% 12.31% 8.98%
(1) The International Growth Fund did not offer Class G Shares prior to March
29, 1999.
(2) The Morgan Stanley All Country World Index Free ex US is a widely recognized
unmanaged index of common stock prices with country weightings of international
companies. Index returns do not include any brokerage commissions, sales
charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the International Growth 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 1.10% 1.10%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a
shareholder servicing fee of 0.25%
applicable to Class A Shares) 0.78% 0.64%
Total Fund Operating Expenses 1.88% 2.24%
Fee Waiver/Expense Reimbursement (0.00)% (0.24)%
Net Expenses 1.88%(3) 2.00%(4)
(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) The Adviser may waive fees and reimburse expenses, as allowed by law, so
that the net operating expenses of the International Growth Fund will equal
1.75% for Class A Shares. The Adviser may terminate this waiver/reimbursement at
any time to the extent allowed by law.
(4) The Adviser has contractually agreed to waive its management fee or to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class G Shares of the International Growth Fund at a
maximum of 2.00% until at least April 1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the International Growth Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the International
Growth Fund for the time periods shown and then sell all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the International Growth 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 5 Years 10 Years
Class A $755 $1,132 $1,533 $2,649
Class G $203 $ 677 $1,178 $2,556
(1) This Example assumes that Net Annual Fund Operating Expenses for Class G
Shares will equal 2.00% until April 1, 2001 and will equal 2.24% thereafter.
17
<PAGE>
Investments
The following describes some of the types of securities the Funds may purchase
under normal market conditions to achieve their investment objectives. All Funds
will not buy all of the securities listed below.
For cash management or for temporary defensive purposes in response to market
conditions, each 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 a Fund to fail to meet its investment
objective.
For a more complete description of which Funds can invest in certain types of
securities, see the Statement of Additional Information (SAI).
U.S. Equity Securities.
Can include common stock and securities that are convertible or exchangeable
into common stock of U.S.
corporations.
Equity Securities of Companies Traded on Foreign Exchanges.
Can include common stock and securities convertible into stock of non-U.S.
corporations.
Equity Securities of Foreign Companies Traded on U.S. Exchanges.
Can include common stock, and convertible preferred stock of non-U.S.
corporations. Also may include American
Depository Receipts (ADRs) and Global Depository Receipts (GDRs).
*Futures Contracts and Options on Futures Contracts.
Contracts involving the right or obligation to deliver or receive assets or
money depending on the performance of one or more assets or an economic index.
To reduce the effects of leverage, liquid assets equal to the contract
commitment are set aside to cover the commitment. A Fund may invest in futures
in an effort to hedge against market risk, or as a temporary substitute for
buying or selling securities, foreign currencies or for temporary cash
management purposes. The Stock Index Fund invests in futures as a substitution
for S&P 500 stock.
* Derivative Instruments: Indicates a "derivative instrument" whose value
is linked to or derived from another security, instrument, or index.
18
<PAGE>
Risk Factors
This Prospectus describes the principal risks that you may assume as an
investor in the Funds.
This table summarizes the principal risks, described in the following pages, to
which the Funds are subject.
<TABLE>
<CAPTION>
Small
Established Diversified Stock Special Company International
Value Value Stock Index Growth Value Opportunity Growth
Fund Fund Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market risk and X X X X X X X X
manager risk
Equity risk X X X X X X X X
Currency risk
and/or foreign
issuer risk X X
Correlation risk X
</TABLE>
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 a 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 a Fund's portfolio manager may implement its
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.
By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.
19
<PAGE>
Risk Factors (continued)
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.
An investment in a Fund is not a complete investment program.
Risks associated with investing in foreign securities:
* Currency risk is the risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. Political and
economic risks, along with other factors, could adversely affect the value of
the International Growth Fund's securities.
* Foreign issuer risk. Compared to U.S. companies, there generally is less
publicly available information about foreign companies and there may be less
governmental regulation and supervision of foreign stock exchanges, brokers, and
listed companies. Foreign issuers may not be subject to the uniform accounting,
auditing, and financial reporting standards and practices prevalent in the U.S.
In addition, foreign securities markets may be more volatile and subject to less
governmental supervision than their counterparts in the U.S. Investments in
foreign countries could be affected by factors not present in the U.S.,
including expropriation, confiscation of property, and difficulties in enforcing
contracts. All of these factors can make foreign investments, especially those
in developing countries, more volatile than U.S. investments.
Risk associated with futures and options contracts:
* Correlation risk. Futures and options contracts can be used in an effort to
hedge against certain risks. Generally, an effective hedge generates an offset
to gains or losses of other investments made by a Fund. Correlation risk is the
risk that a hedge created using futures or options contracts (or any derivative,
for that matter) does not, in fact, respond to economic or market conditions in
the manner the portfolio manager expected. In such a case, the futures or
options contract hedge may not generate gains sufficient to offset losses and
may actually generate losses.
20
<PAGE>
Share Price
Each 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.
A Fund's NAV may change on days when shareholders will not be able to purchase
or redeem the Fund's shares if the Fund has portfolio securities that are
primarily listed on foreign exchanges that trade on weekends or other days when
a Fund does not price its shares.
The Funds value their investments based on market value. When market quotations
are not readily available, the Funds value their investments based on fair value
methods approved by the Board of Trustees of the Victory Portfolios. Each Class
of each Fund calculates its NAV by adding up the total value of its investments
and other assets, subtracting its liabilities, and then dividing that figure by
the number of outstanding shares of the Class.
Total Assets- Liabilities
NAV = ----------------------------
Number of Shares Outstanding
You can find a Fund's net asset value each day in The Wall Street Journal and
other newspapers. Newspapers do not normally publish fund information until a
Fund reaches a specific number of shareholders or level of assets.
The daily NAV is useful to you as a shareholder because the NAV, multiplied by
the number of Fund shares you own gives you the value of your investment.
Dividends, Distributions, and Taxes
As a shareholder, you are entitled to your share of net income and capital gains
on a Fund's investments. The Funds pass their earnings along to investors in the
form of dividends. Dividend distributions are the net income earned on
investments after expenses. A Fund will distribute short-term gains, as
necessary, and if a 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 a Fund.
Ordinarily, each Fund described in this Prospectus 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 a
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 a Fund and
have your capital gains paid in cash, or reinvest capital gains and have your
dividends paid in cash.
Buying a Dividend. You should check a Fund's distribution schedule before you
invest. If you buy shares of a Fund shortly before it makes a distribution, some
of your investment may come back to you as a taxable distribution.
21
<PAGE>
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
class of another fund, you may pay a sales charge on the reinvested
distributions.
DIRECTED BANK ACCOUNT OPTION
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Transfer Agent will
transfer your distributions within seven days of the dividend payment date. The
bank account must have a registration identical to that of your Fund account.
Important Information about Taxes
Each Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Ordinary dividends from a Fund are taxable as ordinary income; dividends from
a 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.
* Dividends from a Fund that are attributable to interest on certain U.S.
government obligations may be exempt from certain state and local income taxes.
The extent to which ordinary dividends are attributable to these U.S. government
obligations will be provided on the tax statements you receive from a Fund.
* An exchange of a Fund's shares for shares of another fund will be treated as a
sale. When you sell or exchange shares of a 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 each Fund every January showing the amounts
and tax status of distributions made to you.
* Under certain circumstances, the International Growth Fund may be in a
position to (in which case it would) "pass through" to you the right to a credit
or deduction for income or other tax credits earned from foreign investments.
* Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your tax.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
The tax information in this Prospectus is provided as general information. You
should consult your own tax adviser about the tax consequences of an investment
in a Fund.
22
<PAGE>
INVESTING WITH VICTORY
If you are looking for a convenient way to open an account or to add money to an
existing account, Victory can help. The sections that follow will serve as a
guide to your investments with Victory. "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 a Fund. The following sections will describe how to open an account,
how to access information on your account, and how to buy, exchange and sell
shares of a 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.
All you need to do to get started is to fill out an application.
Choosing a Share Class
Each 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 on the next page. There are several ways
to reduce this charge.
* Lower annual expenses, generally, 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.
An Investment Professional is an investment consultant, salesperson, financial
planner, investment adviser, or trust officer who provides you with investment
information.
Calculation of Sales Charges -- Class A
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed below:
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.
For historical expense information on Class A and G Shares, see the "Financial
Highlights" at the end of this Prospectus.
23
<PAGE>
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 a Fund over a 13-month
period and receive the same sales charge as if all shares had been purchased at
one time. You must start with a minimum initial investment of 5% of the total
amount.
2. Rights of Accumulation allow you to add the value of any Class A Shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge at the time of purchase.
3. You can combine Class A Shares of multiple Victory Funds, (excluding 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. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees, employees, and family
members of employees of KeyCorp or "Affiliated Providers,"* and dealers who have
an agreement with the Distributor and any trade organization to which the
Adviser or the Administrator belong.
b. Investors who purchase shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
c. Investors in Class A Shares who reinvest the proceeds from a liquidation
distribution of Class A Shares held in deferred compensation plan, agency,
trust, or custody account that was maintained by KeyBank National Association
and its affiliates, the Victory Group, or invested in a fund of the Victory
Group.
d. Investment Professionals who purchased Fund shares for fee-based investment
products or accounts, and selling brokers and their sales representatives.
e. Purchase of shares in connection with financial institution sponsored bundled
omnibus retirement programs sponsored by financial institutions that have
entered into agreements with the Funds' Distributor in connection with the
operational requirements of such programs.
f. Participants in tax-deferred retirement plans who purchased shares pursuant
to waiver provisions in effect prior to December 15, 1999.
* Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
24
<PAGE>
Choosing a Share Class (continued)
Shareholder Servicing Plan
Each Fund, other than the Stock Index Fund, has adopted a Shareholder Servicing
Plan for its Class A Shares. The Shareholder Servicing Plan also applies to
Class G Shares of the Stock Index Fund. The shareholder servicing agent performs
a number of services for its customers who are shareholders of the Funds. It
establishes and maintains accounts and records, processes dividend payments,
arranges for bank wires, assists in transactions, and changes account
information. For these services a Fund pays a fee at an annual rate of up to
0.25% of the average daily net assets of the appropriate class of shares
serviced by the agent. The Funds may enter into agreements with various
shareholder servicing agents, including KeyBank National Association and its
affiliates, other financial institutions, and securities brokers. The Funds may
pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically. Distribution Plan
Victory has adopted a Distribution and Service Plan for Class G Shares of each
Fund, other than the Stock Index Fund, under which these shares will pay to the
Distributor a monthly service fee at an annual rate of 0.25% of the average
daily net assets of each such Fund. The service fee is paid to securities
broker-dealers or other financial intermediaries for providing personal services
to shareholders of these Funds, including responding to inquiries, providing
information to shareholders about their fund accounts, establishing and
maintaining accounts and records, processing dividend and distribution payments,
arranging for bank wires, assisting in transactions, and changing account
information. Each such Fund may enter into agreements with various shareholder
servicing agents, including KeyCorp and its affiliates, and with other financial
institutions that provide such services.
Under the Class G Rule 12b-1 Distribution and Service Plan, Class G Shares of
the each Fund, other than the Stock Index Fund, also annually pay the
Distributor a monthly distribution fee in an additional amount of up to 0.25% of
each such Fund's average daily net assets. The distribution fee is paid to the
Distributor for general distribution services and for selling Class G Shares of
these Funds. The Distributor makes payments to agents who provide these
services.
Victory has adopted separate Rule 12b-1 Distribution and Service Plans for Class
A Shares of the Established Value Fund and Small Company Opportunity Fund and
Class G Shares of the Stock Index Fund. These share classes do not pay any
expenses under this plan.
Because Rule 12b-1 fees are paid out of a Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
25
<PAGE>
How to Buy Shares
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum investment required to open
an account is $500 ($100 for IRAs), with additional investments of at least $25.
There is no minimum investment required to open an account 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 a Fund.
If you buy shares directly from the Funds 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)
26
<PAGE>
How to Buy Shares (continued)
ACH
After your account is set up, your purchase amount can be transferred by
Automated Clearing House (ACH). Only domestic member banks may be used. It takes
about 15 days to set up an ACH account. Currently, the Funds do not charge a fee
for ACH transfers.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, 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 Funds. 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 a Fund.
Retirement Plans
You can use the Funds as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-deferred
retirement plans. Please contact your Investment Professional or the Funds for
details regarding an IRA or other retirement plan that works best for your
financial situation.
If you would like to make additional investments after your account is
established, use the Investment Stub attached to your confirmation statement and
send it with your check to the address indicated.
All purchases must be made in U.S. dollars and drawn on U.S. banks. The Transfer
Agent may reject any purchase order in its sole discretion. If your check is
returned for any reason, you will be charged for any resulting fees and/or
losses. Third party checks 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.
27
<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 a Fund by writing the Transfer Agent or calling
800-539-FUND. When you exchange shares of a 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 a 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 a 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.
* Each Fund may refuse any exchange purchase request if the Adviser determines
that the request is associated with a market timing strategy. Each 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.
* Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can exchange into
Class A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
28
<PAGE>
How to Sell Shares
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.
There are a number of convenient ways to sell your shares. You can use the same
mailing addresses listed for purchases.
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 on 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.
29
<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.
* A Fund may suspend your right to redeem your shares in the following
circumstances:
- During non-routine closings of the NYSE;
- When the Securities and Exchange Commission (SEC) determines either that
trading on the NYSE is restricted or that an emergency prevents the sale or
valuation of the Fund's securities; or
- When the SEC orders a suspension to protect the Fund's shareholders.
* Each 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 a Fund's net assets. Each Fund
reserves the right to pay the remaining portion "in kind," that is, in portfolio
securities rather than cash.
30
<PAGE>
Organization and Management of the Funds
About Victory
Each 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 Funds.
The Investment Adviser and Sub-Administrator
Each 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 each of the Funds. KAM, a
subsidiary of KeyCorp, oversees the operations of the Funds according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $76 billion for individual and institutional
clients. KAM's address is 127 Public Square, Cleveland, Ohio 44114.
For the fiscal year ended October 31, 1998, KAM was paid advisory fees based on
a percentage of the average daily net assets of each Fund (after waivers) as
shown in the following table.
Value Fund 0.96%
Established Value 0.49%
Diversified Stock Fund 0.61%
Stock Index Fund 0.51%
Growth Fund 0.93%
Special Value Fund 0.90%
Small Company Opportunity Fund 0.57%
International Growth Fund 0.98%
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc. pays KAM
a fee at the annual rate of up to 0.05% of each Fund's average daily net
assets to perform some of the administrative duties for the Funds.
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Funds to
provide services to their shareholders. Each of these organizations is paid a
fee for its services.
Portfolio Management
Neil A. Kilbane is the portfolio manager of the Value Fund. Mr. Kilbane, a
Certified Financial Analyst, has been the portfolio manager of the Value Fund
since April 1998. He is a Portfolio Manager and Managing Director of KAM and has
been in the investment business since 1986.
William J. Leugers, Jr., Daniel R. Shick and Gary H. Miller have been the co-
portfolio managers of the Established Value Fund and its predecessor, the
Gradison Established Value Fund since 1984, 1993 and 1998, respectively, and
together are primarily responsible for the day-to-day management of the
Established Value Fund's portfolio. Messrs. Leugers and Shick are Portfolio
Managers and Managing Directors of Gradison McDonald. Mr. Miller has been a
Vice President and Portfolio Manager of Gradison McDonald since 1998; prior
to which he was a Portfolio Trader with Gradison McDonald since 1993. Messrs.
Leugers, Shick and Miller are also co-portfolio managers of the Small
Company Opportunity Fund and together are primarily responsible for that
Fund's portfolio.
Lawrence G. Babin is the portfolio manager of the Diversified Stock Fund, a
position he has held since its inception in 1989. A Chartered Financial Analyst,
Mr. Babin is a Portfolio Manager and Managing Director of KAM.
Ernest C. Pelaia is the portfolio manager of the Stock Index Fund, a position he
has held since July 1999. 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.
William F. Ruple is the portfolio manager of the Growth Fund, a position he has
held since June 1995. He is a Portfolio Manager and Director of KAM, and has
been associated with KAM or an affiliate since 1970.
31
<PAGE>
Organization and Management of the Funds (cont.)
Anthony Aveni and Paul D. Danes are the portfolio managers of the Special Value
Fund and together are primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Aveni has been a portfolio manager of the Special Value
Fund since its inception in December 1993. He is the Chief Investment Officer
and a Senior Managing Director with KAM, and has been associated with KAM or an
affiliate since 1981. Mr. Danes has been a portfolio manager of the Special
Value Fund since October 1995. He is a Portfolio Manager and Director with KAM,
and has been associated with KAM or an affiliate since 1987.
Conrad R. Metz and Leslie Globits are primarily responsible for the management
of the International Growth Fund. Mr. Metz is a Managing Director of KAM, and
formerly served as the sole portfolio manager of the International Growth Fund.
He previously was Senior Vice President, International Equities, at Bailard
Biehl & Kaiser, and has over 20 years experience in global equity research and
portfolio management. Mr. Globits, a Director of KAM, was previously a Senior
Financial Analyst and Assistant Vice President in KeyCorp's Corporate Treasury
Department, and has been with KAM or an affiliate since 1987.
The Investment Sub-Adviser to the International Growth Fund
Manager of Managers. KAM, the investment adviser, serves as a Manager of
Managers of the International Growth Fund. As Manager of Managers, KAM may
select one or more sub-advisers to manage the International Growth Fund's
assets. KAM evaluates each sub-adviser's skills, investment styles and
strategies in light of KAM's analysis of the international securities markets.
Under its Advisory Agreement with Victory, KAM oversees the investment advisory
services that a sub-adviser provides to the International Growth Fund. If KAM
engages more than one sub-adviser, KAM may reallocate assets among sub-advisers
when it believes it is appropriate. KAM provides investment advice regarding
short-term debt securities. KAM has the ultimate responsibility for the
International Growth Fund's investment performance because it is responsible for
overseeing all sub-advisers and recommending to the Fund's Board of Trustees
that it hire, terminate or replace a particular sub-adviser.
Victory and KAM have obtained an order from the Securities and Exchange
Commission that allows KAM, subject to certain conditions, to select additional
sub-advisers with the approval of the Funds' Board of Trustees, without
obtaining shareholder approval. The order also allows KAM to change the terms of
agreements with the sub-advisers or to keep a sub-adviser even if certain events
would otherwise require that sub-advisory agreement to terminate. The Funds will
notify shareholders of any sub-adviser change. Shareholders, however, also have
the right to terminate an agreement with a particular sub-adviser. If KAM hires
more than one sub-adviser, the order also allows the International Growth Fund
to disclose only the aggregate amount of fees paid to all sub-advisers.
Indocam International Investment Services, S.A. KAM currently has a Portfolio
Management Agreement with Indocam International Investment Services, S.A.
(IIIS), a French corporation located in Paris, France. IIIS has served as
Sub-adviser for all of the International Growth Fund's assets (other than
short-term debt instruments) since June 1998. IIIS and its advisory affiliates
(Indocam) are the global asset management component of the Credit Agricole
banking and financial services group. As of June 30, 1999, Indocam managed
approximately $145 billion for its clients.
Ayaz Ebrahim, Didier Le Conte, Jean-Claude Kaltenbach and Miren Etcheverry
together are primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Ebrahim has been employed by IIIS (or an affiliate) since 1991.
Mr. Le Conte is the Senior Portfolio Manager responsible for European Equities
at IIIS and has been employed by IIIS (or an affiliate) since 1966. Mr.
Kaltenbach is the Head of Equity Management at IIIS and has been employed by
IIIS (or an affiliate) since 1994. Ms. Etcheverry has been a Senior Portfolio
Manager with IIIS since January 2000. From 1996 until January 2000, Ms.
Etcheverry was a Senior Vice President at John Hancock Funds and prior to that
was a Senior Vice President with Baring Asset Management.
Indocam International Investment Services, S.A. is the Sub-adviser for the
International Growth Fund.
32
<PAGE>
Organization and Management of the Funds (cont.)
The Funds are supervised by the Board of Trustees, which monitors the services
provided to investors.
OPERATIONAL STRUCTURE OF THE FUNDS
TRUSTEES ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
THEIR INVESTMENT PROFESSIONALS
Advise current and prospective shareholders on their Fund
investments.
TRANSFER AGENT/SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping, statements,
processing of buy and sell requests, distribution of
dividends, and servicing of shareholder accounts.
ADMINISTRATOR, DISTRIBUTOR,
AND FUND ACCOUNTANT CUSTODIAN
BISYS Fund Services Key Trust Company of Ohio, N.A.
and its affiliates 127 Public Square
3435 Stelzer Road Cleveland, OH 44114
Columbus, OH 43219
Markets the Funds, distributes shares Provides for safekeeping of the
through Investment Professionals, and Funds' investments and cash, and
calculates the value of shares. settles trades made by the Funds.
As Administrator, handles the day-to-
day activities of the Funds.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain sub-administrative services.
33
<PAGE>
Additional Information
Some additional information you should know about the Funds.
Share Classes
The Funds currently offer only the classes of shares described in this
Prospectus. At some future date, the Funds may offer additional classes of
shares.
Performance
The Victory Funds may advertise the performance of each 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 each
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. You also should see the
"Investment Performance" section for the Fund in which you would like to invest.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Funds 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 Funds send these
documents to each shareholder individually by calling the Funds at 800-539-FUND
(800-539-3863).
If you would like to receive additional copies of any materials, please call the
Funds at 800-539-FUND.
34
<PAGE>
Financial Highlights
VALUE FUND
The Financial Highlights table is intended to help you understand the Value
Fund's financial performance for the past five years. Certain information shows
the results of an investment in one share of the Value Fund. The total returns
in the table represent the rate that an investor would have earned on an
investment in the Value Fund (assuming reinvestment of all dividends and
distributions).
These financial highlights reflect historical information about Class A Shares
of the Value Fund. The financial highlights for the five fiscal years ended
October 31, 1999 were audited by PricewaterhouseCoopers LLP, whose report, along
with the financial statements of the Value Fund, are included in the Fund's
annual report, which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996 1995< F2>
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 18.81 $ 17.07 $ 14.18 $ 11.87 $ 10.13
Investment Activities
Net investment income 0.04 0.09 0.15 0.20 0.27
Net realized and unrealized
gains (losses) from investments 3.16 3.16 3.57 2.65 1.92
Total from Investment Activities 3.20 3.25 3.72 2.85 2.19
Distributions
Net investment income (0.04) (0.10) (0.16) (0.20) (0.27)
In excess of net investment income -- -- -- -- (0.01)
Net realized gains (3.13) (1.41) (0.67) (0.34) (0.17)
Total Distributions (3.17) (1.51) (0.83) (0.54) (0.45)
Net Asset Value, End of Period $ 18.84 $ 18.81 $ 17.07 $ 14.18 $ 11.87
Total Return (excludes sales charges) 20.02% 20.46% 27.24% 24.66% 22.28%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $611,483 $517,313 $472,047 $382,083 $295,871
Ratio of expenses to
average net assets 1.40% 1.34% 1.32% 1.33% 0.99%
Ratio of net investment income
to average net assets 0.20% 0.54% 0.93% 1.56% 2.55%
Ratio of expenses to
average net assets(1) 1.45% 1.46% (3) 1.35% 1.30%
Ratio of net investment income
to average net assets(1) 0.15% 0.42% (3) 1.54% 2.24%
Portfolio turnover 36% 40% 25% 28% 23%
- ---------------
(1)
During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)
Effective June 5, 1995, the Victory Equity Income Portfolio merged into the
Value Fund. Financial highlights for the periods prior to June 5, 1995 represent
the Value Fund.
(3)
There were no voluntary fee reductions during the period.
</TABLE>
35
<PAGE>
Financial Highlights
ESTABLISHED VALUE FUND
The Financial Highlights table is intended to help you understand the
Established Value Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the Established
Value Fund. The total returns in the table represent the rate that an investor
would have earned on an investment in the Established Value Fund (assuming
reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class G Shares
of the Established Value Fund. The financial highlights for the period from
April 1, 1999 to October 31, 1999 were audited by PricewaterhouseCoopers LLP,
whose report, along with the financial statements of the Established Value Fund,
are included in the Fund's annual report, which is available by calling the Fund
at 800-539-FUND. The financial highlights for the four fiscal years and one
period ended March 31, 1999 were audited by Arthur Andersen LLP.
<TABLE>
<CAPTION>
Apr. 1, 1999 Year Year Year Year 11 Months
to Ended Ended Ended Ended Ended
Oct. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1999(2) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 31.34 $ 33.94 $ 28.83 $ 27.57 $ 23.38 $ 22.52
Investment Activities
Net investment income (loss) 0.02 0.29 0.46 0.44 0.44 0.37
Net realized and unrealized gains
(losses) from investments 2.98 (0.71) 7.70 3.62 5.19 1.52
Total from Investment Activities 3.00 (0.42) 8.16 4.06 5.63 1.89
Distributions
Net investment income (0.03) (0.30) (0.48) (0.45) (0.43) (0.37)
Net realized gains -- (1.88) (2.57) (2.35) (1.01) (0.66)
Total Distributions (0.03) (2.18) (3.05) (2.80) (1.44) (1.03)
Net Asset Value, End of Period $ 34.31 $ 31.34 $ 33.94 $ 28.83 $ 27.57 $ 23.38
Total Return 9.59%(3) (1.01)% 29.67% 15.14% 24.84% 8.85%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $469,288 $478,984 $567,255 $429,726 $366,417 $277,370
Ratio of expenses to
average net assets (5) 1.10%(4) 1.09% 1.10% 1.12% 1.15% 1.20%(4)
Ratio of net investment income
to average net assets (5) 0.03%(4) 0.92% 1.44% 1.57% 1.70% 1.87%(4)
Ratio of expenses to
average net assets(1) 1.27%(4) (6) (6) (6) (6) (6)
Ratio of net investment income
to average net assets(1) (0.14)%(4) (6) (6) (6) (6) (6)
Portfolio turnover 11% 37% 20% 31% 18% 24%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(2) Effective April 1, 1999, the Gradison Established Value Fund became the
Victory Established Value Fund. Financial highlights prior to April 1, 1999
represent the Gradison Established Value Fund.
(3)Not annualized.
(4)Annualized.
(5)On April 1, 1999, the Adviser agreed to waive its management fee or to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of the Class G shares of the Established Value Fund at a
maximum of 1.10% until at least April 1, 2001.
(6)There were no fee reductions during the period.
</TABLE>
36
<PAGE>
Financial Highlights
DIVERSIFIED STOCK FUND
The Financial Highlights table is intended to help you understand the
Diversified Stock Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the Diversified
Stock Fund. The total returns in the table represent the rate that an investor
would have earned on an investment in the Diversified Stock Fund (assuming
reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A and
Class G Shares of the Diversified Stock Fund. The financial highlights for the
five fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers
LLP, whose report, along with the financial statements of the Diversified Stock
Fund, are included in the Fund's annual report, which is available by calling
the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Prior to
designation
as Class A Class G
Class A Shares Shares Shares
Year Year Year Year Year Mar. 26, 1999
Ended Ended Ended Ended Ended through
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998(5) 1997 1996(2) 1995 1999(7)(8)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 18.85 $ 17.76 $ 15.75 $ 13.62 $ 12.68 $ 17.14
Investment Activities
Net investment income (loss) 0.06 0.11 0.16 0.20 0.27 (0.01)
Net realized and unrealized
gains (losses) from investments 2.92 3.07 3.84 3.21 2.33 0.82
Total from
Investment Activities 2.98 3.18 4.00 3.41 2.60 0.81
Distributions
Net investment income (0.06) (0.11) (0.16) (0.19) (0.27) --
In excess of net investment income -- -- -- -- (0.01) --
Net realized gains (3.81) (1.98) (1.83) (1.09) (1.38) --
Total Distributions (3.87) (2.09) (1.99) (1.28) (1.66) --
Net Asset Value, End of Period $ 17.96 $ 18.85 $ 17.76 $ 15.75 $ 13.62 $ 17.95
Total Return (excludes sales charges) 19.39% 19.60% 27.96% 27.16% 23.54% 4.73%(9)
Ratios/Supplemental Data
Net Assets, End of Period (000) $957,001 $933,158 $762,270 $571,153 $409,549 $106,592
Ratio of expenses to
average net assets (10) 1.06% 1.02% 1.03% 1.05% 0.92% 1.35%(3)
Ratio of net investment income
(loss) to average net assets (10) 0.34% 0.64% 0.97% 1.40% 2.11% (0.07)%(3)
Ratio of expenses to
average net assets(1) 1.10% 1.13% (4) 1.08% 0.95% 1.38%(3)
Ratio of net investment income
(loss) to average net assets(1) 0.30% 0.53% (4) 1.37% 2.07% (0.10)%(3)
Portfolio turnover (6) 83% 84% 63% 94% 75% 83%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares.
(3)Annualized.
(4)There were no voluntary fee reductions during the period.
(5)Effective March 16, 1998, the SBSF Fund merged into the Victory Diversified
Stock Fund. Financial highlights for the period prior to March 16, 1998
represent the Victory Diversified Stock Fund.
(6) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(7)Period from commencement of operations.
(8)Effective March 26, 1999, the Gradison Growth and Income Fund merged into
the Victory Diversified Stock Fund.
(9)Not Annualized.
(10)On March 26, 1999, the adviser agreed to waive its management fee or to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of the Class G Shares of the Fund at a maximum of 1.44%
until at least April 1, 2001. The Adviser has also agreed to waive its
management fee for Class A Shares to the same extent the fee is waived for Class
G Shares until at least April 1, 2001.
</TABLE>
37
<PAGE>
Financial Highlights
STOCK INDEX FUND
The Financial Highlights table is intended to help you understand the Stock
Index Fund's financial performance for the past five years. Certain information
shows the results of an investment in one share of the Stock Index Fund. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Stock Index Fund (assuming reinvestment of all dividends
and distributions).
These financial highlights reflect historical information about Class A and G
Shares of the Stock Index Fund. The financial highlights for the five fiscal
years ended October 31, 1999 were audited by PricewaterhouseCoopers LLP, whose
report, along with the financial statements of the Stock Index Fund, are
included in the Fund's annual report, which is available by calling the Fund at
800-539-FUND.
<TABLE>
<CAPTION>
Class A Shares Class G Shares
July 2,
Year Year Year Year Year 1999
Ended Ended Ended Ended Ended through
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998(5) 1997 1996 1995 1999(2)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 21.03 $ 18.75 $ 14.85 $ 12.50 $ 10.18 $23.96
Investment Activities
Net investment income 0.28 0.37 0.29 0.28 0.27 0.06
Net realized and unrealized gains
(losses) from investments 4.47 3.37 4.23 2.58 2.31 (0.50)
Total from Investment Activities 4.75 3.74 4.52 2.86 2.58 (0.44)
Distributions
Net investment income (0.29) (0.36) (0.29) (0.28) (0.26) (0.06)
Net realized gains (2.03) (1.10) (0.33) (0.23) -- --
Total Distributions (2.32) (1.46) (0.62) (0.51) (0.26) (0.06)
Net Asset Value, End of Period $ 23.46 $ 21.03 $ 18.75 $ 14.85 $ 12.50 $23.46
Total Return (excludes sales charges) 24.91% 20.99% 31.16% 23.38% 25.72% (1.83)%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $858,235 $627,147 $465,015 $277,124 $160,822 $9,382
Ratio of expenses to
average net assets 0.58% 0.57% 0.56% 0.57% 0.55% 0.82%(4)
Ratio of net investment income
to average net assets 1.28% 1.83% 1.74% 2.14% 2.53% 0.85%(4)
Ratio of expenses to
average net assets(1) 0.81% 0.84% 0.86% 0.89% 0.87% 1.73%(4)
Ratio of net investment income
to average net assets(1) 1.05% 1.56% 1.44% 1.82% 2.21% (0.06)%(4)
Portfolio turnover (6) 3% 8% 11% 4% 12% 3%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)
Period from commencement of operations.
(3)
Not annualized.
(4)
Annualized.
(5)
Effective March 16,1998, the Key Stock Index Fund merged into the Victory
Stock Index Fund. Financial highlights for the period prior to March 16, 1998
represent the Victory Stock Index Fund.
(6) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
</TABLE>
38
<PAGE>
Financial Highlights
GROWTH FUND
The Financial Highlights table is intended to help you understand the Growth
Fund's financial performance for the past five years. Certain information shows
the results of an investment in one share of the Growth Fund. The total returns
in the table represent the rate that an investor would have earned on an
investment in the Growth Fund (assuming reinvestment of all dividends and
distributions).
These financial highlights reflect historical information about Class A Shares
of the Growth Fund. The financial highlights for the five fiscal years ended
October 31, 1999 were audited by PricewaterhouseCoopers LLP, whose report, along
with the financial statements of the Growth Fund, are included in the Fund's
annual report, which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 21.62 $ 18.01 $ 14.57 $ 12.15 $ 10.23
Investment Activities
Net investment income (loss) (0.04) (0.03) 0.03 0.08 0.11
Net realized and unrealized
gains (losses) on investments 4.90 4.88 4.07 2.93 1.97
Total from Investment Activities 4.86 4.85 4.10 3.01 2.08
Distributions
Net investment income -- -- (0.04) (0.08) (0.11)
Net realized gains (1.77) (1.24) (0.62) (0.51) (0.05)
Total Distributions (1.77) (1.24) (0.66) (0.59) (0.16)
Net Asset Value, End of Period $ 24.71 $ 21.62 $ 18.01 $ 14.57 $ 12.15
Total Return (excludes sales charges) 24.25% 28.59% 29.08% 25.66% 20.54%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $417,417 $269,476 $185,533 $147,753 $108,253
Ratio of expenses to
average net assets 1.41% 1.35% 1.34% 1.33% 1.07%
Ratio of net investment income
(loss) to average net assets (0.21)% (0.13)% 0.19% 0.64% 1.00%
Ratio of expenses to
average net assets(1) 1.49% 1.49% < F3> 1.39% 1.42%
Ratio of net investment income
(loss) to average net assets(1) (0.29)% (0.27)% < F3> 0.58% 0.65%
Portfolio turnover 33% 29% 21% 27% 107%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)Effective June 5, 1995, the Victory Equity Portfolio merged into the Growth
Fund. Financial highlights for the periods prior to June 5, 1995 represent the
Growth Fund.
(3)There were no voluntary fee reductions during the period.
</TABLE>
39
<PAGE>
Financial Highlights
SPECIAL VALUE FUND
The Financial Highlights table is intended to help you understand the Special
Value Fund's financial performance for the past five years. Certain information
shows the results of an investment in one share of the Special Value Fund. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Special Value Fund (assuming reinvestment of all
dividends and distributions).
These financial highlights reflect historical information about Class A Shares
of the Special Value Fund. The financial highlights for the five fiscal years
ended October 31, 1999 were audited by PricewaterhouseCoopers LLP, whose report,
along with the financial statements of the Special Value Fund, are included in
the Fund's annual report, which is available by calling the Fund at
800-539-FUND.
<TABLE>
<CAPTION>
Prior to
Designation
as Class A
Class A Shares Shares
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996(2) 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.64 $ 16.68 $ 14.15 $ 12.15 $ 10.49
Investment Activities
Net investment income (loss) 0.07 0.09 0.10 0.12 0.15
Net realized and unrealized
gains (losses) on investments 0.04 (1.79) 3.50 2.33 1.71
Total from Investment Activities 0.11 (1.70) 3.60 2.45 1.86
Distributions
Net investment income (0.08) (0.09) (0.12) (0.11) (0.15)
In excess of net investment income -- -- -- -- --
Net realized gains (0.58) (1.25) (0.95) (0.34) (0.05)
Total Distributions (0.66) (1.34) (1.07) (0.45) (0.20)
Net Asset Value, End of Period $ 13.09 $ 13.64 $ 16.68 $ 14.15 $ 12.15
Total Return (excludes sales charges) 0.80% (11.22)% 27.05% 20.60% 18.01%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $232,272 $346,962 $420,020 $289,460 $194,700
Ratio of expenses to
average net assets 1.43% 1.40% 1.37% 1.37% 1.04%
Ratio of net investment income
(loss) to average net assets 0.51% 0.56% 0.65% 0.88% 1.35%
Ratio of expenses to
average net assets(1) 1.53% 1.51% (4) 1.40% 1.30%
Ratio of net investment income
(loss) to average net assets(1) 0.41% 0.45% (4) 0.85% 1.09%
Portfolio turnover < F3> 43% 44% 39% 55% 39%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(2)Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares and commenced offering Class B Shares.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(4)There were no voluntary fee reductions during the period.
</TABLE>
40
<PAGE>
Financial Highlights
SMALL COMPANY OPPORTUNITY FUND
The Financial Highlights table is intended to help you understand the Small
Company Opportunity Fund's financial performance for the past five years.
Certain information shows the results of an investment in one share of the Small
Company Opportunity Fund. The total returns in the table represent the rate that
an investor would have earned on an investment in the Small Company Opportunity
Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A and
Class G Shares of the Small Company Opportunity Fund. The financial highlights
for the period from April 1, 1999 to October 31, 1999 were audited by
PricewaterhouseCoopers LLP, whose report, along with the financial statements of
the Small Company Opportunity Fund, are included in the Fund's annual report,
which is available by calling the Fund at 800-539-FUND. The financial highlights
for the four fiscal years and one period ended March 31, 1999, and the one year
ended April 30, 1994, were audited by Arthur Andersen LLP.
<TABLE>
<CAPTION>
Class A Shares Class G Shares
Apr. 1, Mar. 26, Apr. 1, Year Year Year Year 11 Months Year
1999 to 1999 to 1999 to Ended Ended Ended Ended Ended Ended
Oct. 31, Mar. 31, Oct. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Apr. 30,
1999 1999(2)(3) 1999 1999(3) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 20.71 $ 20.23 $ 20.71 $ 27.89 $ 22.77 $ 22.26 $ 18.10 $ 18.35 $ 17.55
Investment
Activities
Net investment
income (0.01) -- (0.06) 0.10 0.23 0.20 0.19 0.13 0.08
Net realized and
unrealized
gains (losses)
on investments 0.38 0.48 0.39 (6.06) 8.72 2.52 4.73 0.18 1.59
Total from
Investment
Activities 0.37 0.48 0.33 (5.96) 8.95 2.72 4.92 0.31 1.67
Distributions
Net investment
income -- -- -- (0.14) (0.27) (0.17) (0.18) (0.12) (0.07)
In excess of net
realized gains -- -- -- -- -- -- -- -- --
Net realized gains -- -- -- (1.08) (3.56) (2.04) (0.58) (0.44) (0.80)
Total
Distributions -- -- -- (1.22) (3.83) (2.21) (0.76) (0.56) (0.87)
Net Asset Value,
End of Period $ 21.08 $ 20.71 $ 21.04 $ 20.71 $ 27.89 $ 22.77 $ 22.26 $ 18.10 $ 18.35
Total Return
(excludes sales
charges) 1.79%(5) 2.37%(5) 1.59%(5) (22.08)% 42.02% 12.46% 28.00% 1.75%(5) 9.75%
Ratios/Supplemental
Data:
Net Assets,
End of Period (000) $51,599 $64,587 $105,415 $125,761 $175,684 $114,451 $102,979 $84,738 $83,297
Ratio of expenses
to average net
assets (4) 0.98%(6) 0.98%(6) 1.29%(6) 1.30% 1.31% 1.36% 1.41% 1.37%(6) 1.38%
Ratio of net
investment income
(loss) to average
net assets (4) 0.09%(6) 1.50%(6) 0.39%(6) 0.41% 0.86% 0.90% 0.95% 0.84%(6) 0.47%
Ratio of expenses to
average net assets(1) 1.17%(6) 1.19%(6) 1.47%(6) 1.30%(8) (8) (8) (8) (8) (8)
Ratio of net
investment income
(loss) to average
net assets(1) (0.28)%(6) 1.29%(6) (0.58)%(6) 0.41%(8) (8) (8) (8) (8) (8)
Portfolio turnover < F7> 16% 30% 16% 30% 42% 35% 24% 32% 40%
- ---------------
(1) During the period, certain fees were voluntarily reduced . If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(2) Period from commencement of operations.
(3)Effective March 26, 1999, the Gradison Opportunity Value Fund merged into
the Victory Special Growth Fund. Concurrent with the merger the Fund was renamed
Victory Small Company Opportunity Fund. Financial highlights prior to March 26,
1999 represent the Gradison Opportunity Value Fund.
(4)Effective March 26, 1999, the Adviser agreed to waive its management fee or
to reimburse expenses, as allowed by law, to the extent necessary to maintain
the net operating expenses of the Class G shares of the Small Company
Opportunity Fund at a maximum of 1.30% until at least April 1, 2001. The Adviser
has also agreed to waive its management fee for Class A shares to the same
extent the fee is waived for Class G shares until at least April 1, 2001.
(5)Not annualized
(6)Annualized
(7) Portfolio turnover is calculated on the basis of the Small Company
Opportunity Fund as a whole without distinguishing between the classes of shares
issued.
(8)There were no fee reductions during the period.
</TABLE>
41
<PAGE>
Financial Highlights
INTERNATIONAL GROWTH FUND
The Financial Highlights table is intended to help you understand the
International Growth Fund's financial performance for the past five years.
Certain information shows the results of an investment in one share of the
International Growth Fund. The total returns in the table represent the rate
that an investor would have earned on an investment in the International Growth
Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A and
Class G Shares of the International Growth Fund. The financial highlights for
the five fiscal years ended October 31, 1999 were audited by
PricewaterhouseCoopers LLP, whose report, along with the financial statements of
the International Growth Fund, are included in the Fund's annual report, which
is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Prior to
designation
as Class A Class G
Class A Shares Shares Shares
Year Year Year Year Year Mar. 26, 1999
Ended Ended Ended Ended Ended through
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996(3) 1995(4) 1999(8)(9)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 13.19 $ 13.31 $ 13.01 $ 12.33 $ 13.32 $ 13.73
Investment Activities
Net investment income (loss) (0.05) 0.07(2) 0.09 0.08 0.05 (0.03)
Net realized and unrealized
gains(losses) from
investments and
foreign currencies 3.85 0.65 0.67 0.62 (0.42) 2.78
Total from
Investment Activities 3.80 0.72 0.76 0.70 (0.37) 2.75
Distributions
Net investment income -- (0.06) (0.01) (0.02) -- --
Net realized gains (0.48) (0.78) (0.45) -- (0.55) --
Tax return of capital -- -- -- -- (0.07) --
Total Distributions (0.48) (0.84) (0.46) (0.02) (0.62) --
Net Asset Value, End of Period $ 16.51 $ 13.19 $ 13.31 $ 13.01 $ 12.33 $ 16.48
Total Return
(excludes sales charges) 29.43% 5.79% 6.04% 5.65% (2.50)% 20.03%(7)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $149,193 $134,491 $106,189 $121,517 $106,477 $37,322
Ratio of expenses to
average net assets (10) 1.75% 1.71% 1.69% 1.73% 1.53% 2.00%(5)
Ratio of net investment income
(loss) to average net assets (0.32)% 0.55% 0.63% 0.64% 0.75% (1.79)%(5)
Ratio of expenses to
average net assets(1) 1.88% 1.82% 1.69% 1.75% 1.65% 2.24%(5)
Ratio of net investment income
(loss) to average net assets(1) (.45)% 0.44% 0.63% 0.62% 0.63% (2.03)%(5)
Portfolio turnover (6) 106% 86% 116% 178% 68% 106%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(2)Calculated using average shares for the period.
(3)Effective March 1, 1996, the Fund designated the existing shares as Class A
Shares.
(4)Effective June 5, 1995, the Victory Foreign Markets Portfolio merged into
the International Growth Fund. Financial highlights for the periods prior to
June 5, 1995 represent the International Growth Portfolio.
(5)Annualized.
(6) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(7)Not Annualized.
(8)Period from commencement of operations.
(9)Effective March 26, 1999, the Gradison International Fund merged into the
Victory International Growth Fund.
(10)On March 26, 1999, the adviser agreed to waive its management fee or to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of the Class G Shares of the Fund at a maximum of 2.00%
until at least April 1, 2001. The Adviser has also agreed to waive its
management fee for Class A Shares to the same extent the fee is waived for Class
G Shares until at least April 1, 2001.
</TABLE>
42
<PAGE>
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43
<PAGE>
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44
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
If you would like a free copy of any of the following documents or would like to
request other information regarding the Funds, you can call or write the Funds
or your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Funds and their policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes each Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected a Fund's
performance during its last fiscal year.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Funds 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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http://www.victoryfunds.com.
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-EQTY-PRO (2/00)
<PAGE>
Prospectus
February 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Fund's securities or determined whether this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Fixed Income Funds
Limited Term Income Fund
Class A Shares
Intermediate Income Fund
Class A and G Shares
Fund for Income
Class A and G Shares
Investment Quality Bond Fund
Class A and G Shares
Victory Funds
(LOGO)(R)
Call Victory at:
800-539-FUND
(800-539-3863)
or visit the Victory Funds' website at:
www.victoryfunds.com
<PAGE>
The Victory Portfolios
Key to Financial Information
Objective and Strategies
The goals and the strategies that a Fund plans to use to pursue its investment
objective.
Risk Factors
The risks you may assume as an investor in a Fund.
Performance
A summary of the historical performance of a Fund in comparison to one or more
unmanaged indices.
Expenses
The costs you will pay, directly or indirectly, as an investor in a Fund,
including sales charges and ongoing expenses.
Shares of the Funds are:
* Not insured by the FDIC;
* Not deposits or other obligations of, or
guaranteed by KeyBank, any of its affiliates, or any other bank;
* Subject to possible investment risks, including possible loss of the amount
invested.
Table of Contents
Introduction 1
Risk/Return Summary for each of the Funds
An analysis which includes the investment objective, principal strategies,
principal risks, performance, and expenses of each Fund.
Limited Term Income Fund
Class A Shares 2
Intermediate Income Fund
Class A and G Shares 4
Fund for Income
Class A and G Shares 6
Investment Quality Bond Fund
Class A and G Shares 8
Investments 10
Risk Factors 11
Share Price 12
Dividends, Distributions, and Taxes 13
Investing with Victory
* Choosing a Share Class 15
* How to Buy Shares 18
* How to Exchange Shares 20
* How to Sell Shares 21
Organization and Management of the Funds 23
Additional Information 25
Financial Highlights
Limited Term Income Fund 26
Intermediate Income Fund 27
Fund for Income 28
Investment Quality Bond Fund 29
<PAGE>
Introduction
This Prospectus explains the objectives, policies, risks, performance,
strategies, and expenses of the Shares of the Victory Funds described in this
Prospectus (the Funds).
Key Asset Management Inc., which we will refer to as the "Adviser" or "KAM"
throughout this Prospectus, manages the Funds.
Please read this Prospectus before investing in the Funds and keep it for future
reference.
Investment Strategy
Each of the Funds pursues its objective by investing primarily in debt
securities. However, each of the Funds has unique investment strategies and its
own risk/reward profile. Please review the "Risk/Return Summary" for each Fund
and the "Investments" section for an overview.
Risk Factors
Certain Funds may share many of the same risk factors. For example, all of the
Funds are subject to interest rate inflation, reinvestment, and credit risks.
The Funds are not insured by the FDIC. In addition, there are other potential
risks, discussed in each "Risk/Return Summary" and in "Risk Factors."
Who May Want to Invest in the Funds
* Investors seeking income
* Investors seeking higher potential returns than provided by money
market funds
* Investors willing to accept the risk of price and dividend
fluctuations
Share Classes
Each Fund offers Class A Shares. The Intermediate Income Fund, Fund for Income
and the Investment Quality Bond Fund also offer Class G Shares. See
"Choosing a Share Class."
The following pages provide you with an overview of each of the Funds. Please
look at the objective, policies, strategies, risks, and expenses to determine
which Fund will suit your risk tolerance and investment needs.
1
<PAGE>
Risk/Return Summary
LIMITED TERM INCOME FUND
CLASS A SHARES
Cusip#: 926464405
SSFIX
Investment Objective
The Limited Term Income Fund seeks to provide income consistent with limited
fluctuation of principal.
Principal Investment Strategies
The Limited Term Income Fund pursues its investment objective by investing in a
portfolio of high grade, fixed income securities with a dollar-weighted average
maturity of one to five years, based on remaining maturities.
Under normal conditions, the Limited Term Income Fund primarily invests in:
* Investment-grade corporate securities, asset-backed securities,
convertible securities and exchangeable debt securities;
* Obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities;
* Mortgage-backed securities issued by government agencies and
non-governmental entities; and
* Commercial paper.
Important Characteristics of the Limited Term Income Fund's Investments:
* Quality: The Limited Term Income Fund will only invest in high-grade debt
securities rated in one of the top four rating categories at the time of
purchase by Standard & Poor's (S&P), Fitch IBCA International (Fitch IBCA),
Moody's Investors Service (Moody's), or another NRSRO,* or if unrated, of
comparable quality. For more information on ratings, see the Appendix to the
Statement of Additional Information (SAI).
* Maturity: The dollar-weighted effective average maturity of the Limited Term
Income Fund will generally range from 1 to 5 years. Under certain market
conditions, the Limited Term Income Fund's portfolio manager may go outside
these boundaries.
* An NRSRO is a nationally recognized statistical ratings organization that
assigns credit ratings to securities based on the borrower's ability to meet
its obligation to make principal and interest payments.
The Limited Term Income Fund's high portfolio turnover may result in higher
expenses and taxable gain distributions.
There is no guarantee that the Limited Term Income Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Limited Term Income Fund. The Limited
Term Income Fund is subject to the following principal risks, more fully
described in "Risk Factors." The Limited Term Income 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 Limited Term Income Fund
declines.
* The portfolio manager does not execute the Limited Term Income Fund's
principal investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The Limited Term Income Fund must reinvest interest or sale proceeds at lower
rates.
* The rate of inflation increases.
* The average life of a mortgage-related security is shortened or
lengthened.
An investment in the Limited Term Income 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.
2
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Limited Term Income Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Limited Term Income
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1990 8.74%
1991 11.49%
1992 5.36%
1993 6.12%
1994 -1.26%
1995 10.97%
1996 4.02%
1997 5.75%
1998 5.96%
1999 1.79%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
3.79% (quarter ending December 31, 1991) and the lowest return for a quarter was
- -1.19% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A Shares of the
Limited Term Income Fund for one year, five years and ten years, including
maximum sales charges, compare to those of two broad-based market indices.
Average Annual Total Returns
(for the Periods ended December 31,
1999)
Past Past Past
One Year 5 Years 10 Years
Class A -0.21% 5.23% 5.62%
Merrill Lynch 1-3
Year Treasury Index(1),(3) 3.06% 6.51% 6.59%
Lehman 1-3 Year
Government Index(2),(3) 2.96% 6.48% 6.68%
1 The Merrill Lynch 1-3 Year Treasury Index is a broad-based unmanaged index
that represents the general performance of short-term (one to three year) U.S.
Treasury securities.
2 The Lehman Brothers 1-3 Year Government Index is an unmanaged index comprised
of U.S. government agency debt securities that mature in one to three years.
3 Index returns do not include any brokerage commissions, sales charges, or
other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Limited Term Income Fund.
Shareholder Transaction Expenses
(paid directly from your investment)(1) Class A
Maximum Sales Charge Imposed on Purchases 2.00%
(as a percentage of offering price)
Maximum Deferred Sales Charge
(as a percentage of the lower of purchase or sale price) NONE(2)
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.50%
Distribution (12b-1) Fees 0.00%
Other Expenses
(includes a shareholder servicing fee of 0.25%) 0.60%
Total Fund Operating Expenses 1.10%
Fee Waiver/Expense Reimbursement (0.20)%
Net Expenses 0.90%(3)
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 The Adviser has contractually agreed to waive its management fee and to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of the Limited Term Income Fund at a maximum of 0.90%
until at least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Limited Term Income Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Limited Term
Income Fund for the time periods shown and then sell all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Limited Term Income 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 5 Years 10 Years
Class A $290 $523 $775 $1,496
1 This Example asumes that Net Annual Fund Operating Expenses will equal 0.90%
until February 28, 2001 and will equal 1.10% thereafter.
3
<PAGE>
Risk/Return Summary
INTERMEDIATE INCOME FUND
CLASS A SHARES
Cusip#: 926464819
SIMIX
CLASS G SHARES
Cusip#: 926464314
Investment Objective
The Intermediate Income Fund seeks to provide a high level of income.
Principal Investment Strategies
The Intermediate Income Fund pursues its investment objective by investing in
debt securities. Some of these debt securities are issued by corporations, the
U.S. Government and its agencies and instrumentalities. "Investment grade"
obligations are rated within the top four rating categories by an NRSRO.
Under normal conditions, the Intermediate Income Fund will invest at least 65%
of its total assets in:
* Investment grade corporate securities, asset-backed securities,
convertible securities, or exchangeable debt securities;
* Obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities;
* Mortgage-related securities issued by government agencies and
non-governmental entities; and
* Commercial paper.
Important characteristics of the Intermediate Income Fund's investments:
* Quality: Investment grade corporate securities rated in the top four rating
categories at the time of purchase by S&P, Fitch IBCA, Moody's or another NRSRO,
or if unrated, of comparable quality.
* Maturity: The dollar-weighted effective average maturity of the Intermediate
Income Fund generally will range from 3 to 10 years. Under certain market
conditions, the portfolio manager may go outside these boundaries.
The Intermediate Income Fund's high portfolio turnover may result in higher
expenses and taxable gain distributions.
There is no guarantee that the Intermediate Income Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Intermediate Income Fund. The
Intermediate Income Fund is subject to the following principal risks, more fully
described in "Risk Factors." The Intermediate Income 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 Intermediate Income Fund
declines.
* The portfolio manager does not execute the Intermediate Income Fund's
principal investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The Intermediate Income Fund must reinvest interest or sale proceeds at lower
rates.
* The rate of inflation increases.
* The average life of a mortgage-related security is shortened or lengthened.
An investment in the Intermediate Income 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.
4
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Intermediate Income Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Intermediate Income
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1994 -2.39%
1995 14.03%
1996 3.06%
1997 7.05%
1998 7.51%
1999 -0.74%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
4.72% (quarter ending June 30, 1995) and the lowest return for a quarter was
- -1.81% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A Shares of the
Intermediate Income Fund for one year, five years and since inception, including
maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999) One Year 5 Years (12/10/93)
Class A(1) -6.48% 4.81% 3.51%
Lehman Int. Gov't/Corp
Bond Index(2) 0.39% 7.09% 5.53%
1 The Intermediate Income Fund did not offer Class G Shares prior to December
15, 1999.
2 The Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index comprised of investment-grade corporate debt securities and
U.S. Treasury and U.S. government agency debt securities that mature in one to
ten years. Index returns do not include any brokerage commissions, sales
charges, or other fees.It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Intermediate Income Fund.
Shareholder Transaction Expenses
(paid directly from your investment)(1) Class A Class G
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% NONE
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 0.75% 0.75%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to Class A Shares) 0.51% 0.31%
Total Fund Operating Expenses 1.26% 1.31%
Fee Waiver/Expense
Reimbursement (0.36)% (0.31)%
Net Expenses 0.90%(3) 1.00%(3)
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 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year . The Adviser has contractually agreed to waive its
management fee and to reimburse expenses, as allowed by law, to the extent
necessary to maintain the net operating expenses of Class A Shares and Class G
Shares of the Intermediate Income Fund at a maximum of 0.90% and 1.00%,
respectively, until at least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Intermediate Income Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Intermediate
Income Fund for the time periods shown and then sell all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Intermediate Income 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 5 Years 10 Years
Class A $662 $918 $1,194 $1,980
Class G $102 $385 $ 688 $1,552
1 This Example assumes that Net Annual Fund Operating Expenses for Class A
Shares will equal 0.90% until February 28, 2001 and will equal 1.26%
thereafter and that Net Annual Fund Operating Expenses for Class G Shares will
equal 1.00% until February 28, 2001 and will equal 1.31% thereafter.
5
<PAGE>
Risk/Return Summary
FUND FOR INCOME
CLASS A SHARES
Cusip#: 926464751
IPFIX
CLASS G SHARES
Cusip#: 926464397
GGIFX
Investment Objective
The Fund for Income seeks to provide a high level of current income consistent
with preservation of shareholders' capital.
Principal Investment Strategies
The Fund for Income pursues its investment objective by investing primarily in
securities issued by the U.S. government and its agencies or instrumentalities.
The Fund for Income currently invests only in securities that are guaranteed by
the full faith and credit of the U.S. government, and repurchase agreements
collateralized by such securities.
Under normal market conditions, the Fund for Income primarily invests in:
* Mortgage-backed obligations and collateralized mortgage obligations (CMOs)
issued by the Government National Mortgage Association (GNMA). The Fund for
Income will invest at least 65% of its total assets in GNMA securities.
* Obligations issued or guaranteed by the U.S. government or by its agencies
or instrumentalities with maturities generally in the range of 2 to 30 years.
There is no guarantee that the Fund for Income will achieve its objectives.
Principal Risks
You may lose money by investing in the Fund for Income. The Fund for Income is
subject to the following principal risks, more fully described in "Risk
Factors." The Fund for Income'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 for Income declines
* The portfolio manager does not execute the Fund for Income's principal
investment strategies effectively * Interest rates rise
* The Fund for Income must reinvest interest or sale proceeds at lower rates
* The rate of inflation increases
* The average life of a mortgage-related security is shortened or lengthened
An investment in the Fund for Income 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.
6
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Fund for Income by showing changes in its performance for
various time periods ending December 31st. The figures shown in the bar chart
and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class G Shares of the Fund for Income .
Sales loads on these shares imposed prior to July 7, 1997 are not reflected on
the bar chart (or highest and lowest returns below) and if they were reflected,
returns would be lower than those shown.
1990 8.76%
1991 14.07%
1992 6.29%
1993 7.58%
1994 -3.67%
1995 17.19%
1996 3.50%
1997 8.35%
1998 7.37%
1999 0.77%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
5.49% (quarter ending June 30, 1995) and the lowest return for a quarter was
- -3.04% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A and G Shares of
the Fund for Income for one year, five years and ten years, including maximum
sales charges, compare to those of a broad-based market index.
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1999) One Year 5 Years 10 Years
Class A(1) -1.31% 6.84% 6.65%
Class G(2) 0.77% 7.30% 6.87%
Lehman GNMA Index(3) 1.93% 8.07% 7.87%
1 Performance prior to March 26, 1999, the Class A Shares inception date,
reflects the performance of Class G Shares, which has not been adjusted for
the expenses of Class A Shares.
2 The performance data does not reflect the deduction of a maximum 2% sales
charge which was in effect for the Gradison Government Income Fund, the Fund
for Income's predecessor, from its inception until July 7, 1997.
3 The Lehman GNMA Index is a broad-based unmanaged index that represents the
general performance of GNMA securities. Index returns do not include any
brokerage commissions, sales charges, or other fees. It is not possible to
invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Fund for Income.
Shareholder Transaction Expenses
(paid directly from your investment)(1) Class A Class G
Maximum Sales Charge
Imposed on Purchases 2.00% 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 0.50% 0.50%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses (includes a shareholder servicing
fee of 0.25% applicable to Class A Shares) 0.72% 0.29%
Total Fund Operating Expenses 1.22% 1.04%
Fee Waiver/Expense Reimbursement (0.22)% (0.15)%
Net Expenses 1.00%(3) 0.89%(4)
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 The Adviser has contractually agreed to waive its management fee and to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class A Shares of the Fund for Income at a maximum
of 1.00% until at least February 28, 2001.
4 The Adviser has contractually agreed to waive its management fee and to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class G Shares of the Fund for Income at a maximum
of 0.89% until at least April 1, 2001. Other expenses of Class G Shares are
based on estimated amounts for the current fiscal year.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Fund for Income with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for Income for
the time periods shown and then sell all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund for Income'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 5 Years 10 Years
Class A $300 $558 $836 $1,629
Class G $ 91 $316 $559 $1,257
1 This Example assumes that Net Annual Fund Operating Expenses for Class A
Shares will equal 1.00% until February 28, 2001 and will equal 1.22%
thereafter and that Net Annual Fund Operating Expenses for Class G Shares will
equal 0.89% until April 1, 2001 and will equal 1.04% thereafter.
7
<PAGE>
Risk/Return Summary
INVESTMENT QUALITY BOND FUND
CLASS A SHARES
Cusip#: 926464827
SIQBX
CLASS G SHARES
Cusip#: 926464322
Investment Objective
The Investment Quality Bond Fund seeks to provide a high level of income.
Principal Investment Strategies
The Investment Quality Bond Fund pursues its investment objective by investing
primarily in investment-grade bonds issued by corporations and the U.S.
government and its agencies or instrumentalities. "Investment grade" obligations
are rated within the top four rating categories by an NRSRO.
Under normal market conditions, the Investment Quality Bond Fund will invest at
least 80% of its total assets in the following securities:
* Investment grade corporate securities, asset-backed securities, convertible
securities and exchangeable debt securities;
* Mortgage-related securities issued by governmental agencies and
non-governmental entities;
* Obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; and
* Commercial paper.
Important characteristics of the Investment Quality Bond Fund's investments:
* Quality: All instruments will be rated, at the time of purchase, within the
four highest rating categories by S&P, Fitch IBCA, Moody's, or another NRSRO,
or, if unrated, be of comparable quality. For more information on ratings, see
the Appendix to the SAI.
* Maturity: The dollar-weighted effective average maturity of the Investment
Quality Bond Fund will range from 5 to 15 years. Individual assets held by the
Investment Quality Bond Fund may vary from the average maturity of the Fund.
Under certain market conditions, the portfolio manager may go outside these
boundaries.
The Investment Quality Bond Fund's high portfolio turnover may result in
higher expenses and taxable gain distributions.
There is no guarantee that the Investment Quality Bond Fund will achieve
its objectives.
Principal Risks
You may lose money by investing in the Investment Quality Bond Fund. The
Investment Quality Bond Fund is subject to the following principal risks, more
fully described in "Risk Factors." The Investment Quality Bond 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 Investment Quality Bond Fund
declines.
* The portfolio manager does not execute the Investment Quality Bond Fund's
principal investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The Investment Quality Bond Fund must reinvest interest or sale proceeds at
lower rates.
* The rate of inflation increases.
* The average life of a mortgage-related security is shortened or lengthened.
An investment in the Investment Quality Bond 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.
8
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Investment Quality Bond Fund by showing changes in its
performance for various time periods ending December 31st. The figures shown in
the bar chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Investment Quality Bond
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1994 -2.62%
1995 16.66%
1996 2.46%
1997 8.45%
1998 7.51%
1999 -2.45%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
5.85% (quarter ending June 30, 1995) and the lowest return for a quarter was
- -2.51% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A Shares of the
Investment Quality Bond Fund for one year, five years and since inception,
including maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999) One Year 5 Years (12/10/93)
Class A(1) -8.09% 5.09% 3.65%
Lehman
Aggregate Index(2) -0.82% 7.73% 5.88%
1 The Investment Quality Bond Fund did not offer Class G Shares prior to
December 15, 1999.
2 The Lehman Brothers Aggregate Bond Index is a broad-based unmanaged index that
represents the general performance of longer-term (greater than one year),
investment-grade fixed-income securities. Index returns do not include any
brokerage commissions, sales charges, or other fees. It is not possible to
invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Investment Quality Bond 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 0.75% 0.75%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses (includes a shareholder servicing fee
of 0.25% applicable to Class A Shares) 0.59% 0.34%
Total Fund Operating Expenses 1.34% 1.34%
Fee Waiver/Expense Reimbursement (0.24)% (0.24)%
Net Expenses 1.10%(3) 1.10%(3)
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 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year . The Adviser has contractually agreed to waive its
management fee and to reimburse expenses, as allowed by law, to the extent
necessary to maintain the net operating expenses of Class A Shares and Class G
Shares of the Investment Quality Bond Fund at a maximum of 1.10% until at
least February 28, 2001. The Adviser may waive its management fee and
reimburse expenses, as allowed by law, so that the net operating expenses of
Class A Shares do not exceed 1.00%. The Adviser may terminate this
waiver/reimbursement at any time to the extent allowed by law.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Investment Quality Bond Fund with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in the
Investment Quality Bond Fund for the time periods shown and then sell all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Investment Quality Bond 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 5 Years 10 Years
Class A $681 $953 $1,247 $2,075
Class G $112 $401 $ 711 $1,592
1 This Example assumes that Net Annual Fund Operating Expenses for Class A
Shares and Class G Shares will equal 1.10% until February 28, 2001 and will
equal 1.34% thereafter.
9
<PAGE>
Investments
The following describes some of the types of securities the Funds may purchase
under normal market conditions. All Funds will not buy all of the securities
listed below.
For cash management or for temporary defensive purposes in response to
market conditions, each 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 a Fund to fail to meet its investment
objective.
For more information on ratings and a more complete description of which
Funds can invest in certain types of securities, see the SAI.
U.S. Government Securities.
Notes and bonds issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Some are direct obligations of the U.S. Treasury; others
are obligations only of the U.S. agency.
Corporate Debt Obligations.
Debt instruments issued by public corporations. They may be secured or
unsecured.
Asset Backed Securities.
Debt securities backed by loans or accounts receivable originated by banks,
credit card companies, student loan issuers, or other providers of credit. These
securities may be enhanced by a bank letter of credit or by insurance coverage
provided by a third party.
Convertible or Exchangeable Corporate Debt Obligations.
Debt instruments that may be exchanged or converted to other securities.
Mortgage-Backed Securities.
Instruments secured by a mortgage or pools of mortgages.
When-Issued and Delayed-Delivery Securities.
A security that is purchased for delivery at a later time. The market value may
change before the delivery date, and the value is included in the net asset
value of a Fund.
Zero Coupon Bonds.
These securities are purchased at a discount from face value. The bond's face
value is received at maturity, with no interest payments before then.
Yankee Securities.
Debt instruments issued by non-domestic issuers and traded in U.S. dollars.
Receipts.
Separately traded interest or principal components of U.S. government
securities.
Dollar-Weighted Effective Average Maturity.
Based on the value of a Fund's investments in securities with different maturity
dates. This measures the sensitivity of a debt security's value to changes in
interest rates. The value of a long- term debt security is more sensitive to
interest rate changes than the value of a short-term security.
10
<PAGE>
Risk Factors
By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.
This Prospectus describes the principal risks that you may assume as an
investor in the Funds.
Each 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 a 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 a Fund's portfolio manager may implement its
investment strategy in a way that does not produce the intended result.
Risks associated with investing in debt securities:
* Interest rate risk. The value of a debt security typically changes in the
opposite direction from a change in interest rates. When interest rates go up,
the value of a debt security typically goes down. When interest rates go down,
the value of a debt security typically goes up. Generally, the market values of
securities with longer maturities are more sensitive to changes in interest
rates.
* Inflation risk is the risk that inflation will erode the purchasing power of
the cash flows generated by debt securities held by a Fund. Fixed-rate debt
securities are more susceptible to this risk than floating-rate debt securities
or equity securities that have a record of dividend growth.
* Reinvestment risk is the risk that when interest rates are declining a Fund
that receives interest income or prepayments on a security will have to reinvest
these moneys at lower interest rates. Generally, interest rate risk and
reinvestment risk tend to have offsetting effects, though not necessarily of the
same magnitude.
* Credit (or default) risk is the risk that the issuer of a debt security will
be unable to make timely payments of interest or principal. Although the Funds
generally invest in only high-quality securities, the interest or principal
payments may not be insured or guaranteed on all securities. Credit risk is
measured by NRSROs such as S&P, Fitch IBCA, or Moody's.
11
<PAGE>
Risk Factors (continued)
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.
Risks associated with investing in mortgage-related securities:
* Prepayment risk. Prepayments of principal on mortgage-related securities
affect the average life of a pool of mortgage-related securities. The level of
interest rates and other factors may affect the frequency of mortgage
prepayments. In periods of rising interest rates, the prepayment rate tends to
decrease, lengthening the average life of a pool of mortgage-related securities.
In periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool of mortgage-related securities. Prepayment
risk is the risk that, because prepayments generally occur when interest rates
are falling, a Fund may have to reinvest the proceeds from prepayments at lower
interest rates.
* Extension risk is the risk that the rate of anticipated prepayments on
principal may not occur, typically because of a rise in interest rates, and the
expected maturity of the security will increase. During periods of rapidly
rising interest rates, the effective average maturity of a security may be
extended past what a Fund's portfolio manager anticipated that it would be. The
market value of securities with longer maturities tend to be more volatile.
An investment in a Fund is not a complete investment program.
Share Price
Each 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.
A Fund's NAV may change on days when shareholders will not be able to
purchase or redeem a Fund's shares if a Fund has portfolio securities that are
listed on foreign exchanges that trade on weekends or other days when a Fund
does not price its shares.
The Funds value their investments based on market value. When market
quotations are not readily available, the Funds value their investments based on
fair value methods approved by the Board of Trustees of the Victory Portfolios.
Each Class of each Fund calculates its NAV by adding up the total value of its
investments and other assets, subtracting its liabilities, and then dividing
that figure by the number of outstanding shares of the Class.
Total Assets-Liabilities
NAV = ----------------------------
Number of Shares Outstanding
You can find a Fund's net asset value each day in The Wall Street Journal
and other newspapers. Newspapers do not normally publish fund information until
a Fund reaches a specific number of shareholders or level of assets.
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.
12
<PAGE>
Dividends, Distribution, and Taxes
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.
Buying a Dividend.
You should check a Fund's distribution schedule before you invest. If you buy
shares of a Fund shortly before it makes a distribution, some of your investment
may come back to you as a taxable distribution.
As a shareholder, you are entitled to your share of net income and capital gains
on a Fund's investments. The Funds pass their earnings along to investors in the
form of dividends. Dividend distributions are the net income earned on
investments after expenses. Each Fund will distribute short-term gains, as
necessary, and if a 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 a Fund.
Ordinarily, the Funds declare and pay dividends monthly. 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 a
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 a Fund and
have your capital gains paid in cash, or reinvest capital gains and have your
dividends paid in cash.
DIRECTED DIVIDENDS OPTION
You can automatically reinvest distributions in the same class of shares of
another fund of the Victory Group. If you reinvest your distributions in a
different class of another fund, you may pay a sales charge on the reinvested
distributions.
DIRECTED BANK ACCOUNT OPTION
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Transfer Agent will
transfer your distributions within seven days of the dividend payment date. The
bank account must have a registration identical to that of your Fund account.
13
<PAGE>
Dividends, Distribution, and Taxes (continued)
The tax information in this Prospectus is provided as general information. You
should consult your own tax adviser about the tax consequences of an investment
in a Fund.
Important Information about Taxes
The Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Ordinary dividends from a Fund are taxable as ordinary income; dividends from
a 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.
* Dividends from a Fund that are attributable to interest on certain U.S.
government obligations may be exempt from certain state and local income taxes.
The extent to which ordinary dividends are attributable to U.S. government
obligations will be provided with tax statements you receive from a Fund.
* An exchange of a Fund's shares for shares of another fund will be treated as a
sale. When you sell or exchange shares of a 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 a Fund every January showing the amounts
and tax status of distributions made to you.
* Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your tax.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
14
<PAGE>
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 a Fund. The following sections will describe how to open an account,
how to access information on your account, and how to buy, exchange, and sell
shares of a 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.
For historical expense information on Class A and G Shares, see the "Financial
Highlights" at the end of this Prospectus.
Each Fund described in this prospectus offers Class A Shares, which have a
front-end sales charge of 2.00% to 5.75%, depending upon the Fund in which you
invest. Please look at the "Fund Expenses" section of the Fund in which you are
investing to find the sales charge.
The Intermediate Income Fund, Fund for Income and Investment Quality Bond
Fund also offer Class 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 on the next page. There are several
ways to reduce this charge.
* Lower annual expenses, generally, 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.
15
<PAGE>
Choosing a Share Class (continued)
Calculation of Sales Charges -- Class A
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed in the following tables.
Your Investment in: Sales Charge Sales Charge
- - Intermediate Income Fund as a % of as a % of
- - Investment Quality Bond 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%
Your Investment in: Sales Charge Sales Charge
- - Limited Term Income Fund as a % of as a % of
- - Fund for Income Offering Price Your Investment
Up to $49,999 2.00% 2.04%
$50,000 up to $99,999 1.75% 1.78%
$100,000 up to $249,999 1.50% 1.52%
$250,000 up to $499,999 1.25% 1.27%
$500,000 up to $999,999 1.00% 1.01%
$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.
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
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you buy Class A Shares of a Fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at one time. You must start with a minimum initial
investment of 5% of the total amount.
2. Rights of Accumulation allow you to add the value of any Class A
Shares you already own to the amount of your next Class A investment
for purposes of calculating the sales charge at the time of purchase.
3. You can combine Class A Shares of multiple Victory Funds (excluding
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.
16
<PAGE>
Choosing a Share Class (continued)
4. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees,
employees, and family members of employees of KeyCorp or
"Affiliated Providers"*, and dealers who have an agreement with
the Distributor and any trade organization to which the Adviser
or the Administrator belong.
b. Investors who buy shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
c. Investors who reinvest the 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 National Association or its affiliates, or invested in a
fund of the Victory Group.
d. Investment Professionals who purchased Fund shares for fee-based
investment products or accounts, selling brokers, and their sales
representatives.
e. Purchase of shares in connection with financial institution
sponsored bundled omnibus retirement programs sponsored by
financial institutions that have entered into agreements with the
Funds' Distributor in connection with the operational
requirements of such programs.
f. Participants in tax-deferred retirement plans who purchased
shares pursuant to waiver provisions in effect prior to December
15, 1999.
* Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
Shareholder Servicing Plan
Each Fund has adopted a Shareholder Servicing Plan for its Class A Shares . The
shareholder servicing agent performs a number of services for its customers who
are shareholders of a 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 a Fund pays a fee at an
annual rate of up to 0.25% of the average daily net assets of Class A Shares
serviced by the agent. The Funds may enter into agreements with various
shareholder servicing agents, including KeyBank National Association and its
affiliates, other financial institutions, and securities brokers. The Funds may
pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically.
Distribution Plan
In accordance with Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for Class A Shares of the Funds.
These shares do not pay any expenses under this Plan.
Victory has also adopted a Distribution and Service Plan for Class G Shares
of the Intermediate Income Fund, Fund for Income and Investment Quality Bond
Fund, under which these shares will pay to the distributor a monthly service fee
at an annual rate of 0.25% of the average daily net assets of each such Fund.
The service fee is paid to securities broker-dealers or other financial
intermediaries for providing personal services to shareholders of these Funds,
including responding to inquiries, providing information to shareholders about
their fund accounts, establishing and maintaining accounts and records,
processing dividend and distribution payments, arranging for bank wires,
assisting in transactions, and changing account information. Each such Fund may
enter into agreements with various shareholder servicing agents, including
KeyCorp and its affiliates, and with other financial institutions that provide
such services.
Because Rule 12b-1 fees are paid out of a Fund's assets on an ongoing
basis, over time, these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
17
<PAGE>
How to Buy Shares
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500 ($100 for IRAs), with additional investments of at
least $25. 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. Their fee will be in addition to, and unrelated to, the
fees and expenses charged by a Fund.
If you buy shares directly from the Funds 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 the Transfer Agent at 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)
18
<PAGE>
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 Funds do not charge a fee
for ACH transfers.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, 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 Funds. 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 a Fund.
Retirement Plans
You can use the Funds as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-deferred
retirement plans. Please contact your Investment Professional or the Funds 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.
19
<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 a Fund by writing the Transfer Agent or calling
800-539-FUND. When you exchange shares of a 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 would like to exchange and the fund whose shares you
want to buy must offer the exchange privilege.
* If you acquire Class A Shares of a 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 a Fund with 5.75%
sales load 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 buy 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.
* Each Fund may refuse any exchange purchase request if the Adviser determines
that the request is associated with a market timing strategy. Each 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.
* Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can exchange into
Class A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
20
<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 sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
* Redemptions over $10,000;
* Your account registration has changed within the last 15 days;
* The check is not being mailed to the address on your account;
* The check is not being made payable to the owner of the account;
* The redemption proceeds are being transferred to another Victory 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 on 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.
21
<PAGE>
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 and that each
withdrawal will be a taxable transaction. However, you cannot automatically
close your account using the Systematic Withdrawal Plan. If your balance falls
below $500, we may ask you to bring the account back to the minimum balance. If
you decide not to increase your account to the minimum balance, your account may
be closed and the proceeds mailed to you.
Additional Information about Redemptions
* Redemption proceeds from the sale of shares purchased by a check may be held
until the purchase check has cleared, which may take up to 15 days.
* A Fund may suspend your right to redeem your shares in the following
circumstances:
* During non-routine closings of the NYSE;
* When the Securities and Exchange Commission (SEC) determines
either that trading on the NYSE is restricted or that an
emergency prevents the sale or valuation of the Fund's
securities; or
* When the SEC orders a suspension to protect a Fund's
shareholders.
* Each Fund will pay redemptions by any one shareholder during any 90-day period
in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Each Fund
reserves the right to pay the remaining portion "in kind," that is, in portfolio
securities rather than cash.
22
<PAGE>
Organization and Management of the Funds
About Victory
Each Fund is a member of the Victory Portfolios, a group of more than 30
distinct investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Funds.
The Investment Adviser and Sub-Administrator
Each 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 each of the Funds. KAM, a
subsidiary of KeyCorp, oversees the operations of the Funds according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $76 billion for a limited number of
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114.
During the fiscal year ended October 31, 1999, KAM was paid an advisory fee
at an annual rate based on a percentage of the average daily net assets of each
Fund (after waivers) as follows:
Limited Term Income Fund 0.48%
Intermediate Income Fund 0.52%
Fund for Income 0.44%
Investment Quality Bond Fund 0.62%
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the
Funds' administrator, pays KAM a fee at the annual rate of up to 0.05% of each
Fund's average daily net assets to perform some of the administrative duties for
the Funds.
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Funds to
provide services to their shareholders. Each of these organizations is paid a
fee for its services.
Portfolio Management
Deborah Svoboda has been the portfolio manager of the Limited Term Income Fund
since September 1998. Ms. Svoboda has been Portfolio Manager and Managing
Director of KAM since 1998, prior to which she was a Senior Vice President
responsible for asset-backed securities syndication and marketing for McDonald &
Company Investments Inc.
Matthew D. Meyer is the portfolio manager of the Intermediate Income Fund, a
position he has held since May 1, 1999. He has been a Senior Portfolio Manager
and Director in the Taxable Fixed Income Group of KAM since January 25, 1999.
Prior to this position, he was employed by McDonald & Company as a First Vice
President, Senior Mortgage-Backed Securities Trader since 1995. Prior to this
position, he was a Mortgage-Backed and Agency Securities Trader with First
Tennessee National Corporation from February 1993 to December 1995. He has been
in the fixed income securities business since 1987.
Thomas M. Seay has been the portfolio manager of the Fund for Income since
January 1999, and is primarily responsible for the day-to-day management of the
Fund's portfolio. Mr. Seay, a Senior Vice President of McDonald Investments
Inc., also served as portfolio manager of the Gradison Government Income Fund
from April, 1998 until March, 1999, when the Fund for Income acquired the
Gradison Fund's assets. From March 1987 until April 1998, he served as Vice
President and Fixed Income Portfolio Manager, Lexington Management Corporation.
Richard T. Heine is the portfolio manager of the Investment Quality Bond Fund, a
position he has held since its inception in 1993. A Portfolio Manager and
Director with KAM, he has been in the investment advisory business since 1977.
23
<PAGE>
Organization and Management of the Funds (cont.)
OPERATIONAL STRUCTURE OF THE FUNDS
Each Fund is supervised by the Board of Trustees, which monitors the services
provided to investors.
TRUSTEES
ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND THEIR INVESTMENT PROFESSIONALS
Advise current and prospective shareholders on their Fund investments.
TRANSFER AGENT/SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping, statements, processing of buy and sell
requests, distribution of dividends, and servicing of shareholder accounts.
ADMINISTRATOR, DISTRIBUTOR, AND FUND ACCOUNTANT
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219
Markets the Funds, distributes shares through Investment Professionals, and
calculates the value of shares. As Administrator, handles the day-to-day
activities of the Funds.
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
Provides for safekeeping of the Funds' investments and cash, and settles trades
made by the Funds.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain sub-administrative services.
24
<PAGE>
Additional Information
Some additional information you should know about the Funds.
Share Classes
The Funds currently offer only the classes of shares described in this
Prospectus. At some future date, the Funds may offer additional classes of
shares.
Performance
The Victory Funds may advertise the performance of each 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 may include the yield and average annual total return of
each Fund calculated on a compounded basis for specified periods of time. Yield
and 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. You also
should see the "Investment Performance" section for the Fund in which you would
like to invest.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Funds 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 Funds send these
documents to each shareholder individually by calling the Funds at 800-539-FUND
(800-539-3863).
If you would like to receive additional copies of any materials, please call the
Funds at 800-539-FUND.
25
<PAGE>
Financial Highlights
LIMITED TERM INCOME FUND
The Financial Highlights table is intended to help you understand the Limited
Term Income Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the Limited Term
Income Fund. The total returns in the table represent the rate that an investor
would have earned on an investment in the Limited Term Income Fund (assuming
reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A
Shares of the Limited Term Income Fund. The financial highlights for the five
fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers LLP,
whose report, along with the financial statements of the Limited Term Income
Fund, are included in the Fund's annual report, which is available by calling
the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.06 $ 9.94 $ 10.01 $ 10.15 $ 9.88
Investment Activities
Net investment income 0.50 0.54 0.61 0.63 0.57
Net realized and unrealized
gains (losses) from investments (0.33) 0.12 (0.07) (0.14) 0.27
Total from Investment Activities 0.17 0.66 0.54 0.49 0.84
Distributions
Net investment income (0.50) (0.54) (0.61) (0.62) (0.57)
In excess of net investment income -- -- -- (0.01) --
Net realized gains -- -- -- -- --
Total Distributions (0.50) (0.54) (0.61) (0.63) (0.57)
Net Asset Value, End of Period $ 9.73 $ 10.06 $ 9.94 $ 10.01 $ 10.15
Total Return (excludes sales charges) 1.72% 6.86% 5.57% 4.94% 8.77%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $47,488 $81,343 $81,913 $90,019 $172,002
Ratio of expenses to average net assets 0.96% 0.87% 0.85% 0.86% 0.78%
Ratio of net investment income
to average net assets 5.03% 5.44% 6.06% 5.90% 5.77%
Ratio of expenses to average net assets(1) 1.09% 1.02% 0.87% 0.89% 0.79%
Ratio of net investment income
to average net assets(1) 4.90% 5.29% 6.04% 5.87% 5.76%
Portfolio turnover 220% 177% 139% 221% 97%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)Effective June 5, 1995, the Victory Short-Term Government Income Portfolio
merged into the Limited Term Income Fund. Financial highlights for the
periods prior to June 5, 1995 represent the Limited Term Income Fund.
</TABLE>
26
<PAGE>
Financial Highlights
INTERMEDIATE INCOME FUND
The Financial Highlights table is intended to help you understand the
Intermediate Income Fund's financial performance for the past five years.
Certain information shows the results of an investment in one share of the
Intermediate Income Fund. The total returns in the table represent the rate that
an investor would have earned on an investment in the Intermediate Income Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A
Shares of the Intermediate Income Fund. The financial highlights for the five
fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers LLP,
whose report, along with the financial statements of the Intermediate Income
Fund, are included in the Fund's annual report, which is available by calling
the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.85 $ 9.61 $ 9.56 $ 9.69 $ 9.25
Investment Activities
Net investment income 0.50 0.53 0.56 0.56 0.60
Net realized and unrealized gains
(losses) from investments (0.52) 0.24 0.05 (0.13) 0.44
Total from Investment Activities (0.02) 0.77 0.61 0.43 1.04
Distributions
Net investment income (0.50) (0.53) (0.56) (0.56) (0.60)
Net realized gains (0.01) -- -- -- --
Total Distributions (0.51) (0.53) (0.56) (0.56) (0.60)
Net Asset Value, End of Period $ 9.32 $ 9.85 $ 9.61 $ 9.56 $ 9.69
Total Return (excludes sales charges) (0.18)% 8.30% 6.62% 4.56% 11.65%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $224,190 $256,267 $248,841 $272,087 $163,281
Ratio of expenses to
average net assets 1.00% 0.96% 0.96% 0.94% 0.82%
Ratio of net investment income
to average net assets 5.26% 5.48% 5.87% 5.81% 6.32%
Ratio of expenses to
average net assets(1) 1.26% 1.24% 1.09% 1.11% 1.06%
Ratio of net investment income
to average net assets(1) 5.00% 5.20% 5.74% 5.64% 6.08%
Portfolio turnover 303% 318% 195% 164% 98%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
</TABLE>
27
<PAGE>
Financial Highlights
FUND FOR INCOME
The Financial Highlights table is intended to help you understand the Fund for
Income's financial performance for the past five years. Certain information
shows the results of an investment in one share of the Fund for Income. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund for Income (assuming reinvestment of all dividends
and distributions).
These financial highlights reflect historical information about Class A and
Class G Shares of the Fund for Income. The financial highlights for the period
from January 1, 1999 to October 31, 1999 were audited by PricewaterhouseCoopers
LLP, whose report, along with the financial statements of the Fund for Income,
are included in the Fund's annual report, which is available by calling the Fund
at 800-539-FUND. The financial highlights for the five fiscal years ended
December 31, 1998 were audited by Arthur Andersen LLP.
<TABLE>
<CAPTION>
Class A
Shares Class G Shares
Mar. 26, Jan. 1, Year Year Year Year Year
1999 to 1999 to Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1999(4)(7) 1999(4) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.14 $ 13.32 $ 13.14 $ 12.88 $ 13.21 $ 12.02 $ 13.37
Investment Activities
Net investment income 0.46 0.66 0.77 0.78 0.78 0.79 0.76
Net realized and unrealized
gains (losses) on investments (0.36) (0.54) 0.17 0.26 (0.34) 1.23 (1.25)
Total from Investment Activities 0.10 0.12 0.94 1.04 0.44 2.02 (0.49)
Distributions
Net investment income (0.45) (0.66) (0.76) (0.78) (0.77) (0.79) (0.78)
In excess of net investment income -- -- -- -- -- -- (0.01)
Net realized gains -- -- -- -- -- -- (0.05)
Tax return of capital -- -- -- -- -- (0.04) (0.02)
Total Distributions (0.45) (0.66) (0.76) (0.78) (0.77) (0.83) (0.86)
Net Asset Value, End of Period $ 12.79 $ 12.78 $ 13.32 $ 13.14 $ 12.88 $ 13.21 $ 12.02
Total Return (excludes sales charges) 0.72%(2) 0.94%(2) 7.37% 8.36% 3.51% 17.20% (3.69)%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $40,270 $192,422 $159,712 $155,072 $162,874 $185,434 $184,029
Ratio of expenses to
average net assets (5) 1.00%(3) 0.88%(3) 0.89% 0.90% 0.90% 0.92% 0.90%
Ratio of net investment income
to average net assets (5) 6.02%(3) 6.12%(3) 5.79% 6.04% 6.06% 6.19% 6.03%
Ratio of expenses to
average net assets(1) 1.22%(3) 1.04%(3) 0.90% (6) (6) (6) (6)
Ratio of net investment income
to average net assets(1) 5.80%(3) 5.96%(3) 5.78% (6) (6) (6) (6)
Portfolio turnover (8) 24% 24% 36% 12% 13% 16% 21%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(2)Not annualized.
< F3> Annualized.
(4)Effective March 26, 1999, the Gradison Government Income Fund merged into
the Victory Fund For Income. Financial highlights prior to March 26, 1999
represent the Gradison Government Income Fund.
(5)Effective March 26, 1999, the Adviser agreed to waive its management fee or
to reimburse expenses, as allowed by law, to the extent necessary to
maintain the net operating expenses of the Class G Shares of the Fund at a
maximum of 0.89% until at least April 1, 2001. The Adviser has also agreed
to waive its management fee for Class A Shares to the same extent the fee
is waived for Class G Shares until at least April 1, 2001.
(6)There were no voluntary fee reductions during the period.
(7)Period from commencement of operations.
(8)Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
</TABLE>
28
<PAGE>
Financial Highlights
INVESTMENT QUALITY BOND FUND
The Financial Highlights table is intended to help you understand the Investment
Quality Bond Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the Investment
Quality Bond Fund. The total returns in the table represent the rate that an
investor would have earned on an investment in the Investment Quality Bond Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A
Shares of the Investment Quality Bond Fund. The financial highlights for the
five fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers
LLP, whose report, along with the financial statements of the Investment Quality
Bond Fund, are included in the Fund's annual report, which is available by
calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997< F3> 1996 1995< F2>
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 9.78 $ 9.63 $ 9.76 $ 9.10
Investment Activities
Net investment income 0.54 0.55 0.57 0.57 0.62
Net realized and unrealized gains
(losses) from investments (0.64) 0.22 0.14 (0.13) 0.67
Total from Investment Activities (0.10) 0.77 0.71 0.44 1.29
Distributions
Net investment income (0.53) (0.55) (0.56) (0.56) (0.62)
In excess of net investment income -- -- -- -- (0.01)
Tax return of capital -- -- -- (0.01) --
Total Distributions (0.53) (0.55) (0.56) (0.57) (0.63)
Net Asset Value, End of Period $ 9.37 $ 10.00 $ 9.78 $ 9.63 $ 9.76
Total Return (excludes sales charges) (1.18)% 8.06% 7.67% 4.65% 14.63%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $140,962 $169,932 $181,007 $150,807 $125,248
Ratio of expenses to
average net assets 1.09% 1.06% 1.04% 1.01% 0.88%
Ratio of net investment income
to average net assets 5.44% 5.49% 5.90% 5.99% 6.59%
Ratio of expenses to
average net assets(1) 1.34% 1.31% 1.17% 1.14% 1.10%
Ratio of net investment income
to average net assets(1) 5.19% 5.24% 5.77% 5.86% 6.37%
Portfolio turnover 398% 492% 249% 182% 160%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)Effective June 5, 1995, the Victory Corporate Bond Portfolio merged into
the Investment Quality Bond Fund. Financial highlights for the periods
prior to June 5, 1995 represent the Investment Quality Bond Fund.
(3)Effective June 13, 1997, the Victory Government Bond Fund merged into
the Investment Quality Bond Fund. Financial highlights for the periods
prior to June 13, 1997 represent the Investment Quality Bond Fund.
</TABLE>
29
<PAGE>
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30
<PAGE>
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31
<PAGE>
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32
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
If you would like a free copy of any of the following documents or would like to
request other information regarding the Funds, you can call or write the Funds
or your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Funds and their policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes each Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected a Fund's
performance during its last fiscal year.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Funds 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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http://www.victoryfunds.com.
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-TXFI-PRO (2/00)
<PAGE>
Prospectus
Specialty Funds
Balanced Fund
Class A and G Shares
Convertible Securities Fund
Class A and G Shares
Real Estate Investment Fund
Class A and G Shares
February 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any 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)
Call Victory at:
800-539-FUND
(800-539-3863)
or visit the Victory Funds' website at:
www.victoryfunds.com
<PAGE>
The Victory Portfolios
Table of Contents
Introduction 1
Risk/Return Summary for each of the Funds An analysis which includes the
investment objective, principal strategies, principal risks, performance, and
expenses of each Fund .
Balanced Fund
Class A and G Shares 2
Convertible Securities Fund
Class A and G Shares 4
Real Estate Investment Fund
Class A and G Shares 6
Investments 8
Risk Factors 9
Share Price 12
Dividends, Distributions, and Taxes 12
Investing with Victory
* Choosing a Share Class 14
* How to Buy Shares 17
* How to Exchange Shares 19
* How to Sell Shares 20
Organization and Management of the Funds 22
Additional Information 24
Financial Highlights
Balanced Fund 25
Convertible Securities Fund 26
Real Estate Investment Fund 27
Appendix 28
Key to Financial Information
Objective and Strategies
The goals and the strategies that a Fund plans to use to pursue its investment
objective.
Risk Factors
The risks you may assume as an investor in a Fund.
Performance
A summary of the historical performance of a Fund in comparison to an unmanaged
index, and, in some cases, the average performance of a category of mutual
funds.
Expenses
The costs you will pay, directly or indirectly, as an investor in a Fund,
including sales charges and ongoing expenses.
Shares of the Funds are:
* Not insured by the FDIC;
* Not deposits or other obligations of, or guaranteed by KeyBank, any of its
affiliates, or any other bank;
* Subject to possible investment risks, including possible loss of the amount
invested.
<PAGE>
Introduction
This Prospectus explains the objectives, policies, risks, performance,
strategies, and expenses of the Shares of the Victory Funds described in this
Prospectus (the Funds).
Investment Strategy
Each Fund pursues its investment objectives by investing primarily in equity
securities. The Balanced Fund also invests a portion of its assets in debt
securities and the Convertible Securities Fund invests primarily in fixed-income
securities convertible into common stock. However, each Fund has unique
investment strategies and its own risk/reward profile. Please review the
"Risk/Return Summary" for each Fund and the "Investments" section for an
overview.
Risk Factors
Each Fund invests primarily in equity securities. The value of equity securities
may fluctuate in response to the activities of an individual company, or in
response to general market or economic conditions. The Balanced Fund and the
Convertible Securities Fund are subject to the risks of both equity and debt
securities, since both Funds are permitted to invest in both types of
securities. There are other potential risks discussed in each "Risk/Return
Summary" and in "Risk Factors."
Who May Want to Invest in the Funds
* Investors who want a diversified portfolio
* Investors willing to accept the risk of price and dividend fluctuations
* Investors willing to accept higher short-term risk along with higher
potential long-term returns
* Long-term investors with a particular goal, like saving for retirement or a
child's education
Share Classes
Each Fund offers Class A and Class G Shares. See "Choosing a Share Class."
Key Asset Management Inc., which we will refer to as the "Adviser" or "KAM"
throughout this Prospectus, manages the Funds.
Please read this Prospectus before investing in the Funds and keep it for future
reference.
The following pages provide you with an overview of each of the Funds. Please
look at the objective, policies, strategies, risks, and expenses to determine
which Fund will suit your risk tolerance and investment needs.
1
<PAGE>
Risk/Return Summary
BALANCED FUND
CLASS A SHARES
Cusip#: 926464876
SBALX
CLASS G SHARES
Cusip#: 926464272
Investment Objective
The Balanced Fund seeks to provide income and long-term growth of capital.
Principal Investment Strategies
The Balanced Fund pursues its investment objective by investing in equity
securities and fixed income securities. The Balanced Fund may invest in any type
or class of security, including foreign securities.
Under normal market conditions, the Balanced Fund will:
* Invest 40% to 75% of its total assets in equity securities and securities
convertible or exchangeable into common stock; and
* Invest at least 25% of its total assets in debt securities and preferred
stocks. The debt securities in which the Balanced Fund may invest include asset
backed securities, mortgage backed securities, corporate bonds and U.S.
government securities.
Important Characteristics of the Balanced Fund's Investments:
In making investment decisions involving Equity Securities, the Adviser
considers:
* The growth and profitability prospects for the economic sector and markets in
which the company operates and for the products or services it provides;
* The financial condition of the company; and
* The price of the security and how that price compares to historical price
levels, to current price levels in the general market, and to prices of
competing companies; projected earnings estimates; and the earnings growth rate
of the company.
In making investment decisions involving Debt Securities, the Adviser considers:
* Quality: The Balanced Fund primarily purchases investment-grade debt
securities.
* Maturity: The average weighted maturity of the Balanced Fund's fixed income
securities will range from 5 to 15 years. This range may be changed in response
to changes in market conditions.
In making investment decisions involving Preferred Stock, the Adviser considers:
* The issuer's financial strength, including its historic and current
financial condition;
* The issuer's projected earnings, cash flow, and borrowing requirements; and
* The issuer's continuing ability to meet its obligations.
The Balanced Fund's higher portfolio turnover rate may result in higher expenses
and taxable gain distributions.
There is no guarantee that the Balanced Fund will achieve its objectives.
Principal Risks
You may lose money by investing in the Balanced Fund. The Balanced Fund is
subject to the following principal risks, more fully described in "Risk
Factors." The Balanced 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 Balanced Fund declines.
* The portfolio manager does not execute the Balanced Fund's principal
investment strategies effectively.
* A company's earnings do not increase as expected.
* Foreign securities experience more volatility than their domestic
counterparts, in part because of higher political and economic risks, lack of
reliable information, fluctuations in currency exchange rates, and the risks
that a foreign government may take over assets, restrict the ability to exchange
currency or restrict the delivery of securities.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The Balanced Fund must reinvest interest or sale proceeds at lower rates.
* The rate of inflation increases.
* The average life of a mortgage-related security is shortened or lengthened.
An investment in the Balanced 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.
By itself, the Balanced Fund does not constitute a complete investment plan and
should be considered a long-term investment for investors who can afford to
weather changes in the value of their investment and in the level of income they
receive from their investment.
2
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Balanced Fund by showing changes in its performance for various
time periods ending December 31st. The figures shown in the bar chart and table
assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Balanced Fund. Sales loads
are not reflected on the bar chart (or highest and lowest returns below) and if
they were reflected, returns would be lower than those shown.
1994 -1.73%
1995 26.11%
1996 14.55%
1997 19.51%
1998 17.91%
1999 6.85%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
10.17% (quarter ending December 31, 1998) and the lowest return for a quarter
was - 4.32% (quarter ending September 30, 1999).
The table shows how the average annual total returns for Class A Shares of the
Balanced Fund for one year, five years and since inception, including maximum
sales charges, compare to those of a broad-based market index and an index of
mutual funds with similar investment objectives.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999) One Year 5 Years (12/10/93)
Class A(1) 0.68% 15.43% 12.33%
S&P 500 Index(2),(4) 21.04% 28.55% 23.30%
Lipper Balanced Fund Index(3),(4) 8.98% 16.33% 13.15%
1 The Balanced Fund did not offer Class G Shares prior to December 15, 1999.
2 The Standard & Poor's 500 Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies.
3 The Lipper Balanced Fund Index is a non-weighted index of the 30 largest funds
within the Lipper Balanced Fund investment category.
4 Index returns do not include any brokerage commissions, sales charges, or
other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Balanced 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(3) 0.80% 0.80%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to
Class A Shares) 0.50% 0.31%
Total Fund Operating Expenses 1.30% 1.61%(4)
Fee Waiver/Expense Reimbursement (0.00)% (0.06)%
Net Expenses 1.30%(5) 1.55%(6)
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 Management fees have been restated to reflect reduction from 1.00% to 0.80%.
4 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year.
5 The Adivser may waive its management fee and reimburse expenses, as allowed by
law, so that the net operating expenses of Class A Shares do not exceed 1.25%.
The Adviser may terminate this waiver/reimbursement at any time to the extent
allowed by law.
6 The Adviser has agreed to waive its management fee or to reimburse expenses,
as allowed by law, to the extent necessary to maintain the net operating
expenses of Class G Shares of the Balanced Fund at a maximum of 1.55% until at
least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Balanced Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Balanced Fund for the time
periods shown and then sell all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Balanced 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 5 Years 10 Years
Class A $700 $963 $1,247 $2,053
Class G $158 $502 $ 870 $1,906
1 This Example assumes that net operating expenses for Class G Shares of the
Balanced Fund will equal 1.55% until February 28, 2001 and will equal 1.61%
thereafter.
3
<PAGE>
Risk/Return Summary
CONVERTIBLE SECURITIES FUND
CLASS A SHARES
Cusip#: 926464538
SBFCX
CLASS G SHARES
Cusip#: 926464280
Investment Objective
The Convertible Securities Fund seeks a high level of current income together
with long-term capital appreciation.
Principal Investment Strategies
The Convertible Securities Fund pursues its investment objective by investing at
least 65% of its total assets in convertible securities. Investments in
securities are not limited by credit quality. Lower quality or
below-investment-grade debt securities are sometimes referred to as "junk
bonds."
Under normal market conditions, the Convertible Securities Fund will invest at
least 65% of its total assets in:
* Securities convertible into common stocks, such as convertible bonds,
convertible notes, and convertible preferred stocks; and
* Synthetic convertible securities, which are created by combining fixed income
securities with the right to acquire equity securities.
There is no guarantee that the Convertible Securities Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Convertible Securities Fund. The
Convertible Securities Fund is subject to the following principal risks, more
fully described in "Risk Factors." The Convertible Securities 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 Convertible Securities Fund
declines.
* The portfolio manager does not execute the Convertible Securities Fund's
principal investment strategies effectively.
* A company's earnings do not increase as expected.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The rate of inflation increases.
An investment in the Convertible Securities 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. In addition, the
Convertible Securities Fund is subject to the risks related to investments in
below-investment-grade debt securities.
By itself, the Convertible Securities Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
4
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Convertible Securities Fund by showing changes in its
performance for various time periods ending December 31st. The figures shown in
the bar chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Convertible Securities
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1990 -4.96%
1991 27.69%
1992 11.30%
1993 20.09%
1994 -6.45%
1995 24.30%
1996 19.14%
1997 16.35%
1998 - 0.78%
1999 11.75%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
9.38% (quarter ending March 31, 1994) and the lowest return for a quarter was
- -10.67% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
Convertible Securities Fund for one year, five years and ten years, including
maximum sales charges, compare to those of a broad-based market index and an
index of mutual funds with similar investment objectives.
Average Annual Total Returns
(for the Periods ended Past Past Past
December 31, 1999) One Year 5 Years 10 Years
Class A(1) 5.35% 12.47% 10.58%
S&P 500 Index(2),(4) 21.04% 28.55% 10.58%
Lipper Convertible Securities Fund Index(3),(4) 28.30% 16.44% 12.39%
1 The Convertible Securities Fund did not offer Class G Shares prior to December
15, 1999.
2 The Standard & Poor's 500 Stock Index is a broad-based unmanaged index that
represents the general performance of domestically traded common stocks of mid-
to large-size companies.
3 Mutual funds listed in the Lipper Convertible Securities Fund Index invest
primarily in convertible bonds and convertible preferred shares.
4 Index returns do not include any brokerage commissions, sales charges, or
other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Convertible Securities 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 0.75% 0.75%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable
to Class A Shares) 0.49% 0.39%
Total Fund Operating Expenses 1.24% 1.64%(3)
Fee Waiver/Expense Reimbursement (0.00)% (0.09)%
Net Expenses 1.24%(3) 1.55%(3)
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 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year . The Adviser has contractually agreed to waive its
management fee and reimburse expenses, as allowed by law, so that the net
operating expenses of Class A and Class G Shares of the Convertible Securities
Fund will equal 1.24% and 1.55%, respectively, until at least February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Convertible Securities Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Convertible
Securities 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 Convertible Securities 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 5 Years 10 Years
Class A $694 $946 $1,217 $1,989
Class G $158 $508 $ 883 $1,936
1 This Example assumes that net operating expenses for Class G Shares of the
Convertible Securities Fund will equal 1.55% until February 28, 2001 and will
equal 1.64% thereafter.
5
<PAGE>
Risk/Return Summary
REAL ESTATE INVESTMENT FUND
CLASS A SHARES
Cusip#: 926464579
VREIX
CLASS G SHARES
Cusip#: 926464298
Investment Objective
The Real Estate Investment Fund seeks to provide total return through
investments in real estate-related securities.
Principal Investment Strategies
The Real Estate Investment Fund pursues its investment objective by investing at
least 80% of the Fund's total assets in real estate-related companies.
Under normal market conditions, the Real Estate Investment Fund will invest
substantially all of its assets in:
* Equity securities (including equity and mortgage real estate investment
trusts (REITs));
* Rights or warrants to purchase common stocks;
* Securities convertible into common stocks when the Adviser thinks that the
conversion will be profitable; and
* Preferred stocks.
There is no guarantee that the Real Estate Investment Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Real Estate Investment Fund. The Real
Estate Investment Fund is subject to the following principal risks, more fully
described in "Risk Factors." The Real Estate Investment 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 Real Estate Investment Fund
declines.
* The portfolio manager does not execute the Real Estate Investment Fund's
principal investment strategies effectively.
An investment in the Real Estate Investment 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.
The Real Estate Investment Fund is a non-diversified fund. As a non-diversified
fund, the Real Estate Investment Fund may devote a larger portion of its assets
to the securities of a single issuer than if it were diversified. This could
make the Real Estate Investment Fund more susceptible to economic or credit
risks. In addition, the Real Estate Investment Fund is subject to the risks
related to direct investment in real estate.
By itself, the Real Estate Investment Fund does not constitute a complete
investment plan and should be considered a long-term investment for investors
who can afford to weather changes in the value of their investment.
6
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Real Estate Investment Fund by showing changes in its
performance for various time periods ending December 31st. The figures shown in
the bar chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Real Estate Investment
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1998 - 14.43%
1999 0.58%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
8.70% (quarter ending June 30, 1999) and the lowest return for a quarter was
- -10.51% (quarter ending September 30, 1998).
The table shows how the average annual total returns for Class A Shares of the
Real Estate Investment Fund for one year and since inception, including maximum
sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Inception
December 31, 1999) One Year (4/30/97)
Class A(1) -5.22% 1.20%
Morgan Stanley REIT Index(2) - 4.55% -1.14%
1 The Real Estate Investment Fund did not offer Class G Shares prior to December
15, 1999.
2 The Morgan Stanley REIT Index is a capitalization-weighted index with
dividends reinvested of the most actively traded real estate investment trusts
and is designed to be a measure of real estate equity performance. Index returns
do not include any brokerage commissions, sales charges, or other fees. It is
not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Real Estate Investment 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(3) 0.80% 0.80%
Distribution (12b-1) Fees 0.00% 0.50%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to
Class A Shares) 0.91% 0.60%
Total Fund Operating Expenses 1.71% 1.90%(4)
Fee Waiver/Expense Reimbursement (0.31)% (0.25)%
Net Expenses(5) 1.40% 1.65%
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 Management fees have been restated to reflect reduction from 1.00% to 0.80%.
4 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year.
5 The Adviser has contractually agreed to waive its management fee and to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class A Shares and Class G Shares of the Real Estate
Investment Fund at a maximum of 1.40% and 1.65%, respectively, until at least
February 28, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Real Estate Investment Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Real Estate
Investment Fund for the time periods shown and then sell all of your shares at
the end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Real Estate Investment 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 5 Years 10 Years
Class A $709 $1,054 $1,422 $2,454
Class G $168 $ 573 $1,003 $2,202
1 This Example assumes that Net Annual Fund Operating Expenses for Class A
Shares will equal 1.40% until February 28, 2001 and will equal 1.71% thereafter
and that Net Annual Fund Operating Expenses for Class G Shares will equal 1.65%
until February 28, 2001 and will equal 1.90% thereafter.
7
<PAGE>
Investments
The following describes some of the types of securities the Funds may purchase
under normal market conditions. All Funds will not buy all of the securities
listed below.
For cash management or for temporary defensive purposes in response to market
conditions, each 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 a Fund to fail to meet its investment
objective.
For more information on ratings and a more complete description of which Funds
can invest in certain types of securities, see the Statement of Additional
Information (SAI).
U.S. Equity Securities.
Can include common stock, preferred stock, and securities that are convertible
or exchangeable into common stock of U.S. corporations.
U.S. Government Securities.
Notes and bonds issued or guaranteed by the U.S. government, its agencies
or instrumentalities. Some are direct obligations of the U.S. Treasury;
others are obligations only of the U.S. agency or instrumentality.
Corporate Debt Obligations.
Debt instruments issued by public corporations. They may be secured or
unsecured.
Convertible or Exchangeable Corporate Debt Obligations.
Debt instruments that may be exchanged or converted to other securities.
Asset-Backed Securities.
Debt securities backed by loans or accounts receivable originated by banks,
credit card companies, student loan issuers, or other providers of credit. These
securities may be enhanced by a bank letter of credit or by insurance coverage
provided by a third party.
Mortgage-Backed Securities.
Instruments secured by a mortgage or pools of mortgages.
Preferred Stock.
A class of stock that pays dividends at a specified rate and that has preference
over common stock in the payment of dividends and the liquidation of assets.
Real Estate Investment Trusts.
Shares of ownership in real estate investment trusts or mortgages on real
estate.
8
<PAGE>
Risk Factors
This Prospectus describes the principal risks that you may assume as an
investor in the Funds.
This table summarizes the principal risks, described below, to which the Funds
are subject.
Convertible Real Estate
Balanced Securities Investment
Fund Fund Fund
Market risk and X X X
manager risk
Equity risk X X X
Foreign security
and currency risk X
Debt security risk X X
Below-investment-grade
security risk X
Real estate
security risk X
Concentration and
diversification risk X
Mortgage-related
security risk X
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 a 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 a Fund's portfolio manager may implement its
investment strategy in a way that does not produce the intended result.
By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.
9
<PAGE>
Risk Factors (continued)
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.
Risks 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.
Risks associated with investing in foreign securities:
* Currency risk is the risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses. Political and
economic risks, along with other factors, could adversely affect the value of
the Balanced Fund's securities.
* Foreign issuer risk. Compared to U.S. companies, there generally is less
publicly available information about foreign companies and there may be less
governmental regulation and supervision of foreign stock exchanges, brokers, and
listed companies. Foreign issuers may not be subject to the uniform accounting,
auditing, and financial reporting standards and practices prevalent in the U.S.
In addition, foreign securities markets may be more volatile and subject to less
governmental supervision than their counterparts in the U.S. Investments in
foreign countries could be affected by factors not present in the U.S.,
including expropriation, confiscation of property, and difficulties in enforcing
contracts. All of these factors can make foreign investments more volatile than
U.S. investments.
Risks associated with investing in debt securities:
* Interest rate risk. The value of a debt security typically changes in the
opposite direction from a change in interest rates. When interest rates go up,
the value of a debt security typically goes down. When interest rates go down,
the value of a debt security typically goes up. Generally, the market values of
securities with longer maturities are more sensitive to changes in interest
rates.
* Inflation risk is the risk that inflation will erode the purchasing power of
the cash flows generated by debt securities held by a Fund. Fixed-rate debt
securities are more susceptible to this risk than floating-rate debt securities
or equity securities that have a record of dividend growth.
* Reinvestment risk is the risk that when interest rates are declining, a Fund
that receives interest income or prepayments on a security will have to reinvest
these moneys at lower interest rates. Generally, interest rate risk and
reinvestment risk tend to have offsetting effects, though not necessarily of the
same magnitude.
* Credit (or default) risk is the risk that the issuer of a debt security will
be unable to make timely payments of interest or principal. Although a Fund may
invest in high-quality securities, the interest or principal payments may not be
insured or guaranteed on all securities. Credit risk is measured by nationally
recognized statistical rating organizations (NRSROs) such as Standard & Poor's
(S&P), Fitch IBCA International, or Moody's Investors Service (Moody's)
10
<PAGE>
Risk Factors (continued)
Risks associated with investing in below-investment-grade securities:
* Below-investment-grade securities ("junk bonds") are subject to certain risks
in addition to those risks associated with higher-rated securities.
Below-investment-grade securities may be more susceptible to real or perceived
adverse economic conditions, less liquid, and more difficult to evaluate than
investment-grade securities.
Risks associated with investing in mortgage-related securities:
* Prepayment risk. Prepayments of principal on mortgage-related securities
affect the average life of a pool of mortgage-related securities. The level of
interest rates and other factors may affect the frequency of mortgage
prepayments. In periods of rising interest rates, the prepayment rate tends to
decrease, lengthening the average life of a pool of mortgage-related securities.
In periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool of mortgage-related securities. Prepayment
risk is the risk that, because prepayments generally occur when interest rates
are falling, a Fund may have to reinvest the proceeds from prepayments at lower
interest rates.
* Extension risk is the risk that the rate of anticipated prepayments on
principal may not occur, typically because of a rise in interest rates, and the
expected maturity of the security will increase. During periods of rapidly
rising interest rates, the effective average maturity of a security may be
extended past what a Fund's portfolio manager anticipated that it would be. The
market value of securities with longer maturities tend to be more volatile.
Risks associated with investing in real estate securities:
* Real estate risk is the risk that the value of a security will fluctuate
because of changes in property values, vacancies of rental properties,
overbuilding, changes in local laws, increased property taxes and operating
expenses, and other risks associated with real estate. While the Real Estate
Investment Fund will not invest directly in real estate, it may be subject to
the risks associated with direct ownership. Equity REITs(1) may be affected by
changes in property value, while mortgage REITs(2) may be affected by credit
quality and interest rates.
1 Equity REITs may own property, generate income from rental and lease payments,
and offer the potential for growth from property appreciation and periodic
capital gains from the sale of property.
2 Mortgage REITs earn interest income and are subject to credit risks, like the
chance that a developer may fail to repay a loan. Mortgage REITs are also
subject to interest rate risk, described above.
* Regulatory risk. Certain REITs may fail to qualify for pass-through of income
under federal tax law, or to maintain their exemption from the registration
requirements under federal securities laws.
An investment in a Fund is not a complete investment program.
11
<PAGE>
Share Price
Each 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 Funds value their investments based on market value. When market quotations
are not readily available, the Funds value their investments based on fair value
methods approved by the Board of Trustees of the Victory Portfolios. Each Class
of each Fund calculates its NAV by adding up the total value of its investments
and other assets, subtracting its liabilities, and then dividing that figure by
the number of outstanding shares of the Class.
Total Assets- Liabilities
NAV = ----------------------------
Number of Shares Outstanding
You can find a Fund's net asset value each day in The Wall Street Journal and
other newspapers. Newspapers do not normally publish fund information until a
Fund reaches a specific number of shareholders or level of assets.
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 a Fund's distribution schedule before you
invest. If you buy shares of a Fund shortly before it makes a distribution, some
of your investment may come back to you as a taxable distribution.
As a shareholder, you are entitled to your share of net income and capital gains
on the Fund's investments. The Funds pass their earnings along to investors in
the form of dividends. Dividend distributions are the net income earned on
investments after expenses. A Fund will distribute short-term gains, as
necessary, and if a 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 a Fund.
Ordinarily, the Balanced Fund declares and pays dividends monthly. The
Convertible Securities Fund and the Real Estate Investment Fund each 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 a
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 a Fund and
have your capital gains paid in cash, or reinvest capital gains and have your
dividends paid in cash.
12
<PAGE>
Dividends , Distributions, and Taxes (continued)
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
class of another fund, you may pay a sales charge on the reinvested
distributions.
DIRECTED BANK ACCOUNT OPTION
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, a 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
Each Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Ordinary dividends from a Fund are taxable as ordinary income; dividends from
a 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.
* Dividends from a Fund that are attributable to interest on certain U.S.
government obligations may be exempt from certain state and local income taxes.
The extent to which ordinary dividends are attributable to these U.S. government
obligations will be provided on the tax statements you receive from a Fund.
* An exchange of a Fund's shares for shares of another fund will be treated as a
sale. When you sell or exchange shares of a 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 each Fund every January showing the amounts
and tax status of distributions made to you.
* Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your tax.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
The tax information in this Prospectus is provided as general information. You
should consult your own tax adviser about the tax consequences of an investment
in a Fund.
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.
13
<PAGE>
INVESTING WITH VICTORY
If you are looking for a convenient way to open an account or to add money to an
existing account, Victory can help. The sections that follow will serve as a
guide to your investments with Victory. "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 a Fund. The following sections will describe how to open an account,
how to access information on your account, and how to buy, exchange, and sell
shares of a 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.
All you need to do to get started is to fill out an application.
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.
For historical expense information on Class A Shares, see the financial
highlights at the end of this Prospectus.
Each Fund offers Class A and Class 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 on the next page. There are several
ways to reduce this charge.
* Lower annual expenses, generally, 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.
14
<PAGE>
Choosing a Share Class (continued)
Calculation of Sales Charges -- Class A
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed below:
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.
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 a Fund over a 13-month
period and receive the same sales charge as if all shares had been purchased at
one time. You must start with a minimum initial investment of 5% of the total
amount.
2. Rights of Accumulation allow you to add the value of any Class A Shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge at the time of purchase.
3. You can combine Class A Shares of multiple Victory Funds, (excluding 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. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees, employees, and family
members of employees of KeyCorp or "Affiliated Providers,"* and dealers who have
an agreement with the Distributor and any trade organization to which the
Adviser or the Administrator belong.
b. Investors who purchase shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
*Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
15
<PAGE>
Choosing a Share Class (continued)
c. Investors who reinvest the 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 National Association and its affiliates, the
Victory Group , or invested in a fund of the Victory Group.
d. Investment Professionals who purchased Fund shares for fee-based investment
products or accounts, and selling brokers and their sales representatives.
e. Purchase of shares in connection with financial institution sponsored bundled
omnibus retirement programs sponsored by financial institutions that have
entered into agreements with the Funds' Distributor in connection with the
operational requirements of such programs.
f. Participants in tax-deferred retirement plans who purchased shares pursuant
to waiver provisions in effect prior to December 15, 1999.
Shareholder Servicing Plan
Each Fund has adopted a Shareholder Servicing Plan for its Class A Shares . The
shareholder servicing agent performs a number of services for its customers who
are shareholders of the Funds. It establishes and maintains accounts and
records, processes dividend payments, arranges for bank wires, assists in
transactions, and changes account information. For these services, a Fund pays a
fee at an annual rate of up to 0.25% of the average daily net assets of the
Class A Shares serviced by the agent. The Funds may enter into agreements with
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers. The Funds
may pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically.
Distribution Plan
In accordance with Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for Class A Shares of the
Convertible Securities Fund and the Real Estate Investment Fund, but these Funds
do not pay expenses under this plan. See the SAI for more details regarding this
plan.
Victory has also adopted a Distribution and Service Plan for Class G Shares of
each Fund, under which these shares will pay to the Distributor a monthly
service fee at an annual rate of 0.25% of the average daily net assets of each
Fund. The service fee is paid to securities broker-dealers or other financial
intermediaries for providing personal services to shareholders of these Funds,
including responding to inquiries, providing information to shareholders about
their fund accounts, establishing and maintaining accounts and records,
processing dividend and distribution payments, arranging for bank wires,
assisting in transactions, and changing account information. Each Fund may enter
into agreements with various shareholder servicing agents, including KeyCorp and
its affiliates, and with other financial institutions that provide such
services.
Under the Class G Rule 12b-1 Distribution and Service Plan, Class G Shares of
each Fund also annually pay the Distributor a monthly distribution fee in an
additional amount of up to 0.25% of each Fund's average daily net assets. The
distribution fee is paid to the Distributor for general distribution services
and for selling Class G Shares of these Funds. The Distributor makes payments to
agents who provide these services.
Because Rule 12b-1 fees are paid out of a Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
16
<PAGE>
How to Buy Shares
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum investment required to open
an account is $500 ($100 for IRAs), 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 a Fund.
If you buy shares directly from the Funds 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 the Transfer Agent at 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)
17
<PAGE>
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 Funds do not charge a fee
for ACH transfers.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, 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 Funds. 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 a Fund.
Retirement Plans
You can use the Funds as part of your retirement portfolio. Your Investment
Professional can set up your new account under one of several tax-deferred
retirement plans. Please contact your Investment Professional or the Funds 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.
18
<PAGE>
How to Exchange Shares
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 a Fund by writing the Transfer Agent or calling
800-539-FUND. When you exchange shares of a 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 a 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 a 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.
* Each Fund may refuse any exchange purchase request if the Adviser determines
that the request is associated with a market timing strategy. Each 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.
* Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can exchange into
Class A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
You can obtain a list of funds available for exchange by calling 800-539-FUND.
19
<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 sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
* Redemptions over $10,000;
* Your account registration has changed within the last 15 days;
* The check is not being mailed to the address on your account;
* The check is not being made payable to the owner of the account;
* The redemption proceeds are being transferred to another Victory 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 on 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.
20
<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.
* A Fund may suspend your right to redeem your shares in the following
circumstances:
- During non-routine closings of the NYSE;
- When the Securities and Exchange Commission (SEC) determines either that
trading on the NYSE is restricted or that an emergency prevents the sale or
valuation of the Fund's securities; or
- When the SEC orders a suspension to protect a Fund's shareholders.
* Each Fund will pay redemptions by any one shareholder during any 90-day period
in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Each Fund
reserves the right to pay the remaining portion "in kind," that is, in portfolio
securities rather than cash.
21
<PAGE>
Organization and Management of the Funds
About Victory
Each Fund is a member of the Victory Portfolios, a group of more than 30
distinct investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Funds.
The Investment Adviser and Sub-Administrator
Each 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 each of the Funds. KAM, a
subsidiary of KeyCorp, oversees the operations of the Funds according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $76 billion for a limited number of
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114.
For the fiscal year ended October 31, 1999, KAM was paid advisory fees based on
a percentage of the average daily net assets of each Fund (after waivers) as
follows:
Balanced Fund 0.80%
Convertible Securities Fund 0.75%
Real Estate Investment Fund 0.40%
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc. pays KAM a
fee at the annual rate of up to 0.05% of each Fund's average daily net assets to
perform some of the administrative duties for the Funds.
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Funds to
provide services to their shareholders. Each of these organizations is paid a
fee for its services.
Portfolio Management
Denise Coyne and Richard T. Heine are the portfolio managers of the Balanced
Fund, and together are primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Heine has been the portfolio manager of the Balanced
Fund since its inception in December 1993. He is a Portfolio Manager and
Director of KAM, and has been associated with KAM or its affiliates since 1976.
Ms. Coyne has been a portfolio manager of the Balanced Fund since January 1995.
She is a Portfolio Manager and Director for KAM, and has been associated with
KAM or its affiliates since 1985.
Richard A. Janus and James K. Kaesberg are the portfolio managers of the
Convertible Securities Fund, positions they have held since April 1996, and
together are primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Janus is a Senior Managing Director of KAM, and has been
associated with KAM or its affiliates since 1977. Mr. Kaesberg is a Portfolio
Manager and Managing Director of Convertible Securities Investments for KAM, and
has been associated with KAM or its affiliates since 1985.
Patrice Derrington and Richard E. Salomon are the Portfolio Managers of the Real
Estate Investment Fund, and together are primarily responsible for the
day-to-day management of the Fund's portfolio. They have been the Fund's
portfolio managers since its inception. Ms. Derrington is a Managing Director
and Portfolio Manager of KAM, and has been associated with KAM or its affiliates
since 1991. Mr. Salomon is a Director of, and a Senior Managing Director with,
KAM and has been associated with KAM or its affiliates since 1982.
22
<PAGE>
Organization and Management of the Funds (cont.)
OPERATIONAL STRUCTURE OF THE FUNDS
TRUSTEES ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
THEIR INVESTMENT PROFESSIONALS
Advise current and prospective shareholders on their Fund
investments.
TRANSFER AGENT/SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping, statements,
processing of buy and sell requests, distribution of
dividends, and servicing of shareholder accounts.
ADMINISTRATOR, DISTRIBUTOR,
AND FUND ACCOUNTANT
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219
Markets the Funds, distributes Investment shares through Professionals, and
calculates the value of shares. As Administrator, handles the day-to-day
activities of the Funds.
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
Provides for safekeeping of the Funds' investments and cash, and settles trades
made by the Funds.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain sub-administrative services.
Each Fund is supervised by the Board of Trustees, which monitors the services
provided to investors.
23
<PAGE>
Additional Information
Some additional information you should know about the Funds.
Share Classes
The Funds currently offer only the classes of shares described in this
Prospectus. At some future date, the Funds may offer additional classes of
shares.
Performance
The Victory Funds may advertise the performance of each 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 each
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. You also should see the
"Investment Performance" section for the Fund in which you would like to invest.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Funds 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 Funds send these
documents to each shareholder individually by calling the Funds at 800-539-FUND
(800-539-3863).
If you would like to receive additional copies of any materials, please call the
Funds at 800-539-FUND.
24
<PAGE>
Financial Highlights
BALANCED FUND
The Financial Highlights table is intended to help you understand the Balanced
Fund's financial performance for the past five years. Certain information shows
the results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A Shares
of the Balanced Fund. The financial highlights for the five fiscal years ended
October 31, 1999 were audited by PricewaterhouseCoopers LLP, whose report, along
with the financial statements of the Balanced Fund, are included in the Fund's
annual report, which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Prior to
Designation
as Class A
Class A Shares Shares
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996(2) 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 14.67 $ 13.87 $ 12.33 $ 11.01 $ 9.62
Investment Activities
Net investment income 0.32 0.37 0.36 0.36 0.41
Net realized and unrealized
gains (losses) from investments
and foreign currencies 1.34 1.54 1.90 1.39 1.40
Total from Investment Activities 1.66 1.91 2.26 1.75 1.81
Distributions
Net investment income (0.31) (0.37) (0.35) (0.36) (0.41)
In excess of net investment income -- -- -- -- (0.01)
Net realized gains (0.92) (0.74) (0.37) (0.07) --
Total Distributions (1.23) (1.11) (0.72) (0.43) (0.42)
Net Asset Value, End of Period $ 15.10 $ 14.67 $ 13.87 $ 12.33 $ 11.01
Total Return (excludes sales charges) 11.73% 14.55% 19.02% 16.27% 19.24%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $422,586 $418,807 $342,933 $273,553 $201,073
Ratio of expenses to
average net assets 1.27% 1.27% 1.25% 1.27% 0.98%
Ratio of net investment
income to average net assets 2.13% 2.54% 2.69% 3.14% 4.05%
Ratio of expenses to average
net assets(1) 1.50% 1.50% 1.36% 1.43% 1.36%
Ratio of net investment income
to average net assets(1) 1.90% 2.31% 2.58% 2.98% 3.67%
Portfolio turnover (3) 177% 231% 109% 80% 69%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(2)Effective March 1, 1996, the Fund designated the existing shares as
Class A.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
</TABLE>
25
<PAGE>
Financial Highlights
CONVERTIBLE SECURITIES FUND
The Financial Highlights table is intended to help you understand the
Convertible Securities Fund's financial performance for the past five years.
Certain information shows the results of an investment in one share of the Fund.
The total returns in the table represent the rate that an investor would have
earned on an investment in the Fund (assuming reinvestment of all dividends and
distributions).
These financial highlights reflect historical information about Class A Shares
of the Convertible Securities Fund. The financial highlights for the fiscal year
ended October 31, 1999, the eleven months ended October 31, 1998 and the four
fiscal years ended November 30, 1997 were audited by PricewaterhouseCoopers LLP,
whose report, along with the financial statements of the Convertible Securities
Fund, are included in the Fund's annual report, which is available by calling
the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Eleven
Year Months Year Year Year Year
Ended Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Nov. 30, Nov. 30, Nov. 30, Nov. 30,
1999 1998< F1> 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.22 $ 14.33 $ 13.55 $ 12.16 $ 11.05 $ 12.48
Investment Activities
Net investment income 0.67 0.58 0.62 0.65 0.60 0.61
Net realized and unrealized gains
(losses) from investments 0.83 (1.08) 1.43 1.68 1.50 (1.12)
Total from Investment Activities 1.50 (0.50) 2.05 2.33 2.10 (0.51)
Distributions
Net investment income (0.70) (0.54) (0.65) (0.62) (0.61) (0.61)
Net realized gains (0.03) (1.07) (0.62) (0.32) (0.38) (0.31)
Total Distributions (0.73) (1.61) (1.27) (0.94) (0.99) (0.92)
Net Asset Value, End of Period $ 12.99 $ 12.22 $ 14.33 $ 13.55 $ 12.16 $ 11.05
Total Return (excludes sales charges) 12.46% (3.69)%< F2> 16.26% 20.28% 20.43% (4.36)%
Ratios/Supplementary Data:
Net Assets at end of period (000) $79,655 $108,069 $104,982 $81,478 $68,212 $58,845
Ratio of expenses to
average net assets 1.24% 1.20%< F3> 1.34% 1.31% 1.31% 1.30%
Ratio of net investment income
to average net assets 4.94% 4.60%< F3> 4.75% 5.17% 5.36% 5.20%
Portfolio turnover 73% 77% 77% 40% 52% 49%
- ---------------
(1)Effective March 23, 1998, the SBSF Convertible Securities Fund became the
Victory Convertible Securities Fund. Financial highlights prior to March 23,
1998 represent the SBSF Convertible Securities Fund.
(2)Not annualized.
(3)Annualized.
</TABLE>
26
<PAGE>
Financial Highlights
REAL ESTATE INVESTMENT FUND
The Financial Highlights table is intended to help you understand the Real
Estate Investment Fund's financial performance for the past two years. Certain
information shows the results of an investment in one share of the Real Estate
Investment Fund. The total returns in the table represent the rate that an
investor would have earned on an investment in the Real Estate Investment Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A Shares
of the Real Estate Investment Fund. The financial highlights for the two fiscal
years ended October 31, 1999 and the period from April 30, 1997 to October 31,
1997 were audited by PricewaterhouseCoopers LLP, whose report, along with the
financial statements of the Real Estate Investment Fund, are included in the
Fund's annual report, which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Year Apr. 30,
Ended Ended 1997 to
Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997(2)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.19 $ 12.07 $10.00
Investment Activities
Net investment income 0.52 0.50 0.23
Net realized and unrealized gains
(losses) from investments (0.50) (1.90) 2.01
Total from Investment Activities 0.02 (1.40) 2.24
Distributions
Net investment income (0.51) (0.44) (0.17)
Net realized gains -- (0.04) --
Total Distributions (0.51) (0.48) (0.17)
Net Asset Value, End of Period $ 9.70 $ 10.19 $12.07
Total Return (excludes sales charges) 0.03% (11.91)% 22.42%(3)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $14,205 $16,624 $4,376
Ratio of expenses to average net assets 1.16% 0.83% 0.00%(4)
Ratio of net investment income to
average net assets 4.92% 4.95% 5.11%(4)
Ratio of expenses to average
net assets(1) 1.91% 1.95% 2.93%(4)
Ratio of net investment income
to average net assets(1) 4.17% 3.83% 2.18%(4)
Portfolio turnover 62% 53% 21%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(2)The Real Estate Investment Fund commenced operations on April 30, 1997.
(3)Not annualized.
(4)Annualized.
</TABLE>
27
<PAGE>
Appendix Below-investment-grade Securities
The Convertible Securities Fund's investments in securities are not limited by
credit quality. Below-investment-grade debt securities are sometimes referred to
as "junk bonds." Below-investment-grade securities generally offer higher yields
than investment-grade securities with similar maturities, because the financial
condition of the issuers may not be as strong as issuers of investment-grade
securities. For this reason, below-investment-grade securities may be considered
"speculative," which means that there is a higher risk that the Convertible
Securities Fund may lose a substantial portion or all of its investment in a
particular below-investment-grade security.
The Convertible Securities Fund may purchase securities rated Baa, Ba, B, Caa,
or lower by Moody's and BBB, BB, B, CCC, or lower by S&P. The Convertible
Securities Fund also may purchase unrated securities with similar
characteristics. Generally, the Convertible Securities Fund will not purchase
securities rated Ba or lower by Moody's or BB or lower by S&P (or similar
unrated securities) unless KAM believes that the positive qualities of the
security justify the potential risk.
The following summarizes the characteristics of some of the
below-investment-grade ratings of Moody's and S&P:
Moody's:
Ba-rated securities have "speculative elements" and "their future cannot be
considered as well-assured." The protection of interest and principal payments
"may be very moderate, and thereby not well safeguarded."
B-rated securities "generally lack characteristics of the desirable investment,"
and the likelihood of payment of interest and principal over the long-term "may
be small."
Caa-rated securities are of "poor standing." These securities may be in default
or "there may be present elements of danger" with respect to principal or
interest.
Ca-rated securities "are speculative in a high degree."
S&P:
BB-rated securities and below are regarded as "predominantly speculative."
BB-rated securities have less near-term potential for default than other
securities, but may face "major ongoing uncertainties" to economic factors that
may result in failure to make interest and principal payments.
B-rated securities have "a greater vulnerability to default" but have the
current ability to make interest and principal payments.
CCC-rated securities have a "currently identifiable vulnerability to default."
CC-rated securities may be used to cover a situation where "a Bankruptcy
petition has been filed, but debt service payments are continued."
See the SAI for more information about ratings.
28
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
If you would like a free copy of any of the following documents or would like to
request other information regarding the Funds, you can call or write the Funds
or your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Funds and their policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes each Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected a Fund's
performance during its last fiscal year.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Funds 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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http://www.victoryfunds.com.
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-SPEC-PRO (2/00)
<PAGE>
Prospectus
February 28, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Fund's securities or determined whether this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Fixed Income Funds
National Municipal Bond Fund
Class A and G Shares
New York Tax-Free Fund
Class A and G Shares
Ohio Municipal Bond Fund
Class A and G Shares
Victory Funds
(LOGO)(R)
Call Victory at:
800-539-FUND
(800-539-3863)
or visit the Victory Funds' website at:
www.victoryfunds.com
<PAGE>
The Victory Portfolios
Key to Financial Information
Objective and Strategies
The goals and the strategies that a Fund plans to use to pursue its investment
objective.
Risk Factors
The risks you may assume as an investor in a Fund.
Performance
A summary of the historical performance of a Fund in comparison to one or more
unmanaged indices.
Expenses
The costs you will pay, directly or indirectly, as an investor in a Fund,
including sales charges and ongoing expenses.
Shares of the Funds are:
* Not insured by the FDIC;
* Not deposits or other obligations of, or guaranteed by KeyBank, any of its
affiliates, or any other bank;
* Subject to possible investment risks, including possible loss of the amount
invested.
Table of Contents
Introduction 1
Risk/Return Summary for each of the Funds
An analysis which includes the investment objective, principal strategies,
principal risks, performance, and expenses of each Fund.
National Municipal Bond Fund
Class A and G Shares 2
New York Tax-Free Fund
Class A and G Shares 4
Ohio Municipal Bond Fund
Class A and G Shares 6
Investments 8
Risk Factors 9
Share Price 10
Dividends, Distributions, and Taxes 11
Investing with Victory
* Choosing a Share Class 13
* How to Buy Shares 16
* How to Exchange Shares 18
* How to Sell Shares 19
Organization and Management of the Funds 21
Additional Information 23
Financial Highlights
National Municipal Bond Fund 24
New York Tax-Free Fund 25
Ohio Municipal Bond Fund 26
<PAGE>
Introduction
Key Asset Management Inc., which we will refer to as the "Adviser" or "KAM"
throughout this Prospectus, manages the Funds.
Please read this Prospectus before investing in the Funds and keep it for future
reference.
This Prospectus explains the objectives, policies, risks, performance,
strategies, and expenses of the Shares of the Victory Funds described in this
Prospectus (the Funds).
Investment Strategy
Each of the Funds pursues its investment objective by investing primarily in
general obligation bonds and revenue bonds. However, each of the Funds has
unique investment strategies and its own risk/reward profile. Please review the
"Risk/Return Summary" for each Fund and the "Investments" section for an
overview.
Risk Factors
Certain Funds may share many of the same risk factors. For example, all of the
Funds are subject to interest rate inflation, reinvestment, and credit risks.
The Funds are not insured by the FDIC. In addition, there are other potential
risks, discussed in each "Risk/Return Summary" and in "Risk Factors."
Who May Want to Invest in the Funds
* Investors in higher tax brackets seeking tax-exempt income
* Investors seeking income over the long term
* Investors with moderate risk tolerance
* Investors seeking higher potential returns than are provided by money
market funds
* Investors willing to accept price and dividend fluctuations
Share Classes
Each Fund offers Class A and Class G Shares. See "Choosing a Share Class."
The following pages provide you with an overview of each of the Funds. Please
look at the objective, policies, strategies, risks, and expenses to determine
which Fund will suit your risk tolerance and investment needs.
1
<PAGE>
Risk/Return Summary
NATIONAL MUNICIPAL BOND FUND
CLASS A SHARES
Cusip#: 926464728
VNMAX
CLASS G SHARES
Cusip#: 926464330
Investment Objective
The National Municipal Bond Fund seeks to provide a high level of current
interest income exempt from federal income tax, as is consistent with the
preservation of capital.
Principal Investment Strategies
The National Municipal Bond Fund pursues its investment objective by primarily
investing in municipal bonds. The interest on these bonds is exempt from federal
income tax. Under normal circumstances, at least 80% of the National Municipal
Bond Fund's income distributions will be exempt from federal income taxes,
including the alternative minimum tax.
Under normal market conditions, the National Municipal Bond Fund primarily
invests in:
* Municipal securities, including mortgage-related securities, with fixed,
variable, or floating interest rates;
* Zero coupon, tax, revenue, and bond anticipation notes; and
* Tax-exempt commercial paper.
Important Characteristics of the National Municipal Bond Fund's Investments:
* Quality: Municipal securities rated A or above at the time of purchase by
Standard & Poor's (S&P), Fitch IBCA International (Fitch IBCA), Moody's
Investors Service (Moody's), or another NRSRO**, or if unrated, of comparable
quality. For more information on ratings, see the Appendix to the Statement
of Additional Information (SAI).
* Maturity: The dollar-weighted effective average maturity of the National
Municipal Bond Fund generally will range from 5 to 11 years. Under certain
market conditions, the National Municipal Bond Fund's portfolio manager may go
outside these boundaries.
** An NRSRO is a nationally recognized statistical ratings organization that
assigns credit ratings to securities based on the borrower's ability to meet its
obligation to make principal and interest payments.
Municipal securities are issued to raise money for public purposes. General
obligation bonds are backed by the taxing power of a state or municipality. This
means the issuing authority can raise taxes to cover the payments. Revenue bonds
are backed by revenues from a specific tax, project, or facility. Principal and
interest payments on some municipal securities are insured by private insurance
companies. The National Municipal Bond Fund's higher portfolio turnover may
result in higher expenses and taxable capital gain distributions.
There is no guarantee that the National Municipal Bond Fund will achieve
its objectives.
Principal Risks
You may lose money by investing in the National Municipal Bond Fund. The
National Municipal Bond Fund is subject to the following principal risks, more
fully described in "Risk Factors." The National Municipal Bond Fund's net asset
value, yield and/or total return may be adversely affected if any of the
following occurs:
* Economic or political events take place in a state which make the market value
of that state's obligations go down.
* The market value of securities acquired by the National Municipal Bond Fund
declines.
* The portfolio manager does not execute the National Municipal Bond Fund's
principal investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The National Municipal Bond Fund must reinvest interest or sale proceeds at
lower rates.
* The rate of inflation increases.
* The average life of a mortgage-related security is shortened or lengthened.
The National Municipal Bond Fund primarily invests in municipal securities
from several states, rather than from a single state. The National Municipal
Bond Fund is a non-diversified fund. As a non-diversified fund, the National
Municipal Bond Fund may devote a larger portion of its assets to the securities
of a single issuer than if it were diversified. This could make the National
Municipal Bond Fund more susceptible to economic, political, or credit risks.
The National Municipal Bond Fund also is subject to the risks associated with
investing in municipal debt securities, including the risk that certain
investments could lose their tax-exempt status.
An investment in the National Municipal Bond 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.
2
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the National Municipal Bond Fund by showing changes in its
performance for various time periods ending December 31st. The figures shown in
the bar chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the National Municipal
Bond Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1995 17.67%
1996 4.45%
1997 8.76%
1998 6.30%
1999 -0.89%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
6.46% (quarter ending March 31, 1995) and the lowest return for a quarter was
- -1.80% (quarter ending June 30, 1999).
The table shows how the average annual total returns for Class A Shares of the
National Municipal Bond Fund for one year, five years, and since inception,
including maximum sales charges, compare to those of two broad-based market
indices.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999) One Year 5 Years (2/3/94)
Class A(1) -6.60% 5.82% 4.00%
Lehman 7-Year
Municipal Bond Index(2),(4) -0.14% 4.49% 4.66%
Lehman 10-Year
Municipal Bond Index(3),(4) -1.25% 7.12% 4.91%
1 The National Municipal Bond Fund did not offer Class G Shares prior to
December 15, 1999.
2 The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index
comprised of investment grade municipal bonds with maturities of 6 to 8 years,
weighted according to the total market value of each bond in the Index.
3 The Lehman Brothers 10-Year Municipal Bond Index is a broad-based unmanaged
index that represents the general performance of investment-grade municipal
bonds with maturities of 8 to 12 years. The Fund will no longer compare its
performance to the Lehman 10-Year Municipal Bond Index. It believes that the
Lehman 7-Year Municipal Bond Index more accurately reflects the composition
and average maturity of the Fund's portfolio.
4 Index returns do not include any brokerage commissions, sales charges, or
other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the National Municipal Bond 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 0.55% 0.55%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to Class A Shares) 0.69% 0.69%
Total Fund Operating Expenses 1.24%(3) 1.49%(4)
1 You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
2 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 The Adviser may waive its management fee and reimburse expenses, as allowed by
law, to the extent necessary to maintain the net operating expenses of Class A
Shares of the National Municipal Bond Fund at a maximum of 1.00% . The Adviser
may terminate this waiver/reimbursement at any time to the extent allowed by
law.
4 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year .
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the National Municipal Bond Fund with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in the National
Municipal Bond Fund for the time periods shown and then sell all of your shares
at the end of those periods. The Example also assumes that your investment has a
5% return each year and that the National Municipal Bond Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class A $694 $946 $1,217 $1,989
Class G $152 $471 $ 813 $1,779
3
<PAGE>
Risk/Return Summary
NEW YORK TAX-FREE FUND
CLASS A SHARES
Cusip#: 926464694
IPNYX
CLASS G SHARES
Cusip#: 926464348
Investment Objective
The New York Tax-Free Fund seeks to provide a high level of current income
exempt from federal, New York State, and New York City income taxes, consistent
with the preservation of shareholders' capital.
Principal Investment Strategies
The New York Tax-Free Fund pursues its investment objective by investing at
least 80% of its total assets in securities that have interest income that is
exempt from federal income tax, including the federal alternative minimum tax.
At least 65% of the portfolio will be invested in insured municipal securities
that pay interest exempt from New York State and New York City income taxes.
Under normal market conditions, the New York Tax-Free Fund primarily invests in:
* Municipal securities, including mortgage-related securities, with fixed,
variable, or floating interest rates;
* Zero coupon, tax, and revenue anticipation notes; and
* Tax-exempt commercial paper.
Important Characteristics of the New York Tax-Free Fund's Investments:
* Quality: Municipal securities rated A or above at the time of purchase by S&P,
Fitch IBCA, Moody's, or another NRSRO, or if unrated, of comparable quality. For
more information on ratings, see the Appendix to the SAI.
* Maturity: The New York Tax-Free Fund will generally purchase securities with
original final maturities of 20 to 30 years at the time of purchase. Under
certain market conditions, the New York Tax-Free Fund's portfolio manager may go
outside these boundaries.
Insurance policies for the municipal securities held by the New York
Tax-Free Fund generally are obtained either by the issuer of the security or by
a third party from a private insurer. The insurance company guarantees timely
payments of principal and interest. This insurance reduces risk, but these high
quality bonds may yield less than uninsured bonds.
There is no guarantee that the New York Tax-Free Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in New York Tax-Free Fund. The New York Tax-Free
Fund is subject to the following principal risks, more fully described in "Risk
Factors." The New York Tax-Free Fund's net asset value, yield and/or total
return may be adversely affected if any of the following occurs:
* Economic or political events take place in New York which make the market
value of New York's obligations go down.
* The market value of securities acquired by the New York Tax-Free Fund
declines.
* The portfolio manager does not execute the New York Tax-Free Fund's principal
investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The New York Tax-Free Fund must reinvest interest or sale proceeds at lower
rates.
* The rate of inflation increases.
* The New York Tax-Free Fund is a non-diversified fund. As a non-diversified
fund, the New York Tax-Free Fund may devote a larger portion of its assets to
the securities of a single issuer than if it were diversified.
* The New York Tax-Free Fund is subject to the risks associated with investing
in municipal debt securities, including the risk that certain investments could
lose their tax-exempt status.
* The New York Tax-Free Fund is subject to additional risks because it
concentrates its investments in a single geographic area. This could make the
New York Tax-Free Fund more susceptible to economic, political, or credit risks
than a fund that invests in a more diversified geographic area. The SAI explains
the risks specific to investments in New York municipal securities.
* The average life of a mortgage-related security is shortened or lengthened.
An investment in the New York Tax-Free 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.
4
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the New York Tax-Free Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the New York Tax-Free
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1992 8.26%
1993 12.34%
1994 -4.58%
1995 13.30%
1996 3.50%
1997 6.04%
1998 5.33%
1999 -1.99%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
5.19% (quarter ending March 31, 1995) and the lowest return for a quarter was
- -3.64% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A Shares of the
New York Tax-Free Fund for one year, five years and since inception, including
maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ended Past Past Inception
December 31, 1999) One Year 5 Years (2/11/91)
Class A(1) -7.63% 3.88% 5.00%
Lehman 10-Year
Municipal Bond Index(2) -1.25% 7.12% 6.97%
1 The New York Tax-Free Fund did not offer Class G Shares prior to December 15,
1999.
2 The Lehman Brothers 10-Year Municipal Bond Index is a broad-based unmanaged
index that represents the general performance of investment-grade municipal
bonds with maturities of 8 to 12 years. Index returns do not include any
brokerage commissions, sales charges, or other fees. It is not possible to
invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the New York Tax-Free 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 0.55% 0.55%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to Class A Shares) 0.87% 0.74%
Total Fund Operating Expenses 1.42%(3) 1.54%(3)
1 You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
2 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 Other expenses of Class G Shares are based on estimated amounts for the
current fiscal year . The Adviser may waive its management fee and reimburse
expenses, as allowed by law, so that the net operating expenses of Class A
Shares of the New York Tax-Free Fund will equal 0.95%. The Adviser may
terminate these waivers/reimbursements at any time to the extent allowed by
law.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the New York Tax-Free Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the New York
Tax-Free Fund for the time periods shown and then sell all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the New York Tax-Free Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
Class A $711 $998 $1,307 $2,179
Class G $157 $486 $ 839 $1,834
5
<PAGE>
Risk/Return Summary
OHIO MUNICIPAL BOND FUND
CLASS A SHARES
Cusip#: 926464801
SOHTX
CLASS G SHARES
Cusip#: 926464413
GMOTX
Investment Objective
The Ohio Municipal Bond Fund seeks to provide a high level of current interest
income which is exempt from both federal income tax and Ohio personal income
tax.
Principal Investment Strategies
The Ohio Municipal Bond Fund pursues its investment objective by investing at
least 80% of its total assets in investment grade obligations. The interest on
these obligations is exempt from federal income taxes, including the federal
alternative minimum tax. The Ohio Municipal Bond Fund expects to invest at least
65% of its total assets in bonds that pay interest that is also exempt from Ohio
personal income tax.
Under normal market conditions, the Ohio Municipal Bond Fund primarily invests
in:
* Municipal securities, including mortgage-related securities, with fixed,
variable, or floating interest rates;
* Zero coupon, tax, revenue, and bond anticipation notes; and
* Tax-exempt commercial paper.
Important Characteristics of the Ohio Municipal Bond Fund's Investments:
* Quality: Municipal securities rated A or above at the time of purchase by S&P,
Fitch IBCA, Moody's, or another NRSRO, or if unrated, of comparable quality. For
more information on ratings, see the Appendix to the SAI.
* Maturity: The dollar-weighted effective average maturity of the Ohio Municipal
Bond Fund generally will range from 5 to 15 years. Under certain market
conditions, the Ohio Municipal Bond Fund's portfolio manager may go outside
these boundaries.
Ohio's economic activity includes the service sector, durable goods
manufacturing, and agricultural industries. Manufacturing activity is
concentrated in cyclical industries; therefore, the Ohio economy may be more
cyclical than other states. The Ohio Municipal Bond Fund's high portfolio
turnover rate may result in higher expenses and taxable capital gain
distributions.
There is no guarantee that the Ohio Municipal Bond Fund will achieve its
objectives.
Principal Risks
You may lose money by investing in the Ohio Municipal Bond Fund. The Ohio
Municipal Bond Fund is subject to the following principal risks, more fully
described in "Risk Factors." The Ohio Municipal Bond Fund's net asset value,
yield and/or total return may be adversely affected if any of the following
occurs:
* Economic or political events take place in Ohio which make the market value of
Ohio obligations go down.
* The market value of securities acquired by the Ohio Municipal Bond Fund
declines.
* The portfolio manager does not execute the Ohio Municipal Bond Fund's
principal investment strategies effectively.
* Interest rates rise.
* An issuer's credit quality is downgraded.
* The Ohio Municipal Bond Fund must reinvest interest or sale proceeds at lower
rates.
* The rate of inflation increases.
* The Ohio Municipal Bond Fund is a non-diversified fund. As a non-diversified
fund, the Ohio Municipal Bond Fund may devote a larger portion of its assets to
the securities of a single issuer than if it were diversified.
* The Ohio Municipal Bond Fund is subject to the risks associated with investing
in municipal debt securities, including the risk that certain investments could
lose their tax-exempt status.
* The Ohio Municipal Bond Fund is subject to additional risks because it
concentrates its investments in a single geographic area. This could make the
Ohio Municipal Bond Fund more susceptible to economic, political, or credit
risks than a fund that invests in a more diversified geographic area. The SAI
explains the risks specific to investments in Ohio municipal securities.
* The average life of a mortgage-related security is shortened or lengthened.
An investment in the Ohio Municipal Bond 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.
6
<PAGE>
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Ohio Municipal Bond Fund by showing changes in its performance
for various time periods ending December 31st. The figures shown in the bar
chart and table assume reinvestment of dividends and distributions.
The bar chart shows returns for Class A Shares of the Ohio Municipal Bond
Fund. Sales loads are not reflected on the bar chart (or highest and lowest
returns below) and if they were reflected, returns would be lower than those
shown.
1991 10.75%
1992 7.76%
1993 12.64%
1994 -4.46%
1995 17.72%
1996 4.32%
1997 7.87%
1998 6.56%
1999 -2.67%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
6.68% (quarter ending March 31, 1995) and the lowest return for a quarter was
- -5.07% (quarter ending March 31, 1994).
The table shows how the average annual total returns for Class A Shares of the
Ohio Municipal Bond Fund for one year, five years and since inception, including
maximum sales charges, compare to those of a broad-based market index.
Average Annual Total Returns Since
(for the Periods ende d Past Past Inception
December 31, 1999) One Year 5 Years (5/18/90)
Class A(1) -8.25% 5.30% 5.98%
Lehman 10-Year
Municipal Bond Index(2) -1.25% 7.12% 7.39%
1 The Ohio Municipal Bond Fund did not offer Class G Shares prior to March 29,
1999.
2 The Lehman Brothers 10-Year Municipal Bond Index is a broad-based unmanaged
index that represents the general performance of investment-grade municipal
bonds with maturities of 8 to 12 years. Index returns do not include any
brokerage commissions, sales charges, or other fees. It is not possible to
invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Ohio Municipal Bond 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% 0.25%
Other Expenses (includes a shareholder
servicing fee of 0.25% applicable to Class A Shares) 0.54% 0.27%
Total Fund Operating Expenses 1.14% 1.12%
Fee Waiver/Expense
Reimbursement (0.00)% (0.21)%
Net Expenses 1.14%(3) 0.91%(4)
1 You may be charged additional fees if you buy, exchange, or sell shares
through a broker or agent.
2 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 The Adviser may waive its management fee and reimburse expenses, as allowed by
law, so that the net operating expenses of Class A Shares of the Ohio
Municipal Bond Fund will equal 0.94%. The Adviser may terminate this
waiver/reimbursement at any time to the extent allowed by law.
4 The Adviser has contractually agreed to waive its management fee and to
reimburse expenses, as allowed by law, to the extent necessary to maintain the
net operating expenses of Class G Shares of the Ohio Municipal Bond Fund at a
maximum of 0.91% until at least April 1, 2001.
EXAMPLE: The following Example is designed to help you compare the cost of
investing in the Ohio Municipal Bond Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Ohio Municipal
Bond Fund for the time periods shown and then sell all of your shares at the end
of those periods. The Example also assumes that your investment has a 5% return
each year and that the Ohio Municipal Bond 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 5 Years 10 Years
Class A $685 $916 $1,167 $1,881
Class G $ 93 $335 $ 597 $1,344
1 This Example assumes that Net Annual Fund Operating Expenses for Class G
Shares will equal 0.91% until April 1, 2001 and will equal 1.12% thereafter.
7
<PAGE>
Investments
The following describes some of the types of securities the Funds may purchase
under normal market conditions. All Funds will not buy all of the securities
listed below.
For cash management or for temporary defensive purposes in response to
market conditions, each 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 a Fund to fail to meet its investment
objective.
For more information on ratings and a more complete description of which
Funds can invest in certain types of securities, see the SAI.
Revenue Bonds.
Payable only from the proceeds of a specific revenue source, such as the users
of a municipal facility.
General Obligation Bonds.
Secured by the issuer's full faith, credit, and taxing power for payment of
interest and principal.
When-Issued and Delayed-Delivery Securities.
A security that is purchased for delivery at a later time. The market value may
change before the delivery date, and the value is included in the NAV of a Fund.
Zero Coupon Bonds.
These securities are purchased at a discount from face value. The bond's face
value is received at maturity, with no interest payments before then.
Municipal Lease Obligations.
Issued to acquire land, equipment, or facilities. They may become taxable if the
lease is assigned. The lease could terminate, resulting in default.
Certificates of Participation.
A certificate that states that an investor will receive a portion of the lease
payments from a municipality.
Refunding Contracts.
Issued to refinance an issuer's debt. A Fund buys these at a stated price and
yield on a future settlement date.
Tax, Revenue, and Bond Anticipation Notes.
Issued in expectation of future revenues.
+ Variable & Floating Rate Securities.
Investment grade instruments, some of which may be derivatives or illiquid, with
interest rates that reset periodically.
Mortgage-Backed Securities, Tax-Exempt.
Tax-exempt investments secured by a mortgage or pools of mortgages.
Resource Recovery Bonds.
Issued to build waste-to-energy facilities and equipment.
Tax Preference Items.
Tax-exempt obligations that pay interest which is subject to the federal
"alternative minimum tax."
Industrial Development Bonds and Private Activity Bonds.
Secured by lease payments made by a corporation, these bonds are issued for
financing large industrial projects; i.e., building industrial parks or
factories.
Tax Exempt Commercial Paper.
Short-term obligations that are exempt from state and federal income tax.
+ Demand Features, or "Puts."
Contract for the right to sell or redeem a security at a predetermined price on
or before a stated date. Usually the issuer may obtain either a stand-by or
direct pay letter of credit or guarantee from banks as backup.
+ Derivative Instruments: Indicates a "derivative instrument," whose value is
linked to, or derived from another security, instrument, or index.
8
<PAGE>
Risk Factors
By matching your investment objective with an acceptable level of risk, you can
create your own customized investment plan.
This Prospectus describes the principal risks that you may assume as an investor
in the Funds.
Except as noted, each 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 a 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 a Fund's portfolio manager may implement its
investment strategy in a way that does not produce the intended result.
Risks associated with investing in debt securities:
* Interest rate risk. The value of a debt security typically changes in the
opposite direction from a change in interest rates. When interest rates go up,
the value of a debt security typically goes down. When interest rates go down,
the value of a debt security typically goes up. Generally, the market values of
securities with longer maturities are more sensitive to changes in interest
rates.
* Inflation risk is the risk that inflation will erode the purchasing power of
the cash flows generated by debt securities held by a Fund. Fixed-rate debt
securities are more susceptible to this risk than floating-rate debt securities
or equity securities that have a record of dividend growth.
* Reinvestment risk is the risk that when interest rates are declining a Fund
that receives interest income or prepayments on a security will have to reinvest
at lower interest rates. Generally, interest rate risk and reinvestment risk
tend to have offsetting effects, though not necessarily of the same magnitude.
* Credit (or default) risk is the risk that the issuer of a debt security will
be unable to make timely payments of interest or principal. Although the Funds
generally invest in only high-quality securities, the interest or principal
payments may not be insured or guaranteed on all securities. Credit risk is
measured by NRSROs such as S&P, Fitch IBCA or Moody's.
Risks associated with investing in municipal debt securities:
* Tax-exempt status risk is the risk that a municipal debt security issued as a
tax-exempt security may be declared by the Internal Revenue Service to be
taxable.
Risks associated with investing in the securities of a single state (New York
Tax-Free Fund and Ohio Municipal Bond Funds only):
* Concentration and diversification risk is the risk that only a limited number
of high-quality securities of a particular type may be available. Concentration
and diversification risk is greater for funds that primarily invest in the
securities of a single state. Concentration risk may result in a Fund being
invested in securities that are related in such a way that changes in economic,
business, or political circumstances that would normally affect one security
also could affect other securities within that particular segment of the bond
market.
9
<PAGE>
Risk Factors (continued)
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.
Risks associated with investing in mortgage-related securities:
* Prepayment risk. Prepayments of principal on mortgage-related securities
affect the average life of a pool of mortgage-related securities. The level of
interest rates and other factors may affect the frequency of mortgage
prepayments. In periods of rising interest rates, the prepayment rate tends to
decrease, lengthening the average life of a pool of mortgage-related securities.
In periods of falling interest rates, the prepayment rate tends to increase,
shortening the average life of a pool of mortgage-related securities. Prepayment
risk is the risk that, because prepayments generally occur when interest rates
are falling, a Fund may have to reinvest the proceeds from prepayments at lower
interest rates.
* Extension risk is the risk that the rate of anticipated prepayments on
principal may not occur, typically because of a rise in interest rates, and the
expected maturity of the security will increase. During periods of rapidly
rising interest rates, the effective average maturity of a security may be
extended past what a Fund's portfolio manager anticipated that it would be. The
market value of securities with longer maturities tend to be more volatile.
An investment in a Fund is not a complete investment program.
Share Price
Each 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 Funds value their investments based on market value. When market
quotations are not readily available, the Funds value their investments based on
fair value methods approved by the Board of Trustees of the Victory Portfolios.
Each Class of each Fund calculates its NAV by adding up the total value of its
investments and other assets, subtracting its liabilities, and then dividing
that figure by the number of outstanding shares of the Class.
Total Assets-Liabilities
NAV = ----------------------------
Number of Shares Outstanding
You can find a Fund's net asset value each day in The Wall Street Journal
and other newspapers. Newspapers do not normally publish fund information until
a Fund reaches a specific number of shareholders or level of assets.
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.
10
<PAGE>
Dividends, Distribution, and Taxes
Your choice of distribution should be set up on the original Account
Application. If you would like to change the option you selected, please call
the Transfer Agent at 800-539-FUND.
Buying a Dividend.
You should check a Fund's distribution schedule before you invest. If you buy
shares of a Fund shortly before it makes a distribution, some of your investment
may come back to you as a taxable distribution.
As a shareholder, you are entitled to your share of net income and capital gains
on a Fund's investments. The Funds pass their earnings along to investors in the
form of dividends. Dividend distributions are the net income earned on
investments after expenses. A Fund will distribute short-term gains, as
necessary, and if a 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 a Fund.
Ordinarily, the Funds declare and pay dividends monthly. Each class of
shares declares and pays dividends separately.
You can receive distributions in one of the following ways.
REINVESTMENT OPTION
You can have distributions automatically reinvested in additional shares of a
Fund. If you do not indicate another choice on your Account Application, 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 a Fund and
have your capital gains paid in cash, or reinvest capital gains and have your
dividends paid in cash.
DIRECTED DIVIDENDS OPTION
In most cases, you can automatically reinvest distributions in the same class of
shares of another fund of the Victory Group. If you reinvest your distributions
in a different class of another fund, you may pay a sales charge on the
reinvested distributions.
DIRECTED BANK ACCOUNT OPTION
In most cases, you can automatically transfer distributions to your bank
checking or savings account. Under normal circumstances, the Transfer Agent will
transfer your distributions within seven days of the dividend payment date. The
bank account must have a registration identical to that of your Fund account.
11
<PAGE>
Dividends, Distributions, and Taxes (continued)
Important Information about Taxes
The tax information in this Prospectus is provided as general information. You
should consult your own tax adviser about the tax consequences of an investment
in a Fund.
Each Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
* Certain dividends from a Fund will be "exempt-interest dividends," which are
exempt from federal income tax. However, exempt-interest dividends are not
necessarily exempt from state or local taxes.
* Ordinary dividends from a Fund, if taxable, are treated as ordinary income;
dividends from a 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 a Fund's shares for shares of another fund will be treated as a
sale. When you sell or exchange shares of a Fund, you must recognize any gain or
loss.
* Certain dividends paid to you in January may be taxable as if they had been
paid to you the previous December.
* Tax statements will be mailed from a Fund every January showing the amounts
and tax status of distributions made to you.
* Certain dividends from the New York Tax-Free Fund will be exempt from certain
New York state and local taxes.
* Certain dividends from the Ohio Municipal Bond Fund will be exempt from
certain Ohio state and local taxes.
* Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your tax.
* You should review the more detailed discussion of federal income tax
considerations in the SAI.
12
<PAGE>
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 a Fund. The following sections will describe how to open an account,
how to access information on your account, and how to buy, exchange, and sell
shares of a 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.
For historical expense information on Class A and G Shares, see the "Financial
Highlights" at the end of this Prospectus. For historical expense information on
Class A and G Shares, see the "Financial Highlights" at the end of this
Prospectus.
Each Fund offers Class A and Class 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 on the next page. There are several
ways to reduce this charge.
* Lower annual expenses, generally, 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.
13
<PAGE>
Choosing a Share Class (continued)
Calculation of Sales Charges -- Class A
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed below.
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%
* 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.
Sales Charge Reductions and Waivers for Class A Shares
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you buy Class A Shares of a Fund over a 13-month
period and receive the same sales charge as if all shares had been
purchased at one time. You must start with a minimum initial investment of
5% of the total amount.
2. Rights of Accumulation allow you to add the value of any Class A Shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge at the time of purchase.
3. You can combine Class A Shares of multiple Victory Funds, (excluding 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. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees, employees, and
family members of employees of KeyCorp or "Affiliated Providers,"* and
dealers who have an agreement with the Distributor and any trade
organization to which the Adviser or the Administrator belong.
b. Investors who purchase shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
*Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
14
<PAGE>
Choosing a Share Class (continued)
c. Investors who reinvest the 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 National Association
and its affiliates, the Victory Group , or invested in a fund of the
Victory Group.
d. Investment Professionals who purchased Fund shares for fee-based
investment products or accounts, and selling brokers and their sales
representatives.
Shareholder Servicing Plan
Each Fund has adopted a Shareholder Servicing Plan for its Class A Shares . The
shareholder servicing agent performs a number of services for its customers who
are shareholders of the Funds. It establishes and maintains accounts and
records, processes dividend payments, arranges for bank wires, assists in
transactions, and changes account information. For these services a Fund pays a
fee at an annual rate of up to 0.25% of the average daily net assets of the
Class A Shares serviced by the agent. The Funds may enter into agreements with
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers. The Funds
may pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically.
Distribution Plan
In accordance with Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for Class A Shares of the National
Municipal Bond Fund and the New York Tax-Free Fund. Class A Shares do not pay
expenses under this plan.
Victory has also adopted a Distribution and Service Plan for Class G Shares of
each Fund. Under the Class G Plan, each Fund will pay to the Distributor a
monthly service fee at an annual rate of 0.25% of its average daily net assets.
The service fee is paid to securities broker-dealers or other financial
intermediaries for providing personal services to shareholders of the Funds,
including responding to inquiries, providing information to shareholders about
their Fund accounts, establishing and maintaining accounts and records,
processing dividend and distribution payments, arranging for bank wires,
assisting in transactions, and changing account information. Each Fund may enter
into agreements with various shareholder servicing agents, including KeyCorp and
its affiliates, and with other financial institutions that provide such
services.
Because Rule 12b-1 fees are paid out of a Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
15
<PAGE>
How to Buy Shares
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500, with additional investments of at least $25. You can
send in your payment by check, wire transfer, exchange from another Victory
Fund, or through arrangements with your Investment Professional. Sometimes an
Investment Professional will charge you for these services. This fee will be in
addition to, and unrelated to, the fees and expenses charged by a Fund.
If you buy Shares directly from the Funds 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)
16
<PAGE>
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 Funds do not charge a fee
for ACH transfers.
Statements and Reports
You will receive a periodic statement reflecting any transactions that affect
the balance or registration of your account. You will receive a confirmation
after any purchase, exchange, or redemption. If your account has been set up by
an Investment Professional, 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 Funds. 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, then we will make automatic withdrawals of the amount you
indicate ($25 or more) from your bank account and invest it in Shares of a Fund.
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, 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.
17
<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 a Fund by writing the Transfer Agent or calling
800-539-FUND. When you exchange shares of a 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 a 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 a 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.
* Each Fund may refuse any exchange purchase request if the Adviser determines
that the request is associated with a market timing strategy. Each 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.
* Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can exchange into
Class A Shares of any Victory Fund that does not offer Class G Shares without
paying a sales charge.
18
<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 sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
* Redemptions over $10,000;
* Your account registration has changed within the last 15 days;
* The check is not being mailed to the address on your account;
* The check is not being made payable to the owner of the account;
* The redemption proceeds are being transferred to another Victory 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 on 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.
19
<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 and that each
withdrawal may be a taxable transaction. However, you cannot automatically close
your account using the Systematic Withdrawal Plan. If your balance falls below
$500, we may ask you to bring the account back to the minimum balance. If you
decide not to increase your account to the minimum balance, your account maybe
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.
* A Fund may suspend your right to redeem your shares in the following
circumstances:
* During non-routine closings of the NYSE;
* When the Securities and Exchange Commission (SEC) determines either
that trading on the NYSE is restricted or that an emergency prevents
the sale or valuation of the Fund's securities; or
* When the SEC orders a suspension to protect a Fund's shareholders.
* Each Fund will pay redemptions by any one shareholder during any 90-day period
in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Each Fund
reserves the right to pay the remaining portion "in kind," that is, in portfolio
securities rather than cash.
20
<PAGE>
Organization and Management of the Funds
About Victory
Each Fund is a member of the Victory Portfolios, a group of more than 30
distinct investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Funds.
The Investment Adviser and Sub-Administrator
Each 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 each of the Funds. KAM, a
subsidiary of KeyCorp, oversees the operations of the Funds according to
investment policies and procedures adopted by the Board of Trustees. Affiliates
of the Adviser manage approximately $76 billion for a limited number of
individual and institutional clients. KAM's address is 127 Public Square,
Cleveland, Ohio 44114.
During the fiscal year ended October 31, 1999, KAM was paid an advisory fee
at an annual rate based on a percentage of the average daily net assets of each
Fund (after waivers) as shown in the following table.
National Municipal Bond Fund 0.25%
New York Tax-Free Fund 0.30%
Ohio Municipal Bond Fund 0.38%
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the
Funds' Administrator, pays KAM a fee at the annual rate of up to 0.05% of each
Fund's average daily net assets to perform some of the administrative duties for
the Funds.
We want you to know who plays what role in your investment and how they are
related. This section discusses the organizations employed by the Funds to
provide services to their shareholders. Each of these organizations is paid a
fee for its services.
Portfolio Management
Paul A. Toft is the portfolio manager or co-portfolio manager of each of the
Funds. Mr. Toft, a Senior Portfolio Manager and Managing Director of KAM, has
served as the portfolio manager of each of the Funds since 1994.
Stephen C. Dilbone has been the co-portfolio manager of the Ohio Municipal Bond
Fund since March 1999. A Chartered Financial Analyst, he formerly served as
portfolio manager of the Gradison Ohio Tax-Free Income Fund from its inception
in 1992 until March 1999, when its assets were acquired by the Ohio Municipal
Bond Fund.
21
<PAGE>
Organization and Management of the Funds (cont.)
OPERATIONAL STRUCTURE OF THE FUNDS
The Funds are supervised by the Board of Trustees, which monitors the services
provided to investors.
TRUSTEES
ADVISER
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND THEIR INVESTMENT PROFESSIONALS
Advise current and prospective shareholders on their Fund investments.
TRANSFER AGENT/SERVICING AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping, statements, processing of buy and sell
requests, distribution of dividends, and servicing of shareholder accounts.
ADMINISTRATOR, DISTRIBUTOR, AND FUND ACCOUNTANT
BISYS Fund Services
and its affiliates
3435 Stelzer Road
Columbus, OH 43219
Markets the Funds, distributes shares through Investment Professionals, and
calculates the value of shares. As Administrator, handles the day-to-day
activities of the Funds.
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
Provides for safekeeping of the Funds' investments and cash, and settles trades
made by the Funds.
SUB-ADMINISTRATOR
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain sub-administrative services.
22
<PAGE>
Additional Information
Some additional information you should know about the Funds.
Share Classes
The Funds currently offer only the classes of shares described in this
Prospectus. At some future date, the Funds may offer additional classes of
shares.
Performance
The Victory Funds may advertise the performance of each 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 may include the yield, tax-effective yield, and the
average annual total return of each Fund calculated on a compounded basis for
specified periods of time. Yield and 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. You also should see the "Investment Performance"
section for the Fund in which you would like to invest.
Shareholder Communications
In order to eliminate duplicate mailings to an address at which two or more
shareholders with the same last name reside, the Funds 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 Funds send these
documents to each shareholder individually by calling the Funds at 800-539-FUND
(800-539-3863).
If you would like to receive additional copies of any materials, please call the
Funds at 800-539-FUND.
23
<PAGE>
Financial Highlights
NATIONAL MUNICIPAL BOND FUND
The Financial Highlights table is intended to help you understand the National
Municipal Bond Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the National
Municipal Bond Fund. The total returns in the table represent the rate that an
investor would have earned on an investment in the National Municipal Bond Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A
Shares of the National Municipal Bond Fund. The financial highlights for the
four fiscal years ended October 31, 1999 and the six months ended October 31,
1995 were audited by PricewaterhouseCoopers LLP, whose report, along with the
financial statements of the National Municipal Bond Fund, are included in the
Fund's annual report, which is available by calling the Fund at 800-539-FUND.
The financial highlights for the fiscal year ended April 30, 1995 were audited
by other auditors.
<TABLE>
<CAPTION>
Class A Shares
Year Year Year Year Six Months Year
Ended Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Apr. 30,
1999 1998 1997 1996 1995(4) 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.92 $ 10.51 $ 10.16 $ 10.06 $ 9.59 $ 9.64
Investment Activities
Net investment income 0.41 0.43 0.45 0.44 0.24 0.44
Net realized and unrealized
gains (losses) from investments (0.51) 0.41 0.35 0.13 0.46 (0.05)
Total from Investment Activities (0.10) 0.84 0.80 0.57 0.70 0.39
Distributions
Net investment income (0.41) (0.43) (0.45) (0.44) (0.23) (0.44)
In excess of net realized gains -- -- -- (0.03) -- --
Net realized gains (0.24) -- -- -- -- --
Total Distributions (0.65) (0.43) (0.45) (0.47) (0.23) (0.44)
Net Asset Value, End of Period $ 10.17 $ 10.92 $ 10.51 $ 10.16 $ 10.06 $ 9.59
Total Return (excludes sales charges) (0.99)% 8.15% 8.10% 5.83% 7.39%(2) 4.21%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $37,579 $47,296 $47,705 $36,958 $11,964 $5,118
Ratio of expenses to
average net assets 0.86% 0.67% 0.36% 0.29% 0.02%(3) 0.20%
Ratio of net investment income
(loss) to average net assets 3.80% 4.02% 4.43% 4.37% 5.11%(3) 5.01%
Ratio of expenses to
average net assets(1) 1.24% 1.22% 1.27% 1.35% 2.57%(3) 3.95%
Ratio of net investment income
to average net assets(1) 3.42% 3.47% 3.52% 3.31% 2.56%(3) 1.26%
Portfolio turnover 127% 152% 154% 143% 72% 52%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(2)Not annualized.
(3)Annualized.
(4)Effective June 5, 1995, the Victory National Municipal Bond Portfolio became the National
Municipal Bond Fund.
</TABLE>
24
<PAGE>
Financial Highlights
NEW YORK TAX-FREE FUND
The Financial Highlights table is intended to help you understand the New York
Tax-Free Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the New York
Tax-Free Fund. The total returns in the table represent the rate that an
investor would have earned on an investment in the New York Tax-Free Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A
Shares of the New York Tax-Free Fund. The financial highlights for the five
fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers LLP,
whose report, along with the financial statements of the New York Tax-Free Fund,
are included in the Fund's annual report, which is available by calling the Fund
at 800-539-FUND.
<TABLE>
<CAPTION>
Class A
Year Year Year Year Year
Ended Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996 1995(2)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.80 $ 12.68 $ 12.73 $ 12.85 $ 12.39
Investment Activities
Net investment income 0.61 0.61 0.68 0.68 0.87
Net realized and unrealized
gains (losses) from investments (0.81) 0.14 0.03 (0.11) 0.42
Total from Investment Activities (0.20) 0.75 0.71 0.57 1.29
Distributions
Net investment income (0.61) (0.61) (0.72) (0.68) (0.83)
In excess of net investment income -- -- -- -- --
Net realized gains -- (0.02) (0.04) (0.01) --
Total Distributions (0.61) (0.63) (0.76) (0.69) (0.83)
Net Asset Value, End of Period $ 11.99 $ 12.80 $ 12.68 $ 12.73 $ 12.85
Total Return (excludes sales charges) (1.74)% 6.12% 5.77% 4.53% 10.82%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $14,084 $18,073 $15,335 $13,754 $15,374
Ratio of expenses to
average net assets 0.95% 0.94% 0.94% 0.93% 1.16%
Ratio of net investment income
to average net assets 4.82% 4.85% 5.32% 5.25% 5.50%
Ratio of expenses to
average net assets(1) 1.42% 1.35% 1.49% 1.58% 1.96%
Ratio of net investment income
to average net assets(1) 4.35% 4.44% 4.77% 4.60% 4.70%
Portfolio turnover 28% 38% 11% -- 18%
- ---------------
(1)During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(2)Effective June 5, 1995 the Victory New York Tax-Free Portfolio became the New York Tax-Free
Fund.
</TABLE>
25
<PAGE>
Financial Highlights
OHIO MUNICIPAL BOND FUND
The Financial Highlights table is intended to help you understand the Ohio
Municipal Bond Fund's financial performance for the past five years. Certain
information shows the results of an investment in one share of the Ohio
Municipal Bond Fund. The total returns in the table represent the rate that an
investor would have earned on an investment in the Ohio Municipal Bond Fund
(assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A and
Class G Shares of the Ohio Municipal Bond Fund. The financial highlights for the
five fiscal years ended October 31, 1999 were audited by PricewaterhouseCoopers
LLP, whose report, along with the financial statements of the Ohio Municipal
Bond Fund, are included in the Fund's annual report, which is available by
calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Class A Shares Class G Shares
March 26,
Year Year Year Year Year 1999
Ended Ended Ended Ended Ended through
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, October 31,
1999 1998 1997 1996 1995 1999(4)(5)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.04 $ 11.72 $ 11.43 $ 11.32 $ 10.33 $ 11.79
Investment Activities
Net investment income 0.49 0.51 0.53 0.54 0.52 0.28
Net realized and unrealized
gains (losses) from investments (0.75) 0.42 0.29 0.11 1.00 (0.70)
Total from Investment Activities (0.26) 0.93 0.82 0.65 1.52 (0.42)
Distributions
Net investment income (0.49) (0.51) (0.53) (0.54) (0.52) (0.28)
In excess of net investment income -- -- -- -- (0.01) --
Net realized gains (0.10) (0.10) -- -- -- --
In excess of net realized gains (0.08) -- -- -- -- --
Total Distributions (0.67) (0.61) (0.53) (0.54) (0.53) (0.28)
Net Asset Value, End of Period $ 11.11 $ 12.04 $ 11.72 $ 11.43 $ 11.32 $ 11.09
Total Return (excludes sales charges) (2.29)% 8.18% 7.37% 5.87% 15.03% (3.59)%(2)
Ratios/Supplemental Data:
Net Assets, End of Period (000) $74,984 $82,704 $78,043 $73,463 $60,031 $122,458
Ratio of expenses to
average net assets 0.92% 0.91% 0.89% 0.89% 0.66% 0.90%(3)
Ratio of net investment income
to average net assets 4.20% 4.31% 4.60% 4.72% 4.78% 4.18%(3)
Ratio of expenses to
average net assets(1) 1.14% 1.13% 0.99% 1.05% 0.94% 1.12%(3)
Ratio of net investment income
to average net assets(1) 3.98% 4.09% 4.50% 4.56% 4.49% 3.96%(3)
Portfolio turnover < F6> 112% 95% 74% 81% 125% 112%
- ---------------
(1)During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(2)Not annualized.
(3)Annualized.
(4)Period from commencement of operations.
(5)Effective March 26, 1999, the Gradison Ohio Tax-Free Fund merged into the
Victory Ohio Municipal Bond Fund.
(6)Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
</TABLE>
26
<PAGE>
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27
<PAGE>
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28
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 469
If you would like a free copy of any of the following documents or would like to
request other information regarding the Funds, you can call or write the Funds
or your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Funds and their policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes each Fund's performance, lists portfolio holdings, and discusses
market conditions and investment strategies that significantly affected a Fund's
performance during its last fiscal year.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Funds 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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http://www.victoryfunds.com.
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-TEFI-PRO (2/00)
<PAGE>
[GRAPHIC OMITTED]
Victory Funds
PROSPECTUS
Government Mortgage Fund
Class A Shares
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.
Call Victory at: 800-539-FUND (800-539-3863)
or visit the Victory Funds' website at: www.victoryfunds.com
February 28, 2000
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY FOR THE FUND 1
An analysis which includes the investment objective, principal strategies,
principal risks, performance and expenses of the Fund.
INVESTMENTS 4
RISK FACTORS 5
SHARE PRICE 6
DIVIDENDS, DISTRIBUTIONS, AND TAXES 7
INVESTING WITH VICTORY 9
o How to Buy Shares 11
o How to Exchange Shares 14
o How to Sell Shares 15
ORGANIZATION AND MANAGEMENT OF THE FUND 17
ADDITIONAL INFORMATION 19
FINANCIAL HIGHLIGHTS 20
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.
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT MORTGAGE FUND Risk/Return Summary
- --------------------------------------------------------------------------------
Investment Objective
The Fund seeks to provide a high level of current income consistent with safety
of principal.
Investment Policies And Strategies
The Fund pursues its investment objective by investing exclusively in
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities. Under normal market conditions, at least 80% of the total
assets of the Fund will be invested in U.S. government mortgage-backed
securities.
Important characteristics of the Fund's investments:
o Quality: Securities purchased by the Fund are considered to be of the
highest quality.
o Maturity: The dollar-weighted effective average maturity of the Fund
generally will not exceed 12 years. Under certain market conditions,
the portfolio manager may go outside these boundaries.
The Fund's high portfolio turnover may result in higher expenses and taxable
gain distributions.
There is no guarantee that the Fund will achieve its objectives.
Proposed Reorganization
The Board of Trustees of the Victory Portfolios has approved a Plan of
Reorganization and Liquidation for the Fund. At a special meeting,
anticipated to be held in March 2000, shareholders of the Fund will be asked
to approve the transfer of the assets of their Fund into Class A Shares of the
Victory Fund for Income. If the reorganization of the Fund is approved,
shareholders will exchange their Fund shares for Class A shares of the Victory
Fund For Income, and the Fund will no longer be available for purchases,
exchanges or redemptions. Shareholders will receive shares of the Fund for
Income with the same value as the total value of their Fund shares. (In other
words, a shareholder who owns $1,000 worth of Class A Shares of the Fund will
receive $1,000 worth of Class A Shares of the Victory Fund for Income.) The
exchange will not be subject to any sales charges and will not be taxable. The
Victory Fund for Income has the same investment adviser, Key Asset Management
Inc. (KAM or the Adviser), and service providers as the Fund. If you do not
wish to participate in the reorganization, you must redeem your shares by 4:00
p.m. on May 5, 2000.
Principal Risks
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:
o The market value of securities acquired by the Fund declines.
o The portfolio manager does not execute the Fund's principal investment
strategies effectively.
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT MORTGAGE FUND Risk/Return Summary
- --------------------------------------------------------------------------------
o Interest rates rise.
o An issuer's credit quality is downgraded.
o The Fund must reinvest interest or sale proceeds at lower rates.
o The rate of inflation increases.
o The average life of a mortgage-related security is shortened or
lengthened.
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.
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in its performance for various time
periods ending December 31st. The figures shown in the bar chart and table
assume reinvestment of dividends and distributions.
Sales loads are not reflected on the bar chart (or highest and lowest returns
below) and if they were reflected, returns would be lower than those shown.
1991 15.04%
1992 6.25%
1993 8.18%
1994 -2.06%
1995 15.21%
1996 4.19%
1997 8.76%
1998 6.70%
1999 0.03%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
5.54% (quarter ending December 31, 1991) and the lowest return for a quarter was
- -2.37% (quarter ending March 31, 1994).
2
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT MORTGAGE FUND Risk/Return Summary
- --------------------------------------------------------------------------------
The table shows how the average annual total returns for Class A Shares of the
Fund for one year, five years and since inception, including maximum sales
charges, compare to those of a broad-based market index.
- ------------------------------------------------------------------------------
Since
Average Annual Total Returns Past Past Inception
(for the Periods ended December 31, 1999) One Year 5 Years (5/18/90)
Class A -5.68% 5.61% 6.60%
Lehman Mortgage-Backed Index (1) 1.86% 7.98% 8.13%
- ------------------------------------------------------------------------------
1 The Lehman Brothers Mortgage-Backed Securities Index is a broad-based
unmanaged index that represents the general performance of fixed-rate
mortgage bonds. Index returns do not include any brokerage commissions, sales
charges, or other fees. It is not possible to invest directly in an index.
Fund Expenses
This section describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
Shareholder Transaction Expenses (paid directly from your investment)(1) Class A
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower of purchase or
sale price) NONE (2)
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Fund Operating Expenses (deducted from Fund assets.)
Management Fees 0.50%
Distribution (12b-1) Fees 0.00%
Other Expenses (includes a shareholder servicing fee of 0.25%) 0.58%
Total Fund Operating Expenses 1.08%
- ------------------------------------------------------------------------------------------------
</TABLE>
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%.
EXAMPLE
The following Example is designed to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods shown and then sell all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
3
<PAGE>
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
Class A $679 $899 $1,136 $1,816
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Investments
- --------------------------------------------------------------------------------
The following describes some of the types of securities the Fund may purchase
under normal market conditions.
For cash management or for temporary defensive purposes in response to 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 (the SAI).
o U.S. Government Securities. Notes and bonds issued or guaranteed by the
U.S. government, its agencies or instrumentalities. Some are direct
obligations of the U.S. Treasury; others are obligations only of the
U.S. agency.
o Mortgage-Backed Securities. Instruments secured by a mortgage or pools
of mortgages.
o When-Issued and Delayed-Delivery Securities. A security that is
purchased for delivery at a later time. The market value may change
before the delivery date, and the value is included in the net asset
value of the Fund.
o Dollar-Weighted Effective Average Maturity. Based on the value of the
Fund's investments in securities with different maturity dates. This
measures the sensitivity of a debt security's value to changes in
interest rates. The value of a long term debt security is more
sensitive to interest rate changes than the value of a short-term
security.
5
<PAGE>
- --------------------------------------------------------------------------------
Risk Factors
- --------------------------------------------------------------------------------
This Prospectus describes the principal risks that you may assume as an investor
in the Fund.
---------------------------------------------------------------------------
By matching your investment objective with an acceptable level of risk, you
can create your own customized investment plan.
---------------------------------------------------------------------------
The Fund is subject to the following principal risks .
General risks:
o 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.
o Manager risk is the risk that the Fund's portfolio manager may
implement its principal investment strategy in a way that does
not produce the intended result.
Risks associated with investing in debt securities:
o Interest rate risk. The value of a debt security typically changes in
the opposite direction from a change in interest rates. When interest
rates go up, the value of a debt security typically goes down. When
interest rates go down, the value of a debt security typically goes up.
Generally, the market values of securities with longer maturities are
more sensitive to changes in interest rates.
o Inflation risk is the risk that inflation will erode the purchasing
power of the cash flows generated by debt securities held by the Fund.
Fixed-rate debt securities are more susceptible to this risk than
floating-rate debt securities or equity securities that have a record
of dividend growth.
o Reinvestment risk is the risk that when interest rates are declining
the Fund that receives interest income or prepayments on a security
will have to reinvest these moneys at lower interest rates. Generally,
interest rate risk and reinvestment risk tend to have offsetting
effects, though not necessarily of the same magnitude.
o Credit (or default) risk is the risk that the issuer of a debt security
will be unable to make timely payments of interest or principal.
Although the Fund generally invests in only high-quality securities,
the interest or principal payments may not be insured or guaranteed on
all securities.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
------------------------------------------------------------------
An investment in the Fund is not a complete investment program.
------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Risk Factors (continued)
- --------------------------------------------------------------------------------
Risks associated with investing in mortgage-related securities:
o Prepayment risk. Prepayments of principal on mortgage-related
securities affect the average life of a pool of mortgage-related
securities. The level of interest rates and other factors may affect
the frequency of mortgage prepayments. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of mortgage-related securities. In periods of falling
interest rates, the prepayment rate tends to increase, shortening the
average life of a pool of mortgage-related securities. Prepayment risk
is the risk that, because prepayments generally occur when interest
rates are falling, the Fund may have to reinvest the proceeds from
prepayments at lower interest rates.
o Extension risk is the risk that the rate of anticipated prepayments on
principal may not occur, typically because of a rise in interest rates,
and the expected maturity of the security will increase. During periods
of rapidly rising interest rates, the effective average maturity of a
security may be extended past what the Fund's portfolio manager
anticipated that it would be. The market value of securities with
longer maturities tend to be more volatile.
- --------------------------------------------------------------------------------
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 its NAV by adding up the total value of its investments and other
assets, subtracting its liabilities, and then dividing that figure by the number
of outstanding shares.
Total Assets-Liabilities
NAV = ----------------------
Number of Shares Outstanding
You can find the Fund's net asset value each day in The Wall Street Journal and
other newspapers. Newspapers do not normally publish fund information until a
fund reaches a specific number of shareholders or level of assets.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
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 monthly.
Distributions can be received in one of the following ways.
o 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.
o Cash Option
A check will be mailed to you no later than seven days after the
dividend payment date.
o 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.
o Directed Dividends Option
You can automatically reinvest distributions in the same class of
shares of another fund of the Victory Group. If you reinvest your
distributions in a different class of another fund, you may pay a sales
charge on the reinvested distributions.
o Directed Bank Account Option
In most cases, you can automatically transfer distributions to your
bank checking or savings account. Under normal circumstances, the
Transfer Agent will transfer your distributions within seven days of
the dividend payment date. The bank account must have a registration
identical to that of your Fund account.
8
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
Important Information about Taxes
---------------------------------------------------------------------------
The tax information in this Prospectus is provided as general information.
You should consult your own tax adviser about the tax consequences of an
investment in the Fund.
---------------------------------------------------------------------------
The Fund pays no federal income tax on the earnings and capital gains
it distributes to shareholders.
o Ordinary dividends from the Fund are taxable as ordinary income;
dividends from the Fund's long-term capital gains are taxable as
long-term capital gain.
o Dividends are treated in the same manner for federal income tax
purposes whether you receive them in cash or in additional shares. They
also may be subject to state and local taxes.
o Dividends from the Fund that are attributable to interest on certain
U.S. government obligations may be exempt from certain state and local
income taxes. The extent to which ordinary dividends are attributable
to U.S. government obligations will be provided with tax statements you
receive from the Fund.
o 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.
o Certain dividends paid to you in January will be taxable as if they had
been paid to you the previous December.
o Tax statements will be mailed from the Fund every January showing the
amounts and tax status of distributions made to you.
o Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use in
determining your tax.
o You should review the more detailed discussion of federal income tax
considerations in the SAI.
9
<PAGE>
- --------------------------------------------------------------------------------
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. The
following sections will describe how to open an account, how to access
information on your account, and how to buy, exchange, and sell shares
of the Fund. We want to make it simple for you to do business with us.
If you have questions about any of this information, please call your
Investment Professional or one of our customer service representatives
at 800-539-FUND. They will be happy to assist you.
------------------------------------------------------------------------
An Investment Professional is an investment consultant, salesperson,
financial planner, investment adviser, or trust officer who provides
you with investment information.
------------------------------------------------------------------------
Calculation of Sales Charges -- Class A
The Fund described in this prospectus offers Class A Shares, which have a
front-end sales charge of 5.75%. Please look at the "Fund Expenses" section to
find the sales charge.
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed below.
- --------------------------------------------------------------------------------
Your Investment in the Fund: Sales Charge as a % Sales Charge as a % of
of 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 NAV 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.
For historical expense information on Class A shares, see the "Financial
Highlights" at the end of this Prospectus.
10
<PAGE>
- --------------------------------------------------------------------------------
Investing with Victory (continued)
- --------------------------------------------------------------------------------
Sales Charge Reductions and Waivers
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you buy Class A Shares of the Fund over a
13-month period and receive the same sales charge as if all shares
had been purchased at one time. You must start with a minimum
initial investment of 5% of the total amount.
2. Rights of Accumulation allow you to add the value of any Class A
Shares you already own to the amount of your next Class A
investment for purposes of calculating the sales charge at the
time of purchase.
3. You can combine Class A Shares of multiple Victory Funds
(excluding funds sold withhout 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. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees,
employees, and family members of employees of KeyCorp or
"Affiliated Providers"1 , and dealers who have an
agreement with the Distributor and any trade organization
to which the Adviser or the Administrator belong.
b. Investors who buy shares for trust or other advisory
accounts established with KeyCorp or its affiliates.
c. Investors in Class A Shares who reinvest the 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 National
Association or its affiliates, the Victory Group, or
invested in a fund of the Victory Group.
d. Investment Professionals who purchased Fund shares for
fee-based investment products or accounts, selling
brokers, and their sales representatives.
e. Purchase of shares in connection with financial
institution sponsored bundled omnibus retirement programs
sponsored by financial institutions that have entered into
agreements with the Fund's Distributor in connection
with the operational requirements of such programs.
f. Participants in tax-deferred retirement plans who
purchased shares pursuant to waiver provisions in effect
prior to December 15, 1999.
- --------
1 Affiliated Providers are affiliates and subsidiaries of KeyCorp, and
any organization that provides services to the Victory Group.
11
<PAGE>
- --------------------------------------------------------------------------------
Investing with Victory (continued)
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan. The shareholder servicing
agent performs a number of services for its customers who are Fund shareholders.
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 its average daily net assets. The Fund may enter into agreements with
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers. The Fund
may pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically.
Distribution Plan
In accordance with Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for the Fund under which the Fund
does not pay any expenses.
- --------------------------------------------------------------------------------
How to Buy Shares
- --------------------------------------------------------------------------------
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500 ($100 for IRAs), with additional investments of at
least $25. 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. Their 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:
The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
12
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares (continued)
- --------------------------------------------------------------------------------
By Overnight Mail
Use the following address ONLY for overnight packages.
The Victory Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
PHONE: 800-539-FUND
By Wire
The Transfer Agent does not charge a wire fee, but your originating bank may
charge a fee. Always call the Transfer Agent at 800-539-FUND BEFORE wiring
funds to obtain a confirmation number.
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)
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.
13
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
14
<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:
o Shares of the Fund selected for exchange must be available for sale in
your state of residence.
o The Fund whose shares you would like to exchange and the fund whose
shares you want to buy must offer the exchange privilege.
o Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can
exchange into Class A Shares of any Victory Fund that does not offer
Class G Shares without paying a sales charge.
o 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 you have 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 in the Victory Group that has a 2.00% sales charge, you
would pay the 3.75% difference in sales charge.
o 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.
o You must meet the minimum purchase requirements for the fund you buy by
exchange.
o The registration and tax identification numbers of the two accounts
must be identical.
o You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them; after the account is
open seven days, you can exchange shares on any business day.
o 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.
o Before exchanging, read the prospectus of the fund you wish to purchase
by exchange.
o An exchange of Fund shares constitutes a sale for tax purposes.
15
<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:
o Mail a check to the address of record;
o Wire funds to a domestic financial institution;
o Mail a check to a previously designated alternate address; or
o 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 sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
o Redemptions over $10,000;
o Your account registration has changed within the last 15 days;
o The check is not being mailed to the address on your account;
o The check is not being made payable to the owner of the account;
16
<PAGE>
- --------------------------------------------------------------------------------
How to Sell Shares (continued)
- --------------------------------------------------------------------------------
o The redemption proceeds are being transferred to another Victory Group
account with a different registration; or
o 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 on 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.
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 personal
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
and that each withdrawal will be a taxable transaction. However, you cannot
automatically close your account using the Systematic Withdrawal Plan. If your
balance falls below $500 ($100 for IRAs), 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
o 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.
o 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.
o The Fund will pay redemptions by any one shareholder during any 90-day
period in cash up to the lesser of $250,000 or 1% of the Fund's net
assets. The Fund reserves the right to pay the remaining portion "in
kind," that is, in portfolio securities rather than cash.
17
<PAGE>
- --------------------------------------------------------------------------------
Organization and Management of the Fund
- --------------------------------------------------------------------------------
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.
About Victory
The Fund is a member of the Victory Funds, a group of more than 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.
The Investment Adviser and Sub-Administrator
The Fund has an Advisory Agreement which is one of its most important contracts.
Key Asset Management Inc. (KAM), a New York corporation registered as an
investment adviser with the SEC, is the Adviser to the Fund. KAM, a subsidiary
of KeyCorp, oversees the operations of the Fund according to investment policies
and procedures adopted by the Board of Trustees. Affiliates of the Adviser
manage approximately $76 billion for a limited number of individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114.
During the fiscal year ended October 31, 1999, KAM was paid an advisory fee
at an annual rate of 0.50% of the Fund's average daily net assets.
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the
Fund's administrator, pays KAM a fee at the annual rate of up to 0.05% of the
Fund's average daily net assets to perform some of the administrative duties for
the Fund.
Portfolio Management
Trenton T. Fletcher is the portfolio manager of the Fund, a position he has held
since January 1998. A Portfolio Manager and Director of KAM, he has been
working in the fixed income markets at KAM since 1989.
18
<PAGE>
Organization and Management of the Fund (continued)
OPERATIONAL STRUCTURE OF THE FUND
Trustees Adviser
----------------------------------------------------
Shareholders
Financial Services Firms and
their Investment Professionals
----------------------------------------------------
Advise current and prospective
shareholders on their Fund investments.
----------------------------------------------------
Transfer Agent/Servicing Agent
----------------------------------------------------
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping,
statements, processing of buy and sell
requests, distribution of dividends,
and servicing of shareholder accounts.
----------------------------------------------------
- --------------------------------------------------------------------------------
Administrator, Distributor,
and Fund Accountant Custodian
- -------------------------------------------- -------------------------------
BISYS Fund Services Key Trust Company of Ohio, N.A.
and its affiliates 127 Public Square
3435 Stelzer Road Cleveland, OH 44114
Columbus, OH 43219
<PAGE>
Markets the Fund, distributes share Provides for the safekeeping of
Investment Professionals, calculates the Fund's investments and cash,
the value of shares. As Administrator, and settles through and
handles the day-to-day activities trades made by the Fund.
of the Fund.
- ------------------------------------------------
Sub-Administrator
- ------------------------------------------------
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain
sub-administrative services.
- ------------------------------------------------
The Fund is supervised by the Board of Trustees, which monitor the services
provided to investors.
19
<PAGE>
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Some additional information you should know about the Fund.
Share Classes
The Fund currently offers only the class of shares described in this Prospectus.
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 may include the yield and average annual total return of
the Fund calculated on a compounded basis for specified periods of time. Yield
and 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. You also
should see the Fund's "Investment Performance" section.
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.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights Government Mortgage Fund
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information shows the
results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A Shares
of the Fund. The financial highlights for the five fiscal years ended October
31, 1999 were audited by PricewaterhouseCoopers LLP, whose report, along with
the financial statements of the Fund, are included in the Fund's annual report,
which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.07 $ 10.93 $ 10.76 $ 10.86 $ 10.33
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Investment Activities
Net investment income 0.62 0.63 0.69 0.70 0.72
Net realized and unrealized gains (losses)
from investments (0.47) 0.14 0.16 (0.12) 0.62
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Total from Investment Activities 0.15 0.77 0.85 0.58 1.34
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Distributions
Net investment income (0.61) (0.63) (0.68) (0.67) (0.71)
In excess of net realized gains -- -- -- -- (0.08)
Tax return of capital -- -- (b) (0.01) (0.02)
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Total Distributions (0.61) (0.63) (0.68) (0.68) (0.81)
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Net Asset Value, End of Period $ 10.61 $ 11.07 $ 10.93 $ 10.76 $ 10.86
- ---------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Total Return (excludes sales charges) 1.38% 7.23% 8.22% 5.54% 13.55%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $99,326 $105,085 $103,761 $125,992 $136,103
Ratio of expenses to average net assets 0.99% 0.88% 0.85% 0.89% 0.77%
Ratio of net investment income to average net 5.67% 5.72% 6.32% 6.46% 6.81%
assets
Ratio of expenses to average net assets* 1.08% 1.01% (a) 0.90% 0.79%
Ratio of net investment income to average net 5.58% 5.59% (a) 6.45% 6.80%
assets*
Portfolio turnover 274% 296% 115% 127% 59%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) There were no voluntary fee reductions during the period.
(b) Amount rounds to less than $0.01.
21
<PAGE>
This page is intentionally left blank.
22
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, OH 44114
If you would like a free copy of any of the following documents or would like to
request other information regarding the Fund, you can call or write the Fund or
your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Fund and its policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes the Fund's performance, lists portfolio holdings, and discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Obtain Information
By telephone: Call Victory Funds at 800-539-FUND (800-539-3863).
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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http: //www.victoryfunds.com.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Fund at 800-539-FUND (800-539-3863).
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Investment Company Act File Number 811-4852
<PAGE>
[GRAPHIC OMITTED]
Victory Funds
PROSPECTUS
Ohio Regional Stock Fund
Class A Shares
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.
Call Victory at: 800-539-FUND (800-539-3863)
or visit the Victory Funds' website at: www.victoryfunds.com
February 28, 2000
<PAGE>
TABLE OF CONTENTS
RISK/RETURN SUMMARY FOR THE FUND 1
An analysis which includes the investment objective, principal strategies,
principal risks, performance and expenses of the Fund.
INVESTMENTS 4
RISK FACTORS 4
SHARE PRICE 5
DIVIDENDS, DISTRIBUTIONS, AND TAXES 6
INVESTING WITH VICTORY 8
o How to Buy Shares 10
o How to Exchange Shares 13
o How to Sell Shares 14
ORGANIZATION AND MANAGEMENT OF THE FUND 16
ADDITIONAL INFORMATION 18
FINANCIAL HIGHLIGHTS 19
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.
<PAGE>
- --------------------------------------------------------------------------------
OHIO REGIONAL STOCK FUND Risk/Return Summary
- --------------------------------------------------------------------------------
Investment Objective
The Fund seeks to provide capital appreciation.
Principal Investment Strategies
The Fund pursues its investment objective by investing at least 80% of its total
assets in equity securities issued by companies headquartered in the State of
Ohio.
In making investment decisions, Key Asset Management Inc., the Fund's investment
adviser (KAM or the Adviser) analyzes cash flow, book value, dividend growth
potential, quality of management, earnings, and capitalization. The Fund looks
at any information that reflects the potential for future earnings growth. The
Fund invests in nationally recognized companies and lesser-known companies that
may have smaller capitalization, but also the potential for growth.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in common stocks and securities convertible into common stocks.
There is no guarantee that the Fund will achieve its objectives.
Proposed Reorganization
The Board of Trustees of the Victory Portfolios has approved a Plan of
Reorganization and Liquidation for the Fund. At a special meeting, anticipated
to be held in March 2000, shareholders of the Fund will be asked to approve the
transfer of the assets of their Fund into Class A Shares of the Victory
Established Value Fund. If the Reorganization of the Fund is approved,
shareholders will exchange their Fund shares for Class A Shares of the Victory
Established Value Fund, and the Fund will no longer be available for purchases,
exchanges or redemptions. Shareholders will receive shares of the Established
Value Fund with the same value as the total value of their Fund shares. (In
other words, a shareholder who owns $1,000 worth of Class A Shares of the Fund
will receive $1,000 worth of Class A Shares of the Victory Established Value
Fund.) The exchange will not be subject to any sales charges and will not be
taxable. The Victory Established Value Fund has the same investment adviser and
service providers as the Fund. If you do not wish to participate in the
reorganization, you must redeem your shares by 4:00 p.m. on May 5, 2000.
Principal Risks
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:
o The market value of securities acquired by the Fund declines.
o Growth stocks fall out of favor because the companies' earnings growth
does not meet expectations.
o Value stocks fall out of favor relative to growth stocks.
<PAGE>
o The portfolio manager does not execute the Fund's principal investment
strategies effectively.
o A company's earnings do not increase as expected.
- --------------------------------------------------------------------------------
OHIO REGIONAL STOCK FUND Risk/Return Summary
- --------------------------------------------------------------------------------
Since the Fund concentrates its investments in the State of Ohio, its assets may
be at greater risk because of economic, political, or regulatory risks
associated with the state. The Fund is subject to additional risks because it
concentrates its investments in a single geographic area.
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.
By itself, the Fund does not constitute a complete investment plan and should be
considered a long-term investment for investors who can afford to weather
changes in the value of their investment.
Investment Performance
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in its performance for various time
periods ending December 31. The figures shown in the bar chart and table assume
reinvestment of dividends and distributions.
Sales loads are not reflected on the bar chart (or highest and lowest returns
below) and if they were reflected, returns would be lower than those shown.
1990 -18.50%
1991 58.65%
1992 10.88%
1993 16.58%
1994 0.05%
1995 26.43%
1996 20.85%
1997 29.66%
1998 -1.76%
1999 -10.66%
Past performance does not indicate future results.
During the period shown in the bar chart, the highest return for a quarter was
26.20% (quarter ending March 31, 1991) and the lowest return for a quarter was
25.47% (quarter ending September 30, 1990).
3
<PAGE>
- --------------------------------------------------------------------------------
OHIO REGIONAL STOCK FUND Risk/Return Summary
- --------------------------------------------------------------------------------
The table shows how the average annual total returns for Class A Shares of the
Ohio Regional Stock Fund for one year, five years and ten years, including the
maximum sales charges, compare to those of two broad-based market indices.
- --------------------------------------------------------------------------------
Average Annual Total Returns
(for the Periods ended December 31,
1999) Past One Year Past 5 Years Past 10 Years
Class A -15.78% 10.39% 10.61%
S&P 500 Index (1)(3) 21.04% 28.55% 18.21%
S&P 400 Mid-Cap Index (2)(3) 14.72% 23.05% 17.32%
- --------------------------------------------------------------------------------
1 The Standard & Poor's 500 Stock Index is a broad-based unmanaged index
that represents the general performance of domestically traded common
stocks of mid- to large-size companies.
2 The Standard & Poor's 400 Mid-Cap Index is a broad-based unmanaged index
that represents the general performance of domestically traded common
stocks of mid-size companies.
3 Index returns do not include any brokerage commissions, sales charges, or
other fees. It is not possible to invest directly in an index.
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
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price) 5.75%
Maximum Deferred Sales Charge (as a percentage of the lower
of purchase or sale price) NONE (2)
Maximum Sales Charge Imposed on Reinvested Dividends NONE
Redemption Fees NONE
Exchange Fees NONE
Annual Fund Operating Expenses (deducted from Fund assets.)
Management Fees 0.75%
Distribution (12b-1) Fees 0.00%
Other Expenses (includes a shareholder servicing fee of 0.25%) 0.73%
Total Fund Operating Expenses 1.48%
- --------------------------------------------------------------------------------
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%.
EXAMPLE
The following Example is designed to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods shown and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
4
<PAGE>
- --------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
Class A $717 $1,016 $1,336 $2,242
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Investments
- --------------------------------------------------------------------------------
Under normal market conditions, the Fund purchases equity securities, including
common stock, preferred stock and securities that are convertible or
exchangeable into common stock of U.S. corporations.
For cash management or for temporary defensive purposes in response to 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).
- --------------------------------------------------------------------------------
Risk Factors
- --------------------------------------------------------------------------------
------------------------------------------------------------------
By matching your investment objective with an acceptable level of
risk, you can create your own customized investment plan.
------------------------------------------------------------------
This Prospectus describes the principal risks that you may assume as an investor
in the Fund.
The Fund is subject to the following principal risks.
General risks:
o 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.
o Manager risk is the risk that the Fund's portfolio manager may implement
its principal investment strategy in a way that does not produce the
intended result.
Risk associated with investing in equity securities:
o Equity risk is the risk that the value of the security will fluctuate in
response to changes in earnings or other conditions affecting the issuer's
profitability. Unlike debt securities, which have preference to a
company's 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.
6
<PAGE>
Risk associated with investing in the securities of a single state:
o Concentration risk is the risk that only a limited number of high-quality
securities of a particular type may be available. Concentration risk is
greater for funds that primarily invest in the securities of a single
state. Concentration risk may result in the Fund being invested in
securities that are related in such a way that changes in economic,
business, or political circumstances that would normally affect one
security could also affect other securities within that particular segment
of the market.
-------------------------------------------------------------------------
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.
-------------------------------------------------------------------------
--------------------------------------------------------
An investment in the Fund is not a complete investment
program.
--------------------------------------------------------
- --------------------------------------------------------------------------------
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 its NAV by adding up the total value of its investments and other
assets, subtracting its liabilities, and then dividing that figure by the number
of outstanding shares.
Total Assets- Liabilities
NAV = ------------------------
Number of Shares Outstanding
You can find the Fund's net asset value each day in The Wall Street Journal and
other newspapers. Newspapers do not normally publish fund information until a
fund reaches a specific number of shareholders or level of assets.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
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.
Distributions can be received in one of the following ways.
o 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.
o Cash Option
A check will be mailed to you no later than seven days after the dividend
payment date.
o 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.
o Directed Dividends Option
You can automatically reinvest distributions in the same class of
shares of another fund of the Victory Group. If you reinvest your
distributions in a different class of another fund, you may pay a
sales charge on the reinvested distributions.
o Directed Bank Account Option
In most cases, you can automatically transfer distributions to your
bank checking or savings account. Under normal circumstances, the
Transfer Agent will transfer your distributions within seven days of
the dividend payment date. The bank account must have a registration
identical to that of your Fund account.
8
<PAGE>
- --------------------------------------------------------------------------------
Dividends, Distributions and Taxes (continued)
- --------------------------------------------------------------------------------
Important Information about Taxes
-------------------------------------------------------------------
The tax information in this Prospectus is provided as general
information. You should consult your own tax adviser about the tax
consequences of an investment in the Fund.
-------------------------------------------------------------------
The Fund pays no federal income tax on the earnings and capital gains it
distributes to shareholders.
o Ordinary dividends from the Fund are taxable as ordinary income; dividends
from the Fund's long-term capital gains are taxable as long-term capital
gain.
o Dividends are treated in the same manner for federal income tax purposes
whether you receive them in cash or in additional shares. They also may be
subject to state and local taxes.
o Dividends from the Fund that are attributable to interest on certain U.S.
government obligations may be exempt from certain state and local income
taxes. The extent to which ordinary dividends are attributable to U.S.
government obligations will be provided with tax statements you receive
from the Fund.
o 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.
o Certain dividends paid to you in January will be taxable as if they had
been paid to you the previous December.
o Tax statements will be mailed from the Fund every January showing the
amounts and tax status of distributions made to you.
o Because your tax treatment depends on your purchase price and tax
position, you should keep your regular account statements for use in
determining your tax.
o You should review the more detailed discussion of federal income tax
considerations in the SAI.
9
<PAGE>
- --------------------------------------------------------------------------------
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. The following sections will describe how
to open an account, how to access information on your account, and how to buy,
exchange, and sell shares of the Fund. We want to make it simple for you to do
business with us. If you have questions about any of this information, please
call your Investment Professional or one of our customer service representatives
at 800-539-FUND. They will be happy to assist you.
--------------------------------------------------------------------------
An Investment Professional is an investment consultant, salesperson,
financial planner, investment adviser, or trust officer who provides you
with investment information.
--------------------------------------------------------------------------
Calculation of Sales Charges -- Class A
The Fund described in this prospectus offers Class A Shares, which have a
front-end sales charge of 5.75%. Please look at the "Fund Expenses" section to
find the sales charge.
Class A Shares are sold at their public offering price, which is the NAV plus
the applicable initial sales charge. The sales charge as a percentage of your
investment decreases as the amount you invest increases. The current sales
charge rates are listed below.
- --------------------------------------------------------------------------------
Your Investment in the Fund: Sales Charge as a % of Sales Charge as a % of
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 NAV 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.
For historical expense information on Class A shares, see the "Financial
Highlights" at the end of this Prospectus.
10
<PAGE>
- --------------------------------------------------------------------------------
Investing with Victory (continued)
- --------------------------------------------------------------------------------
Sales Charge Reductions and Waivers
There are several ways you can combine multiple purchases in the Victory Funds
and take advantage of reduced sales charges.
You may qualify for reduced sales charges in the following cases:
1. A Letter of Intent lets you buy Class A Shares of the Fund over a
13-month period and receive the same sales charge as if all shares
had been purchased at one time. You must start with a minimum
initial investment of 5% of the total amount.
2. Rights of Accumulation allow you to add the value of any Class A
Shares you already own to the amount of your next Class A investment
for purposes of calculating the sales charge at the time of
purchase.
3. You can combine Class A Shares of multiple Victory Funds (excluding
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. Waivers for certain investors:
a. Current and retired Fund Trustees, directors, trustees,
employees, and family members of employees of KeyCorp or
"Affiliated Providers "2 , and dealers who have an agreement
with the Distributor and any trade organization to which the
Adviser or the Administrator belong.
b. Investors who buy shares for trust or other advisory accounts
established with KeyCorp or its affiliates.
c. Investors in Class A Shares who reinvest the 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 National Association or its affiliates,
the Victory Group, or invested in a fund of the Victory Group.
d. Investment Professionals who purchased Fund shares for
fee-based investment products or accounts, selling brokers,
and their sales representatives.
e. Purchase of shares in connection with financial institution
sponsored bundled omnibus retirement programs sponsored by
financial institutions that have entered into agreements with
the Fund's Distributor in connection with the operational
requirements of such programs.
f. Participants in tax-deferred retirement plans who purchased
shares pursuant to waiver provisions in effect prior to
December 15, 1999.
- --------
1 Affiliated Providers are affiliates and subsidiaries of KeyCorp, and any
organization that provides services to the Victory Group.
11
<PAGE>
- --------------------------------------------------------------------------------
Investing with Victory (continued)
- --------------------------------------------------------------------------------
Shareholder Servicing Plan
The Fund has adopted a Shareholder Servicing Plan. The shareholder servicing
agent performs a number of services for its customers who are Fund shareholders.
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 its average daily net assets. The Fund may enter into agreements with
various shareholder servicing agents, including KeyBank National Association and
its affiliates, other financial institutions, and securities brokers. The Fund
may pay a servicing fee to broker-dealers and others who sponsor "no transaction
fee" or similar programs for the purchase of shares. Shareholder servicing
agents may waive all or a portion of their fee periodically.
Distribution Plan
In accordance with Rule 12b-1 under the Investment Company Act of 1940, Victory
has adopted a Distribution and Service Plan for the Fund under which the Fund
does not pay any expenses.
- --------------------------------------------------------------------------------
How to Buy Shares
- --------------------------------------------------------------------------------
You can buy shares in a number of different ways. All you need to do to get
started is to fill out an application. The minimum initial investment required
to open an account is $500 ($100 for IRAs), with additional investments of at
least $25. 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. Their 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:
The Victory Funds
P.O. Box 8527
Boston, MA 02266-8527
12
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares (continued)
- --------------------------------------------------------------------------------
By Overnight Mail
Use the following address ONLY for overnight packages.
The Victory Funds
c/o Boston Financial Data Services
66 Brooks Drive
Braintree, MA 02184
PHONE: 800-539-FUND
By Wire
The Transfer Agent does not charge a wire fee, but your originating bank may
charge a fee. Always call the Transfer Agent at 800-539-FUND BEFORE wiring funds
to obtain a confirmation number.
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)
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.
13
<PAGE>
- --------------------------------------------------------------------------------
How to Buy Shares (continued)
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
14
<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:
o Shares of the Fund selected for exchange must be available for sale in
your state of residence.
o The Fund whose shares you would like to exchange and the fund whose shares
you want to buy must offer the exchange privilege.
o Holders of Class G Shares who acquired their shares as a result of the
reorganization of the Gradison Funds into the Victory Funds can exchange
into Class A Shares of any Victory Fund that does not offer Class G Shares
without paying a sales charge.
o 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 you have 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 in the Victory
Group that has a 2.00% sales charge, you would pay the 3.75% difference in
sales charge.
o 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.
o You must meet the minimum purchase requirements for the fund you buy by
exchange.
o The registration and tax identification numbers of the two accounts must
be identical.
o You must hold the shares you buy when you establish your account for at
least seven days before you can exchange them; after the account is open
seven days, you can exchange shares on any business day.
o 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.
o Before exchanging, read the prospectus of the fund you wish to purchase by
exchange.
o An exchange of Fund shares constitutes a sale for tax purposes.
15
<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:
o Mail a check to the address of record;
o Wire funds to a domestic financial institution;
o Mail a check to a previously designated alternate address; or
o 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 sell shares. Send us a
letter of instruction indicating your Fund account number, amount of redemption,
and where to send the proceeds. A signature guarantee is required for the
following redemption requests:
o Redemptions over $10,000;
o Your account registration has changed within the last 15 days;
o The check is not being mailed to the address on your account;
o The check is not being made payable to the owner of the account;
o The redemption proceeds are being transferred to another Victory Group
account with a different registration; or
o The check or wire is being sent to a different bank account.
16
<PAGE>
- --------------------------------------------------------------------------------
How to Sell Shares (continued)
- --------------------------------------------------------------------------------
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 on 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.
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 personal
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
and that each withdrawal will be a taxable transaction. However, you cannot
automatically close your account using the Systematic Withdrawal Plan. If your
balance falls below $500 ($100 for IRA accounts), 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
o 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.
o 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.
o The Fund will pay redemptions by any one shareholder during any 90-day
period in cash up to the lesser of $250,000 or 1% of the Fund's net
assets. The Fund reserves the right to pay the remaining portion "in
kind," that is, in portfolio securities rather than cash.
17
<PAGE>
- --------------------------------------------------------------------------------
Organization and Management of the Fund
- --------------------------------------------------------------------------------
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.
About Victory
The Fund is a member of the Victory Funds, a group of more than 30 distinct
investment portfolios. The Board of Trustees of Victory has the overall
responsibility for the management of the Fund.
The Investment Adviser and Sub-Administrator
The Fund has an Advisory Agreement which is one of its most important contracts.
Key Asset Management Inc. (KAM), a New York corporation registered as an
investment adviser with the SEC, is the Adviser to the Fund. KAM, a subsidiary
of KeyCorp, oversees the operations of the Fund according to investment policies
and procedures adopted by the Board of Trustees. Affiliates of the Adviser
manage approximately $76 billion for a limited number of individual and
institutional clients. KAM's address is 127 Public Square, Cleveland, Ohio
44114.
During the fiscal year ended October 31, 1999, KAM was paid an advisory fee at
an annual rate of 0.68% of the Fund's average daily net assets .
Under a Sub-Administration Agreement, BISYS Fund Services Ohio, Inc., the Fund's
administrator, pays KAM a fee at the annual rate of up to 0.05% of the Fund's
average daily net assets to perform some of the administrative duties for the
Fund.
Portfolio Management
Lynn S. Hamilton is the portfolio manager of the Fund, a position he has held
since October 1991. He is a Portfolio Manager and Managing Director of KAM, and
has been in the investment business since 1977.
18
<PAGE>
Organization and Management of the Fund (continued)
OPERATIONAL STRUCTURE OF THE FUND
Trustees Adviser
----------------------------------------------------
Shareholders
Financial Services Firms and
their Investment Professionals
----------------------------------------------------
Advise current and prospective
shareholders on their Fund investments.
----------------------------------------------------
Transfer Agent/Servicing Agent
----------------------------------------------------
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Boston Financial Data Services
Two Heritage Drive
Quincy, MA 02171
Handles services such as record-keeping,
statements, processing of buy and sell
requests, distribution of dividends,
and servicing of shareholder accounts.
----------------------------------------------------
- --------------------------------------------------------------------------------
Administrator, Distributor,
and Fund Accountant Custodian
- -------------------------------------------- -------------------------------
BISYS Fund Services Key Trust Company of Ohio, N.A.
and its affiliates 127 Public Square
3435 Stelzer Road Cleveland, OH 44114
Columbus, OH 43219
<PAGE>
Markets the Fund, distributes share Provides for the safekeeping of
Investment Professionals, calculates the Fund's investments and cash,
the value of shares. As Administrator, and settles through and
handles the day-to-day activities trades made by the Fund.
of the Fund.
- ------------------------------------------------
Sub-Administrator
- ------------------------------------------------
Key Asset Management Inc.
127 Public Square
Cleveland, OH 44114
Performs certain
sub-administrative services.
- ------------------------------------------------
The Fund is supervised by the Board of Trustees, which monitor the services
provided to investors.
19
<PAGE>
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Some additional information you should know about the Fund.
Share Classes
The Fund currently offers only the class of shares described in this Prospectus.
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 may include the yield and average annual total return of
the Fund calculated on a compounded basis for specified periods of time. Yield
and 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. You also
should see the Fund's "Investment Performance" section.
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.
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights Ohio Regional Stock Fund
- --------------------------------------------------------------------------------
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information shows the
results of an investment in one share of the Fund. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
These financial highlights reflect historical information about Class A Shares
of the Fund. The financial highlights for the five fiscal years ended October
31, 1999 were audited by PricewaterhouseCoopers LLP, whose report, along with
the financial statements of the Fund, are included in the Fund's annual report,
which is available by calling the Fund at 800-539-FUND.
<TABLE>
<CAPTION>
Prior to
designation
Class A Shares as Class A
Shares
------------------------------------------------------------- --------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995
(a)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 20.67 $ 23.56 $ 17.95 $ 15.94 $ 14.56
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Activities
Net investment income 0.18 0.18 0.14 0.14 0.17
Net realized and unrealized gains (losses)
from investments (1.26) (0.80) 5.96 2.62 2.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities (1.08) (0.62) 6.10 2.76 2.30
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.17) (0.17) (0.14) (0.14) (0.17)
In excess of net investment income -- -- -- -- (0.01)
Net realized gains (2.42) (2.10) (0.35) (0.36) (0.65)
In excess of net realized gains -- -- -- (0.25) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.59) (2.27) (0.49) (0.75) (0.92)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 17.00 $ 20.67 $ 23.56 $ 17.95 $ 15.94
- ---------------------------------------------------- -------------- -------------- -------------- ---------------- --------------
Total Return (excludes sales charges) (6.31)% (3.13)% 34.61% 17.79% 16.93%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $23,529 $41,653 $53,703 $45,294 $39,048
Ratio of expenses to average net assets 1.39% 1.26% 1.26% 1.39% 1.20%
Ratio of net investment income to average net
assets 0.92% 0.76% 0.67% 0.79% 1.13%
Ratio of expenses to average net assets* 1.48% 1.37% 1.26% 1.40% 1.24%
Ratio of net investment income to average net
assets* 0.83% 0.65% 0.67% 0.78% 1.09%
Portfolio turnover 2% 6% 8% 6% 11%
</TABLE>
* During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or reimbursements had
not occurred, the ratios would have been as indicated.
(a) Effective March 1, 1996, the Fund designated the existing shares as
Class A Shares.
21
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, OH 44114
If you would like a free copy of any of the following documents or would like to
request other information regarding the Fund, you can call or write the Fund or
your Investment Professional.
Statement of Additional Information (SAI)
Contains more details describing the Fund and its policies. The SAI has been
filed with the Securities and Exchange Commission (SEC), and is incorporated by
reference in this Prospectus.
Annual and Semi-annual Reports
Describes the Fund's performance, lists portfolio holdings, and discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Obtain Information
By telephone: Call Victory Funds at 800-539-FUND (800-539-3863).
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: Text only versions of Fund documents can be viewed on-line or
downloaded from the SEC at http://www.sec.gov or from the Victory Funds' website
at http: //www.victoryfunds.com.
If you would like to receive copies of the annual and semi-annual reports and/or
the SAI at no charge, please call the Fund at 800-539-FUND (800-539-3863).
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Investment Company Act File Number 811-4852
<PAGE>
Registration Statement
of
THE VICTORY PORTFOLIOS
on
Form N-1A
PART C. OTHER INFORMATION
Item 23.
Exhibits:
(a)(1) Certificate of Trust (1)
(a)(2)(a) Delaware Trust Instrument dated December 6, 1995, as amended. (2)
(a)(2)(b) Schedule A to Trust Instrument dated December 6, 1995, as amended
August 17, 1999.(3)
(b) Bylaws, Amended and Restated as of August 28, 1998. (4)
(c) The rights of holders of the securities being registered are set out
in Articles II, VII, IX and X of the Trust Instrument referenced in
Exhibit (a)(2) above and in Article IV of the Bylaws referenced in
Exhibit (b) above.
(d)(1)(a) Investment Advisory Agreement dated as of March 1, 1997 between
Registrant and Key Asset Management Inc. ("KAM").(5)
(d)(1)(b) Schedule A to Investment Advisory Agreement dated as of March 1,
1997, as revised December 11, 1998. (6)
(d)(2) Investment Advisory Agreement dated March 1, 1997 between Registrant
and KAM regarding the Lakefront Fund and Real Estate Investment Fund.
(7)
- ------------------------
(1) Filed as an Exhibit to Post-Effective Amendment No. 26 to
Registrant's Registration Statement on Form N-1A filed electronically
on December 28, 1995, accession number 0000950152-95-003085.
(2) Filed as an Exhibit to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A filed electronically
on February 26, 1998, accession number 0000922423-98-000264.
(3) Filed as an Exhibit to Post-Effective Amendment No. 58 to
Registrant's Registration Statement on Form N-1A filed electronically
on December 30, 1999, accession number 0000922423-99-001542.
(4) Filed as an Exhibit to Post-Effective Amendment No. 44 to
Registrant's Registration Statement on Form N-1A filed electronically
on November 19, 1998, accession number 0000922423-98-001323.
(5) Filed as an Exhibit to Post-Effective Amendment No. 42 to
Registrant's Registration Statement on Form N-1A filed electronically
on July 29, 1998, accession number 0000922423-98-000725.
(6) Filed as an Exhibit to Post-Effective Amendment No. 54 to
Registrant's Registration Statement on Form N-1A filed electronically
on October 15, 1999, accession number 0000922423-99-001196.
C-1
<PAGE>
(d)(3) Schedule A to the Investment Advisory Agreement between Registrant
and KAM regarding the Lakefront Fund and Real Estate Investment Fund,
as amended December 11, 1998, to include the Gradison Government
Reserves Fund and Established Value Fund, as revised December 11,
1998.(6)
(d)(4) Investment Sub-Advisory Agreement dated March 1, 1997 between KAM and
Lakefront Capital Investors, Inc. regarding the Lakefront Fund. (7)
(d)(5) Investment Advisory Agreement dated June 1, 1998 between Registrant
and KAM regarding the International Growth Fund. (5)
(d)(6) Portfolio Management Agreement dated June 1, 1998 between Registrant,
KAM and Indocam International Investment Services, S.A. regarding the
International Growth Fund.(8)
(e)(1) Distribution Agreement dated June 1, 1996 between Registrant and
BISYS Fund Services Limited Partnership (together with its
subsidiaries, "BISYS"). (5)
(e)(2) Schedule I to the Distribution Agreement, as revised August 17,
1999.(6)
(f) None.
(g)(1)(a) Amended and Restated Mutual Fund Custody Agreement dated August 1,
1996 between Registrant and Key Trust of Ohio, Inc., with Attachment
B revised as of March 2, 1998. (5)
(g)(1)(b) Schedule A to the Mutual Fund Custody Agreement, as revised August
17, 1999. (6)
(g)(2) Custody Agreement dated May 31, 1996 between Morgan Stanley Trust
Company and Key Trust Company of Ohio.(9)
(h)(1) Form of Broker-Dealer Agreement.(10)
(h)(2) Administration Agreement dated October 1, 1999 between Registrant and
BISYS. (6)
(h)(3)(a) Sub-Administration Agreement dated October 1, 1999 between BISYS and
KAM. (6)
(h)(4)(a) Transfer Agency and Service Agreement dated July 12, 1996 between
Registrant and State Street Bank and Trust Company. (5)
(h)(4)(b) Schedule A to the Transfer Agency and Service Agreement, as revised
August 17, 1999. (6)
- ------------------------
(7) Filed as an Exhibit to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A filed electronically
on December 12, 1997, accession number 0000922423-97-001015.
(8) Filed as an Exhibit to Post-Effective Amendment No. 40 to
Registrant's Registration Statement on Form N-1A filed electronically
on June 12, 1998, accession number 0000922423-98-000602.
(9) Filed as an Exhibit to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A filed electronically
on July 30, 1996, accession number 0000922423-96-000344.
(10) Filed as an Exhibit to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A filed electronically
on January 31, 1996, accession number 0000922423-96-000047.
C-2
<PAGE>
(h)(5)(a) Fund Accounting Agreement dated June 1, 1999 between Registrant and
BISYS. (11)
(h)(6) Purchase Agreement is incorporated herein by reference to Exhibit
13(c) to Post-Effective Amendment No. 7 to Registrant's Registration
Statement on Form N-1A filed on December 1, 1989.
(i) Not applicable.
(j)(1) Opinion and Consent of Kramer Levin Naftalis & Frankel LLP.
(j)(2) Opinion of Morris, Nichols, Arsht & Tunnell.
(j)(3) Consent of PricewaterhouseCoopers LLP.
(j)(4) Consent of Arthur Andersen LLP.
(k) Not applicable.
(l)(1) Purchase Agreement dated November 12, 1986 between Registrant and
Physicians Insurance Company of Ohio is incorporated herein by
reference to Exhibit 13 to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on November
13, 1986.
(l)(2) Purchase Agreement dated October 15, 1989 is incorporated herein by
reference to Exhibit 13(b) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A filed on December 1,
1989.
(m)(1)(a) Distribution and Service Plan dated June 5, 1995. (5)
(m)(1)(b) Distribution and Service Plan -- Schedule I dated May 11, 1999. (11)
(m)(2)(a) Distribution and Service Plan dated December 11, 1998 for Class G
Shares of Registrant.(12)
(m)(2)(b) Schedule A to Distribution and Service Plan dated December 11, 1998
for Class G Shares of Registrant, as revised August 17, 1999. (6)
(m)(3)(a) Shareholder Servicing Plan dated June 5, 1995.(4)
(m)(3)(b) Schedule I to the Shareholder Servicing Plan, as revised May 11,
1999. (11) (m)(4) Form of Shareholder Servicing Agreement. (1)
(n) Amended and Restated Rule 18f-3 Multi-Class Plan, dated as of
February 23, 2000.
- ------------------------
(11) Filed as an Exhibit to Post-Effective Amendment No. 51 to
Registrant's Registration Statement on Form N-1A filed electronically
on June 17, 1999, accession number 0000922423-99-000795.
(12) Filed as an Exhibit to Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A filed electronically
on January 26, 1999, accession number 0000922423-99-000059.
C-3
<PAGE>
Powers of Attorney of Roger Noall and Frank A. Weil. (13 )
Powers of Attorney of Leigh A. Wilson, Harry Gazelle, Thomas F.
Morrissey, H. Patrick Swygert and Eugene J. McDonald. (2)
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification
Article X, Section 10.02 of Registrant's Delaware Trust Instrument, as amended,
incorporated herein as Exhibit (a)(2) hereto, provides for the indemnification
of Registrant's Trustees and officers, as follows:
Section 10.02 Indemnification.
(a) Subject to the exceptions and limitations contained in Subsection 10.02(b):
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as a "Covered Person") shall be indemnified by
the Trust to the fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing
- ------------------------
(13) Filed as an Exhibit to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-14 filed electronically on February
3, 1998, accession number 0000922423-98-000095.
C-4
<PAGE>
contained herein shall affect any rights to indemnification to which Trust
personnel, other than Covered Persons, and other persons may be entitled by
contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense to
any claim, action, suit or proceeding of the character described in Subsection
(a) of this Section 10.02 may be paid by the Trust or Series from time to time
prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 10.02; provided, however, that either (i)
such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will be
found entitled to indemnification under this Section 10.02."
Indemnification of the Fund's principal underwriter, custodian, fund accountant,
and transfer agent is provided for, respectively, in Section V of the
Distribution Agreement incorporated by reference as Exhibit 6(a) hereto, Section
28 of the Custody Agreement incorporated by reference as Exhibit 8(a) hereto,
Section 5 of the Fund Accounting Agreement incorporated by reference as Exhibit
9(d) hereto, and Section 7 of the Transfer Agency Agreement incorporated by
reference as Exhibit 9(c) hereto. Registrant has obtained from a major insurance
carrier a trustees' and officers' liability policy covering certain types of
errors and omissions. In no event will Registrant indemnify any of its trustees,
officers, employees or agents against any liability to which such person would
otherwise be subject by reason of his willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of the duties involved in the conduct of his office or under his
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release 11330 under the Investment Company Act of
1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to trustees, officers, and controlling persons or
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Investment Company
Act of 1940, as amended, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
KAM is the investment adviser to each Fund of The Victory Portfolios. KAM is a
wholly-owned indirect subsidiary of KeyCorp, a bank holding company which had
total assets of approximately $83 billion as of September 30, 1999. KeyCorp is a
leading financial institution doing business in 13 states from Maine to Alaska,
providing a full array of trust, commercial, and retail banking services. Its
non-bank subsidiaries include investment advisory, securities brokerage,
insurance, bank credit card processing, mortgage and leasing companies. KAM and
its affiliates have over $79 billion in assets under management, and provide a
full range of investment management services to personal and corporate clients.
C-5
<PAGE>
Lakefront Capital Investors, Inc. ("Lakefront"), sub-adviser of the Lakefront
Fund, 127 Public Square, Cleveland, Ohio 44114, was incorporated in 1991.
Indocam International Investment Services, S.A. ("IIIS") serves as the
sub-adviser to the International Growth Fund. IIIS and its advisory affiliates
("Indocam") are the global asset management component of the Credit Agricole
banking and financial services group. IIIS is a registered investment adviser
with the SEC and also serves as the investment adviser to the France Growth Fund
and as sub-adviser for the BNY Hamilton International Equity Fund and the John
Hancock European Equity Fund. Indocam has affiliates that are engaged in the
brokerage business. The principal office of IIIS is 90 Blvd. Pasteur, 75730,
Paris, CEDEX, 15 -- France.
To the knowledge of Registrant, none of the directors or officers of KAM,
Lakefront, or IIIS, except those set forth below, is or has been at any time
during the past two calendar years engaged in any other business, profession,
vocation or employment of a substantial nature, except that certain directors
and officers of KAM also hold positions with KeyCorp or its subsidiaries.
The principal executive officers and directors of KAM are as follows:
- --------------------------------------------------------------------
Directors:
- ---------
William G. Spears o Senior Managing Director and Chairman.
Richard J. Buoncore o Senior Managing Director, President and Chief Executive
Officer.
Bradley E. Turner o Senior Managing Director and Chief Operating Officer.
Anthony Aveni o Senior Managing Director and Chief Investment Officer
of KAM.
Vincent DeP. Farrell o Senior Managing Director and Chief Investment Officer
of Spears, Benzak, Salomon & Farrell Division.
Richard E. Salomon o Senior Managing Director.
Gary R. Martzolf o Senior Managing Director.
Other Officers:
- ---------------
Charles G. Crane o Senior Managing Director and Chief Market Strategist.
James D. Kacic o Chief Financial Officer, Chief Administrative Officer,
and Senior Managing Director.
William R. Allen o Managing Director.
Jeff D. Suhanic o Chief Compliance Officer.
Michael Foisel o Assistant Treasurer.
William J. Blake o Secretary.
Steven N. Bulloch o Assistant Secretary. Also, Senior Vice President and
Senior Counsel of KeyCorp Management Company.
Kathleen A. Dennis o Senior Managing Director.
The business address of each of the foregoing individuals is 127 Public Square,
Cleveland, Ohio 44114.
C-6
<PAGE>
The principal executive officer and director of Lakefront is:
- ------------------------------------------------------------
Nathaniel E. Carter o President and Chief Investment Officer.
The business address of the foregoing individual is 127 Public Square,
Cleveland, Ohio 44114.
The principal executive officers and directors of IIIS are as follows:
Jean-Claude Kaltenbach o Chairman
and CEO.
Ian Gerald McEvatt o Director. Claude Doumic o Director.
Didier Guyot de la Pommeraye o Director. Charles Vergnot o Director.
Eric Jostrom o Director. Gerard Sutterlin o Secretary
General.
The business address of each of the foregoing individuals is 90 Blvd. Pasteur,
75730 Paris, CEDEX 15 -- France.
Item 27. Principal Underwriter
(a) BISYS Fund Services Limited Partnership (the "Distributor"), an affiliate of
Registrant's administrator, also acts as the distributor for the following
investment companies as of November 9, 1999.
Alpine Equity Trust Meyers Investment Trust
American Performance Funds MMA Praxis Mutual Funds
AmSouth Mutual Funds M.S.D. & T. Funds
The BB&T Mutual Funds Group Pacific Capital Funds
The Coventry Group Republic Advisor Funds Trust
ESC Strategic Funds, Inc. Republic Funds Trust
The Eureka Funds Sefton Funds Trust
Fifth Third Funds SSgA International Liquidity Fund
Governor Funds Summit Investment Trust
Hirtle Callaghan Trust USAllianz Funds
HSBC Funds Trust and HSBC USAllianz Funds Variable
Mutual Funds Trust Insurance Products Trust
The Infinity Mutual Funds, Inc. Valenzuela Capital Trust
INTRUST Funds Trust Variable Insurance Funds
Magna Funds The Victory Variable Insurance Funds
Mercantile Mutual Funds, Inc. Vintage Mutual Funds, Inc.
Metamarkets.com
(b) Directors and officers of BISYS Fund Services, Inc., the general partner of
the Distributor, as of November 9, 1999 were as follows:
Lynn Mangum o Director.
Dennis Sheehan o Director.
Kevin Dell o Vice President and Secretary.
William Tomko o Senior Vice President.
Robert Tuch o Assistant Secretary.
None of the foregoing individuals holds any position with Registrant. The
business address of each of these individuals is BISYS Fund Services, Inc., 3435
Stelzer Road, Columbus, Ohio 43215.
(c) Not applicable.
C-7
<PAGE>
Item 28. Location of Accounts and Records
(1) Key Asset Management Inc., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as investment adviser
and sub-administrator).
(2) Lakefront Capital Investors, Inc., 127 Public Square, Cleveland, Ohio
44114 (records relating to its function as investment sub-adviser for
the Lakefront Fund only).
(3) Indocam International Investment Services, S.A., 9, rue Louis Murat,
Paris, France 75008 (records relating to its function as investment
sub-adviser for the International Growth Fund only).
(4) KeyBank National Association, 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its function as shareholder servicing
agent).
(5) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as administrator and fund
accountant).
(6) BISYS Fund Services Limited Partnership, 3435 Stelzer Road, Columbus,
Ohio 43219 (records relating to its function as distributor).
(7) State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110-3875 (records relating to its function as
transfer agent).
(8) Boston Financial Data Services, Inc., Two Heritage Drive, Quincy,
Massachusetts 02171 (records relating to its functions as dividend
disbursing agent and shareholder servicing agent).
(9) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio
44114-1306 (records relating to its functions as custodian and
securities lending agent).
(10) Chase Manhattan Bank, 55 Water Street, Room 728, New York, New York
10041 (records relating to its function as sub-custodian of the
Balanced Fund, Convertible Securities Fund, International Growth
Fund, Lakefront Fund, and Real Estate Investment Fund).
Item 29. Management Services
None.
Item 30. Undertakings
None.
NOTICE
A copy of the Certificate of Trust of Registrant is on file with the Secretary
of State of Delaware and notice is hereby given that this Post-Effective
Amendment to Registrant's Registration Statement has been executed on behalf of
Registrant by officers of, and Trustees of, Registrant as officers and as
Trustees, respectively, and not individually, and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees,
officers or shareholders of Registrant individually but are binding only upon
the assets and property of Registrant.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has certified that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on the 28th day of February, 2000.
THE VICTORY PORTFOLIOS
By: /s/ Leigh A. Wilson
----------------------
Leigh A. Wilson, President and Trustee
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated:
Signature Title Date
--------- ----- ----
/s/ Roger Noall Chairman of the
- ----------------------- Board and Trustee February 28, 2000
Roger Noall
/s/ Leigh A. Wilson Trustee February 28, 2000
- -----------------------
Leigh A. Wilson
/s/ Joel B. Engle Treasurer February 28, 2000
- -----------------------
Joel B. Engle
/s/ Harry Gazelle* Trustee February 28, 2000
- -----------------------
Harry Gazelle
/s/ Thomas F. Morissey* Trustee February 28, 2000
- -----------------------
Thomas F. Morrissey
/s/ H. Patrick Swygert* Trustee February 28, 2000
- -----------------------
H. Patrick Swygert
/s/ Frank A. Weil* Trustee February 28, 2000
- -----------------------
Frank A. Weil
/s/ Eugene J. McDonald* Trustee February 28, 2000
- -----------------------
Eugene J. McDonald
- --------------------------------
*By: /s/ Carl Frischling
Carl Frischling
Attorney-in-fact
<PAGE>
THE VICTORY PORTFOLIOS
INDEX TO EXHIBITS
Item 23.
Exhibit Number
EX-99.i(a) Kramer Levin Naftalis & Frankel LLP opinion and consent.
EX-99.i(b) Morris, Nichols, Arsht & Tunnell opinion.
EX-99.j(a) PricewaterhouseCoopers LLP consent.
EX-99.j(b) Arthur Andersen LLP consent.
EX-99.n Rule 18f-3 Plan.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
TEL (212) 715-9100 47, Avenue Hoche
FAX (212) 715-8000 75008 Paris
France
February 28, 2000
The Victory Portfolios
127 Public Square
Cleveland, OH 44114
Re: The Victory Portfolios - Post-Effective Amendment
No. 59 to Registration Statement on Form N-1A
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Victory Portfolios, a Delaware
business trust (the "Trust"), in connection with certain matters relating to the
creation of the Trust and the issuance and offering of its Shares. Capitalized
terms used herein and not otherwise herein defined are used as defined in the
Trust Instrument of the Trust dated December 6, 1995, as amended through the
date hereof (as so amended, the "Governing Instrument"). You have asked our
opinion concerning certain matters relating to the issuance of Class A, Class B,
Class G, Select Class and Investor Class Shares of each Fund (as such terms are
defined below).
In rendering this opinion, we have examined and relied on copies of
the following documents, each in the form provided to us: the Certificate of
Trust of the Trust as filed in the Office of the Secretary of State of the State
of Delaware (the "State Office") on December 21, 1995 (the "Certificate"); the
Governing Instrument; the Bylaws of the Trust; certain resolutions of the
Trustees of the Trust including resolutions dated December 6, 1995 relating to
the organization of the Trust, resolutions dated February 19, 1997, October 22,
1997, December 3, 1997, October 8, 1998, October 9, 1998, February 23, 1999,
August 17, 1999 and December 1, 1999 relating to the establishment of certain of
the Funds or Classes thereof (or both) (each such term used as defined below)
and resolutions dated December 3, 1997 and December 11, 1998 relating to the
change of name of certain of the Funds (such resolutions, together with the
Governing Instrument and Bylaws of the Trust are referred to as the "Governing
Documents"); Post-Effective Amendment No. 26 to the Registration Statement on
Form N-1A of The Victory Portfolios, a Massachusetts business trust and the
predecessor to the Trust (the "Predecessor Trust") by which the Trust adopted
such Registration Statement and the Predecessor Trust's Notification of
Registration and Registration Statement under the Investment Company Act of
1940, as filed with the Securities and Exchange Commission on December 28, 1995;
a Certificate of Assistant Secretary of the Trust dated on or about the date
hereof certifying as to the Governing Instrument and the due adoption of the
resolutions referenced above; and a certification of good standing of the Trust
obtained as of a recent date from the State Office. In
<PAGE>
The Victory Portfolios
February 28, 2000
Page 2
such examinations, we have assumed the genuineness of all signatures, the
conformity to original documents of all documents submitted to us as copies or
drafts of documents to be executed, and the legal capacity of natural persons to
complete the execution of documents.
We are members of the Bar of the State of New York and do not hold
ourselves out as experts on, or express any opinion as to, the law of any other
state or jurisdiction other than the laws of the State of New York and
applicable federal laws of the United States. As to matters involving Delaware
law, with your permission, we have relied solely upon an opinion of Morris,
Nichols, Arsht & Tunnell, special Delaware counsel to the Trust, a copy of which
is attached hereto, concerning the organization of the Trust and the
authorization and issuance of the Shares, and our opinion is subject to the
qualifications and limitations set forth therein, which are incorporated herein
by reference as though fully set forth herein.
Based on and subject to the foregoing, it is our opinion that:
1. The Trust is a duly formed and validly existing business trust in
good standing under the laws of the State of Delaware. Each of the following
funds of the Trust (each a "Fund" and collectively, the "Funds") and each class
of each Fund referenced herein (each a "Class") is a validly existing Series or
Class thereof, as applicable, of the Trust: the Balanced Fund (Class A, Class B
and Class G), Convertible Securities Fund (Class A and Class G), Diversified
Stock Fund (Class A, Class B and Class G), Established Value Fund (Class A and
Class G), Federal Money Market Fund (Investor and Select), Financial Reserves
Fund (Class A), Fund for Income (Class A and Class G), Government Mortgage Fund
(Class A), Gradison Government Reserves Fund (Class G), Growth Fund (Class A and
Class G), Institutional Money Market Fund (Investor and Select), Intermediate
Income Fund (Class A and Class G), International Growth Fund (Class A, Class B
and Class G), Investment Quality Bond Fund (Class A and Class G), Lakefront Fund
(Class A), LifeChoice Conservative Investor Fund (Class A), LifeChoice Moderate
Investor Fund (Class A), LifeChoice Growth Investor Fund (Class A), Limited Term
Income Fund (Class A), National Municipal Bond Fund (Class A, Class B and Class
G), New York Tax-Free Fund (Class A, Class B and Class G), Ohio Municipal Bond
Fund (Class A and Class G), Ohio Municipal Money Market Fund (Class A), Ohio
Regional Stock Fund (Class A and Class B), Prime Obligations Fund (Class A),
Real Estate Investment Fund (Class A and Class G), Small Company Opportunity
Fund (Class A and Class G), Special Value Fund (Class A, Class B and Class G),
Stock Index Fund (Class A and Class G), Tax-Free Money Market Fund (Class A),
U.S. Government Obligations Money Market Fund (Investor and Select) and Value
Fund (Class A and Class G).
2. Shares of each Class of each Fund, when issued to Shareholders in
accordance with the terms, conditions, requirements and procedures set forth in
the Governing Documents and all applicable resolutions of the Trustees, will be
validly issued, fully paid and non-assessable Shares of beneficial interest in
the Trust.
This opinion is solely for your benefit and is not to be quoted in
whole or in part, summarized or otherwise referred to, nor is it to be filed
with or supplied to any governmental agency or other person without the written
consent to this firm. This opinion letter is rendered as
<PAGE>
The Victory Portfolios
February 28, 2000
Page 3
of the date hereof, and we specifically disclaim any responsibility to update or
supplement this letter to reflect any events or statements of fact which may
hereafter come to our attention or any changes in statutes or regulations or any
court decisions which may hereafter occur.
Notwithstanding the previous paragraph, we consent to the filing of
this opinion as an exhibit to Post-Effective Amendment No. 59 to the Trust's
Registration Statement.
Very truly yours,
/s/ KRAMER LEVIN NAFTALIS & FRANKEL LLP
[Letterhead of Morris, Nichols, Arsht & Tunnell]
February 28, 2000
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Re: The Victory Portfolios
Ladies and Gentlemen:
We have acted as special Delaware counsel to The Victory Portfolios,
a Delaware business trust (the "Trust"), in connection with certain matters
relating to the formation of the Trust and the issuance of Shares therein.
Capitalized terms used herein and not otherwise herein defined are used as
defined in the Trust Instrument of the Trust dated December 6, 1995, as amended
through the date hereof (as so amended, the "Governing Instrument").
In rendering this opinion, we have examined and relied on copies of
the following documents, each in the form provided to us: the Certificate of
Trust of the Trust as filed in the Office of the Secretary of State of the State
of Delaware (the "State Office") on December 21, 1995 (the "Certificate"); the
Governing Instrument; the Bylaws of the Trust; certain resolutions of the
Trustees of the Trust including resolutions dated December 6, 1995 relating to
the organization of the Trust, resolutions dated February 19, 1997, October 22,
1997, December 3, 1997, October 8, 1998, October 9, 1998, February 23, 1999,
August 17, 1999 and December 1, 1999 relating to the establishment of certain of
the Funds or Classes thereof (or both) (each such term used as defined below)
and resolutions dated December 3, 1997, May 29, 1998 and December 11, 1998
relating to the change of name of certain of the Funds (such resolutions,
together with the Governing Instrument and Bylaws of the Trust are referred to
as the "Governing Documents"); Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A of The Victory Portfolios, a Massachusetts
business trust and the predecessor to the Trust (the "Predecessor Trust") by
which the Trust adopted such Registration Statement and the Predecessor Trust's
Notification of Registration and Registration Statement under the Investment
Company Act of 1940, as filed with the Securities and Exchange Commission on
December 28, 1995; a Certificate of Assistant Secretary of the Trust dated on or
about the date hereof certifying
<PAGE>
Kramer Levin Naftalis & Frankel LLP
February 28, 2000
Page 2
as to the Governing Instrument and the due adoption of the resolutions
referenced above; and a certification of good standing of the Trust obtained as
of a recent date from the State Office. In such examinations, we have assumed
the genuineness of all signatures, the conformity to original documents of all
documents submitted to us as copies or drafts of documents to be executed, and
the legal capacity of natural persons to complete the execution of documents. We
have further assumed for purposes of this opinion: (i) the due authorization,
execution and delivery, as applicable, by or on behalf of each of the parties
thereto of the above-referenced agreements, instruments, certificates and other
documents, and of all documents contemplated by the Governing Instrument and
applicable resolutions of the Trustees to be executed by investors desiring to
become Shareholders; (ii) the payment of consideration for Shares, and the
application of such consideration, as provided in the Governing Instrument and
compliance with all other terms, conditions and restrictions set forth in the
Governing Instrument and all applicable resolutions of the Trustees in
connection with the issuance of Shares; (iii) that appropriate notation of the
names and addresses of, the number of Shares held by, and the consideration paid
by, Shareholders will be maintained in the appropriate registers and other books
and records of the Trust in connection with the issuance or transfer of Shares;
(iv) that no event has occurred that would cause a termination or dissolution of
the Trust under Sections 11.04 or 11.05 of the Governing Instrument; (v) that
the activities of the Trust have been and will be conducted in accordance with
the terms of the Governing Instrument and the Delaware Business Trust Act, 12
Del. C. ss.ss. 3801 et seq.; and (vi) that each of the documents examined by us
is in full force and effect and has not been amended, supplemented or otherwise
modified except as herein referenced. No opinion is expressed herein with
respect to the requirements of, or compliance with, federal or state securities
or blue sky laws. Further, we express no opinion on the sufficiency or accuracy
of any registration or offering documentation relating to the Trust or the
Shares. As to any facts material to our opinion, other than those assumed, we
have relied without independent investigation on the above-referenced documents
and on the accuracy, as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Trust is a duly formed and validly existing business trust in
good standing under the laws of the State of Delaware. Each of the following
funds of the Trust (each a "Fund" and collectively, the "Funds") and each class
of each Fund referenced herein (each a "Class") is a validly existing Series or
Class thereof, as applicable, of the Trust: the Balanced Fund (Class A, Class B
and Class G), Convertible Securities Fund (Class A and Class G), Diversified
Stock Fund (Class A, Class B and Class G), Established Value Fund (Class A and
Class G), Federal Money Market Fund (Investor and Select), Financial Reserves
Fund (Class A), Fund for Income (Class A and Class G), Government Mortgage Fund
(Class A), Gradison Government Reserves Fund (Class G), Growth Fund (Class A and
Class G), Institutional Money Market Fund (Investor and Select), Intermediate
Income Fund (Class A and Class G), International Growth Fund (Class A, Class B
and Class G), Investment Quality Bond Fund (Class A and Class G), Lakefront Fund
(Class A), LifeChoice Conservative Investor Fund (Class
<PAGE>
Kramer Levin Naftalis & Frankel LLP
February 28, 2000
Page 3
A), LifeChoice Moderate Investor Fund (Class A), LifeChoice Growth Investor Fund
(Class A), Limited Term Income Fund (Class A), National Municipal Bond Fund
(Class A, Class B and Class G), New York Tax-Free Fund (Class A, Class B and
Class G), Ohio Municipal Bond Fund (Class A and Class G), Ohio Municipal Money
Market Fund (Class A), Ohio Regional Stock Fund (Class A and Class B), Prime
Obligations Fund (Class A), Real Estate Investment Fund (Class A and Class G),
Small Company Opportunity Fund (Class A and Class G), Special Value Fund (Class
A, Class B and Class G), Stock Index Fund (Class A and Class G), Tax-Free Money
Market Fund (Class A), U.S. Government Obligations Money Market Fund (Investor
and Select) and Value Fund (Class A and Class G).
2. Shares of each Class of each Fund, when issued to Shareholders in
accordance with the terms, conditions, requirements and procedures set forth in
the Governing Documents and all applicable resolutions of the Trustees, will be
validly issued, fully paid and non-assessable Shares of beneficial interest in
the Trust.
We understand that you wish to rely on this opinion in connection
with the delivery of your opinion to the Trust dated on or about the date hereof
and we hereby consent to such reliance. Except as provided in the immediately
preceding sentence, this opinion may not be relied on by any person or for any
purpose without our prior written consent. We hereby consent to the filing of a
copy of this opinion with the Securities and Exchange Commission as a post
effective amendment to the Trust's Registration Statement on Form N-1A. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. This opinion speaks only as of the date hereof and is
based on our understandings and assumptions as to present facts, and on the
application of Delaware law as the same exists on the date hereof, and we
undertake no obligation to update or supplement this opinion after the date
hereof for the benefit of any person or entity with respect to any facts or
circumstances that may hereafter come to our attention or any changes in facts
or law that may hereafter occur or take effect.
Sincerely,
MORRIS, NICHOLS, ARSHT & TUNNELL
/s/ MORRIS, NICHOLS, ARSHT & TUNNELL
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 59 to the Registration Statement on Form N-1A (File No. 33-8982) of our
report dated November 19, 1999 relating to the financial statements and
financial highlights appearing in the October 31 Annual Report to the
Shareholders of the Gradison Government Reserves Fund and our reports dated
December 16, 1999, relating to the financial statements and financial highlights
appearing in the October 31, 1999 Annual Reports to Shareholders of The Victory
Portfolios (comprising, Institutional Money Market Fund, Federal Money Market
Fund, U.S. Government Obligations Fund, Prime Obligations Fund, Financial
Reserves Fund, Tax-Free Money Market Fund, Ohio Municipal Money Market Fund,
Limited Term Income Fund, Intermediate Income Fund, Fund For Income, Government
Mortgage Fund, Investment Quality Bond Fund, National Municipal Bond Fund, New
York Tax-Free Fund, Ohio Municipal Bond Fund, Balanced Fund, Convertible
Securities Fund, Real Estate Investment Fund, Value Fund, Lakefront Fund,
Established Value Fund, Diversified Stock Fund, Stock Index Fund, Growth Fund,
Special Value Fund, Ohio Regional Stock Fund, Small Company Opportunity Fund,
International Growth Fund, LifeChoice Conservative Investor Fund, LifeChoice
Moderate Investor Fund, and LifeChoice Growth Investor Fund), which is also
incorporated by reference into the Registration Statement. We also consent to
the references to our Firm under the captions "Financial Highlights" in the
Prospectuses and "Financial Statements" and "Independent Accountants" in the
Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
February 28, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------
As independent public accountants we hereby consent to the incorporation by
reference in this Post Effective Amendment No. 59 Form N-1A filing of The
Victory Portfolios of our auditors' reports on the financial statements of the
Established Value Fund and Victory Small Company Opportunity Fund dated April
28, 1999 and the Gradison Government Income Fund dated January 28,1999 and to
all references to our Firm included in or made a part of this Post Effective
Amendment No.59 Form N-1A.
/s/ ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
February 28, 2000
THE VICTORY PORTFOLIOS
AMENDED AND RESTATED
RULE 18f-3 MULTI-CLASS PLAN
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares of the various series (each series
a "Fund") of The Victory Portfolios (the "Trust") that issue multiple classes of
shares, whether now existing or subsequently established (the "Multi-Class
Funds"). In addition, this Rule 18f-3 Multi-Class Plan (the "Plan") sets forth
the shareholder servicing arrangements, distribution arrangements, conversion
features, exchange privileges, and other shareholder services of each class of
shares of the Multi-Class Funds.
The Trust is an open-end series investment company registered under the
1940 Act, the shares of which are registered on Form N-1A under the Securities
Act of 1933, as amended, and the 1940 Act (Registration Nos. 33-8982 and
811-4851). Upon the effective date of this Plan, the Trust hereby elects to
offer multiple classes of shares of the Multi-Class Funds pursuant to the
provisions of Rule 18f-3 under the 1940 Act and this Plan. This Plan does not
make any material changes to the general class arrangements and expense
allocations previously approved by the Board of Trustees of the Trust (the
"Board").
The Trust currently consists of the following 38 separate Funds:
Balanced Fund Limited Term Income Fund
Convertible Securities Fund Maine Municipal Bond Fund (Short-Term)
Diversified Stock Fund Maine Municipal Bond Fund (Intermediate)
Equity Income Fund Michigan Municipal Bond Fund
Established Value Fund National Municipal Bond Fund
Federal Money Market Fund National Municipal Bond Fund
(Short-Intermediate)
Financial Reserves Fund National Municipal Bond Fund (Long)
Fund for Income New York Tax-Free Fund
Government Mortgage Fund Ohio Municipal Bond Fund
Gradison Government Reserves Fund Ohio Municipal Money Market Fund
Growth Fund Ohio Regional Stock Fund
Institutional Money Market Fund Prime Obligations Fund
Intermediate Income Fund Real Estate Investment Fund
International Growth Fund Small Company Opportunity Fund
Investment Quality Bond Fund Special Value Fund
Lakefront Fund Stock Index Fund
LifeChoice Conservative Investor Fund Tax-Free Money Market Fund
LifeChoice Moderate Investor Fund U.S. Government Obligations Fund
LifeChoice Growth Investor Fund Value Fund
The Funds are authorized to issue the following classes of shares
representing interests in the same underlying portfolio of assets of the
respective Fund:
<PAGE>
The Multi-Class Funds The Non-Multi-Class Funds
Class A, Class B and Class G Shares Class A Shares
- ----------------------------------- --------------
Balanced Fund Equity Income Fund
Diversified Stock Fund Financial Reserves Fund
International Growth Fund Government Mortgage Fund
National Municipal Bond Fund LifeChoice Conservative Investor Fund
New York Tax-Free Fund LifeChoice Growth Investor Fund
Special Value Fund LifeChoice Moderate Investor Fund
Lakefront Fund
Class A Shares and Class B Shares Limited Term Income Fund
- --------------------------------- Maine Municipal Bond Fund (Short-Term)
Ohio Regional Stock Fund Maine Municipal Bond Fund (Intermediate)
Michigan Municipal Bond Fund
National Municipal Bond Fund
(Short-Intermediate)
National Municipal Bond Fund (Long)
Ohio Municipal Money Market Fund
Prime Obligations Fund
Tax-Free Money Market Fund
Class A Shares and Class G Shares
- ----------------------------------
Convertible Securities Fund
Established Value Fund
Fund for Income
Growth Fund
Intermediate Income Fund
Investment Quality Bond Fund
Ohio Municipal Bond Fund
Real Estate Investment Fund
Small Company Opportunity Fund
Stock Index Fund
Value Fund
Class G Shares
Investor Shares and Select Shares ----------------
- ---------------------------------- Gradison Government Reserves Fund
Federal Money Market Fund
Institutional Money Market Fund
U.S. Government Obligations Fund
II. Class Arrangements.
The following summarizes the front-end sales charges, contingent
deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing
fees, conversion features, exchange privileges, and other shareholder services
applicable to each particular class of shares of the Funds. Additional details
regarding such fees and services are set forth in each Fund's current Prospectus
and Statement of Additional Information.
A. Class A Shares:
1. Maximum Initial Sales Load: 5.75% (of the offering
price). Exceptions: Fund for Income and Limited Term
Income Fund have an initial sales charge of 2.00% (of
the offering price). Additional Exceptions: Financial
Reserves Fund, LifeChoice Conservative Investor Fund,
LifeChoice Growth Investor Fund, LifeChoice Moderate
Investor Fund, Ohio Municipal Money Market Fund,
Prime Obligations Fund, and Tax-Free Money Market
Fund have no sales charge.
2
<PAGE>
2. Contingent Deferred Sales Charge: None.
3. Rule 12b-1 Distribution Fees: None. Exceptions: Class
A Shares of the Convertible Securities Fund,
Established Value Fund, Financial Reserves Fund, Fund
for Income, Lakefront Fund, LifeChoice Conservative
Investor Fund, LifeChoice Moderate Investor Fund,
LifeChoice Growth Investor Fund, National Municipal
Bond Fund, New York Tax-Free Fund, Ohio Municipal
Money Market Fund, and Real Estate Investment Fund
each have a Rule 12b-1 Plan pursuant to which no fees
are paid.
4. Shareholder Servicing Fees: Up to 0.25% per annum of
average daily net assets. Exceptions: Financial
Reserves Fund and Stock Index Fund do not have
shareholder servicing plans or fees.
5. Conversion Features: None.
6. Exchange Privileges: Class A shares may be exchanged
with Class A shares of other Funds without incurring
a sales charge. However, exchanges made into a Fund
with a higher sales charge require payment of the
percentage-point difference between the higher and
lower sales charges. For example, investors that
exchange Class A shares from the Fund for Income or
the Limited Term Income Fund to purchase Class A
shares of a Fund with a 5.75% sales charge would pay
the 3.75% difference in sales charge. Class A shares
may be exchanged with Investor Class shares or Select
Class shares of Federal Money Market Fund,
Institutional Money Market Fund, and U.S. Government
Obligations Fund without incurring a sales charge.
7. Other Shareholder Services: As provided in the Fund's
Prospectus. These services do not differ from those
applicable to Class B shares.
B. Class B Shares:
1. Initial Sales Load: None
2. Contingent Deferred Sales Charge ("CDSC"): 5% in the
first year, declining to 1% in the sixth year, and
eliminated thereafter. The CDSC is based on the
original purchase cost of investment or the net asset
value of the shares at the time of redemption,
whichever is lower.
3. Rule 12b-1 Distribution Fees: 0.75% per annum of the
average daily net assets.
4. Shareholder Servicing Fees: Up to 0.25% per annum of
the average daily net assets.
5. Conversion Features: Class B shares convert
automatically to Class A shares eight years after
purchase, based on relative net asset values of the
3
<PAGE>
two classes. Class B shares acquired by the
reinvestment of dividends and distributions are
included in the conversion.
6. Exchange Privileges: Class B shares may be exchanged
with Class B shares of other Funds without incurring
a sales charge.
7. Other Shareholder Services: As provided in the Fund's
Prospectus. These services do not differ from those
applicable to Class A shares.
C. Investor Shares:
1. Maximum Initial Sales Load: None.
2. CDSC: None.
3. Rule 12b-1 Distribution Fees: Federal Money Market
Fund, Institutional Money Market Fund and U.S.
Government Obligations Fund each have a Rule 12b-1
Plan pursuant to which no fees are paid.
4. Shareholder Servicing Fees: None.
5. Conversion Features: None.
6. Exchange Privileges: Investor shares may be exchanged
with Investor shares of other Funds at relative net
asset value. Investor shares may be exchanged with
Class A shares of other Funds; however, such
exchanges require payment of the sales charge
applicable to the other Fund's Class A shares.
7. Other Shareholder Services: As provided in the Fund's
Prospectus.
D. Select Shares:
1. Maximum Initial Sales Load: None.
2. CDSC: None.
3. Rule 12b-1 Distribution Fees: None. Exceptions:
Federal Money Market Fund, Institutional Money Market
Fund and U.S. Government Obligations Fund each has a
Rule 12b-1 Plan pursuant to which no fees are paid.
4. Shareholder Servicing Fees: Up to 0.25% per annum of
the average daily net assets.
5. Conversion Features: None.
6. Exchange Privileges: Select shares may be exchanged
with Select shares of other Funds at relative net
asset value. Select shares may be exchanged
4
<PAGE>
with Class A shares of other Funds; however, such
exchanges require payment of the sales charge
applicable to the other Fund's Class A shares.
7. Other Shareholder Services: As provided in the Fund's
Prospectus.
E. Class G Shares
1. Maximum Initial Sales Load: None.
2. CDSC: None.
3. Rule 12b-1 Distribution Fees: Small Company
Opportunity Fund, Diversified Stock Fund,
International Growth Fund, Established Value Fund,
Value Fund, Growth Fund, Special Value Fund, Balanced
Fund, Convertible Securities Fund, and Real Estate
Investment Fund: up to 0.50% per annum of average
daily net assets (of which 0.25% is designated for
shareholder servicing); Fund For Income, Ohio
Municipal Bond Fund, Intermediate Income Fund,
Investment Quality Bond Fund, National Municipal Bond
Fund and New York Tax-Free Bond Fund: up to 0.25% per
annum of average daily net assets (designated for
shareholder servicing); Gradison Government Reserves
Fund: up to 0.10% per annum of average daily net
assets (designated for shareholder servicing); Class
G shares of the Stock Index Fund have a Rule 12b-1
Plan pursuant to which no fees are paid.
4. Shareholder Servicing Fees: None; except that Class G
shares of the Stock Index Fund bear a shareholder
servicing fee of up to 0.25% per annum of its average
daily net assets.
5. Conversion Features: None.
6. Exchange Privileges: Class G shares may be exchanged
with Class G shares, Select shares, or any single
class money market fund shares of a Victory Fund
without paying a sales charge. Shareholders who own
Class G shares as of the time of the reorganization
of the Gradison Funds with certain series of the
Trust can exchange into Class A shares of any Victory
Fund that does not offer Class G shares without
paying a sales charge.
7. Other Shareholder Services: As provided in the Fund's
Prospectus.
III. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to
each class of shares in a Multi-Class Fund (i) any fees and expenses incurred by
the Trust in connection with the distribution of such class of shares (other
than with respect to the money market Funds) under a distribution plan adopted
for such class of shares pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1
Fees") and (ii) any fees and expenses incurred by the Trust under a shareholder
servicing plan in connection with the provision of shareholder services to the
holders of such
5
<PAGE>
class of shares ("Service Plan Fees"). In addition, pursuant to Rule 18f-3, the
Trust may allocate the following fees and expenses (the "Class Expenses") to a
particular class of shares in a single Multi-Class Fund:
1. transfer agent fees identified by the transfer agent
as being attributable to such class of shares;
2. printing and postage expenses related to preparing
and distributing materials such as shareholder
reports, prospectuses, reports, and proxies to
current shareholders of such class of shares or to
regulatory agencies with respect to such class of
shares;
3. blue sky registration or qualification fees incurred
by such class of shares;
4. Securities and Exchange Commission registration fees
incurred by such class of shares;
5. the expense of administrative personnel and services
(including, but not limited to, those of a fund
accountant or dividend paying agent charged with
calculating net asset values or determining or paying
dividends) as required to support the shareholders of
such class of shares;
6. litigation or other legal expenses relating solely to
such class of shares;
7. fees of the Board incurred as result of issues
relating to such class of shares;
8. independent accountants' fees relating solely to such
class of shares; and
9. shareholder meeting expenses for meetings of a
particular class.
Class Expenses, Rule 12b-1 Fees, and Service Plan Fees are the only
expenses allocated to the classes disproportionately. The Class Expenses
allocated to each share of a class during a year may differ from the Class
Expenses allocated to each share of any other class by up to 50 basis points of
the average daily net asset value of the class of shares with the smallest
average daily net asset value.
The initial determination of fees and expenses that will be allocated
by the Trust to a particular class of shares and any subsequent changes thereto
will be reviewed by the Board and approved by a vote of the Board including a
majority of the Trustees who are not interested persons of the Trust. The Board
will monitor conflicts of interest among the classes and agree to take any
action necessary to eliminate conflicts.
Income, realized and unrealized capital gains and losses, and any
expenses of a Fund not allocated to a particular class of such Fund by this Plan
shall be allocated to each class of such Fund on the basis of the relative net
assets (settled shares), as defined in Rule 18f-3, of that class in relation to
the net assets of such Fund.
6
<PAGE>
Income, realized and unrealized capital gains and losses, and any
expenses of a non-money market Fund not allocated to a particular class of any
such Fund pursuant to this Plan shall be allocated to each class of the Fund on
the basis of the net asset value of that class in relation to the net asset
value of the Fund.
Any dividends and other distributions on shares of a class will differ
from dividends and other distributions on shares of other classes only as a
result of the allocation of Class Expenses, Rule 12b-1 Fees, Service Plan Fees,
and the effects of such allocations.
A Fund's investment adviser will waive or reimburse its management fee
in whole or in part only if the fee is waived or reimbursed to all shares of the
Fund in proportion to their relative average daily net asset values. The
investment adviser, and any entity related to the investment adviser, who
charges a fee for a Class Expense will waive or reimburse that fee in whole or
in part only if the revised fee more accurately reflects the relative costs of
providing to each class the service for which the Class Expense is charged.
IV. Board Review.
The Board shall review this Plan as frequently as it deems necessary.
Prior to any material amendment(s) to this Plan, the Board, including a majority
of the Trustees that are not interested persons of the Trust, shall find that
the Plan, as proposed to be amended (including any proposed amendments to the
method of allocating Class Expenses and/or Fund expenses), is in the best
interest of each class of shares of a Multi-Class Fund individually and the Fund
as a whole. In considering whether to approve any proposed amendment(s) to the
Plan, the Board shall request and evaluate such information as it considers
reasonably necessary to evaluate the proposed amendment(s) to the Plan. Such
information shall address the issue of whether any waivers or reimbursements of
advisory or administrative fees could be considered a cross-subsidization of one
class by another and other potential conflicts of interest between classes.
In making its initial determination to approve this Plan, the Board has
focused on, among other things, the relationship between or among the classes
and has examined potential conflicts of interest among classes (including those
potentially involving a cross-subsidization between classes) regarding the
allocation of fees, services, waivers and reimbursements of expenses, and voting
rights. The Board has evaluated the level of services provided to each class and
the cost of those services to ensure that the services are appropriate and the
allocation of expenses is reasonable. In approving any subsequent amendments to
this Plan, the Board shall focus on and evaluate such factors as well as any
others it deems necessary.
Adopted May 24, 1995; Effective June 5, 1995
Amended and Restated:
December 6, 1995; December 11, 1998;
February 14, 1996; February 23, 1999;
May 31, 1996; May 11, 1999;
February 19, 1997; August 17, 1999;
October 2, 1997; December 1, 1999;
December 3, 1997; February 23, 2000
August 28, 1998;