October 31, 2000
Annual Report
LifeChoice Conservative Investor Fund
LifeChoice Moderate Investor Fund
LifeChoice Growth Investor Fund
Victory Funds
(LOGO) (R)
<PAGE>
Table of Contents
Shareholder Letter 2
2000 Annual Report Commentary 3
Financial Statements
Schedules of Investments 5
Statements of Assets and Liabilities 8
Statements of Operations 9
Statements of Changes in Net Assets 10
Financial Highlights 11
Notes to Financial Statements 14
Report of Independent Accountants 16
The Victory Portfolios
Key Asset Management Inc. (KAM), a subsidiary of KeyCorp, is the
investment adviser to the Victory Funds. The Victory Funds are sponsored and
distributed by BISYS Fund Services, which is not affiliated with KeyCorp or
its subsidiaries. KAM receives a fee for its services from the Victory Funds.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus of the Victory
LifeChoice Funds.
NOT FDIC INSURED
Shares of the Victory Funds are not insured by the FDIC, are not deposits or
other obligations of, or guaranteed by, any KeyCorp bank, Key Asset
Management Inc., or their affiliates, and are subject to investment risks,
including possible loss of the principal amount invested.
Victory Funds
(LOGO) (R)
Call Victory at:
800-539-FUND (800-539-3863)
Visit our web site at:
www.victoryfunds.com
1
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Letter to our Shareholders
On behalf of Victory Funds, thank you for your continued support and
confidence in using Victory Funds to help meet your investment goals! We
strive on a daily basis to make sure you have the appropriate information you
need to remain confident in your choice to invest in Victory Funds. To that
end, I am pleased to present the Victory LifeChoice Funds Annual Report for
the period ending October 31, 2000. I hope you find this report useful, easy
to read, and a valuable tool.
The past year has been an exciting time for Victory Funds. Through the
combination of a new sales and marketing literature system, a new and
improved Internet presence, and the support of the many financial
intermediaries offering Victory Funds, we are now over 30 mutual funds strong
with more than $20 billion in assets under management.
Two of Victory Funds' core beliefs are guidance and education. We recognize
it can be a complex decision to invest in securities through mutual funds,
particularly when your hard-earned savings to fund a child's education, a new
home, or a comfortable retirement is on the line. That's why I feel it is
important for our shareholders to know "What Makes Victory Funds Different?"
I am confident that after you review the following points you will be
reassured of your investment in Victory Funds and in a better position to
share the Victory story with your family, friends, and business associates.
So, "What Makes Victory Funds Different?"
Truth in Labeling. Dependability is the essence of Victory Funds. When you
entrust your money to a Victory Fund, you can rest assured that the portfolio
managers of the Funds are known for adhering to the fund's stated management
style and investment objective.
Discipline. A highly rigorous and disciplined investment process, refined
over decades by the wisdom of experienced money managers, guides the
selection of securities for Victory Funds. Key Asset Management, Inc., an
established firm with a 100-year heritage, meticulously implements this
proven process.
Teamwork. A knowledgeable team of investment professionals supports Victory
Fund portfolio managers, who have an average of 17 years of experience.
Guidance. Victory strives to make sure you have the information you need to
make the best investment decisions. The guidance available through investment
professionals, "www.victoryfunds.com," our educational materials, and Victory
Funds Service Center (1-800-539-FUND) all come together for one purpose --
our shareholders.
Performance. The ultimate measure of your investment success is performance.
At Victory Funds, our long-term perspective leads us to pursue the optimal
return with a reasonable level of risk. We are committed to achieving
consistent, rewarding results over time.
Again, thank you for choosing the Victory Funds to help you realize your
financial goals and, as always, we welcome your comments on this report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President
Victory Funds
2
<PAGE>
2000 Annual Report Commentary
For the year November 1, 1999 through October 31, 2000, all three Victory
LifeChoice Funds significantly outperformed the three major indices to which
they are compared: the Lehman Aggregate Bond Index, 7.30%; the Lipper
Balanced Fund Index, 7.88%; and the S&P 500 Composite Index, 6.09%. After a
two-year hiatus, Asset Allocation has returned. The 12-month returns for
Victory LifeChoice Funds were 11.56%, 12.92% and 14.23% for the Conservative
Investor Fund, the Moderate Investor Fund and the Growth Investor Fund,
respectively. Asset Allocation refers to the way you spread your investment
dollars among different asset classes. One component of the philosophy behind
Asset Allocation is that the good and the bad will balance out and, over
time, the average will outperform any of the individual parts. It was a very
good year for Asset Allocation because everything came together, both with
the various asset classes and with most of the active management decisions
made within the portfolios.
Looking first at the equity markets over the past 12-months, performance
has leveled off with respect to two recent trends. First, in general, value
outperformed growth. Large-cap value (as measured by the S&P/BARRA Value)
bested large-cap growth (S&P/BARRA Growth) for the first time in almost 7
years and small-cap value (Russell 2000 Value) came in ahead of small-cap
growth (Russell 2000 Growth) for the first time since 1997. As for mid-cap
equities, growth (S&P Midcap Growth) still outperformed, but value (S&P
Midcap Value) was able to close the gap considerably. The second trend that
reversed with respect to equities in 2000 was that mid-cap stocks
outperformed both the small-cap and large-cap sectors, a feat which has not
been done since 1991. As for the specialty asset classes, both real estate
investments and convertible securities performed very well for the 12-month
period ending October 31, 2000. As measured by the Morgan Stanley REIT Index,
real estate investments, specifically REIT's, returned an impressive 18.20%.
Convertible securities did even better during this timeframe, with the Lipper
Convertible Securities Fund Index posting a remarkable 23.88% and the Merrill
Lynch All Convertibles (excluding mandatory conversion) Index, which is the
index used for that appropriate portion of the LifeChoice portfolios,
returning a respectable 13.19%. Lastly, the bond markets recovered nicely
after a stagnant previous 12-month period (with a 0.53% one-year return as of
10/31/99), pulling in a steady 7.30% as of October 31, 2000, as measured by
the Lehman Aggregate Bond Index.
Within the LifeChoice portfolios, during the past 12 months, the
over-weight to large-value had a big impact on the relative outperformance.
With no direct exposure to large-cap growth (S&P/BARRA Growth Index returned
-8.86% YTD as of October 31, 2000) the Funds were not hurt by the very asset
class that caused their underperformance during the past two years. In the
comeback story of the year, the Victory Special Value Fund outpaced the S&P
Midcap Value Index, 29.94% vs. 21.82%. On the other side of this asset class,
the INVESCO Dynamics Fund continued to be a steady performer with a return of
42.59% vs. 43.00% for the S&P Midcap Growth Index. Like mid-cap value, our
small-cap value allocation helped overall performance; the Victory Small
Company Opportunity Fund returned 24.95% while the Russell 2000 Value Index
managed only 17.30%. Our effort to include a true small-cap growth allocation
resulted in the move from Neuberger Berman Genesis to Berger Small Company
Growth at the end of the March 2000. This decision had a negative effect on
all three portfolios since Berger, a small-cap growth fund, did not
participate in the outperformance of small-cap value. However, this move was
in line with the broader goals of the LifeChoice Funds, that is, it was done
to ensure proper asset allocation, not to chase returns. Unfortunately the
international equity allocations also hurt, with the Victory International
Growth Fund down a -6.20%, compared to a -2.07% for the Morgan Stanley All
Country World ex-USA Index. The real estate position in the Victory Real
Estate Investment Fund continued to outperform all real estate indices. And
the convertible allocations gained 20.57% with the Victory Convertible
Securities Fund.
One change to the LifeChoice Asset Allocation Committee that needs to be
mentioned ... Key Asset Management's (KAM) new chief market strategist, Rich
Nash has replaced outgoing |chief market strategist, Charlie Crane. Rich
joins Tony Aveni (KAM's chief investment officer), Chris Dyer (Managing
Director, Investment Products Group) and Terry Taylor (Managing Director,
Portfolio Analytics) on the Committee. Looking ahead, the Committee will
maintain a long-term approach with a current overweight to large-cap value
and look for an opportunity to buy back into a true large-cap growth name, if
and when the time is perceived to be right. In the meantime, keep in mind
that both Victory Value and Victory Diversified Stock, while classified as
large-cap value, have exposure to the growth side of the large-cap equity
universe. In fiscal year 2001 modest returns are again expected from the
stock market. With input from KAM's Asset Allocation Committee, the Funds
have returned to a more neutral weighting between stocks and bonds. In
general, the Committee believes that a well-diversified approach to portfolio
management will put the Funds in a position to take advantage of the best,
while minimizing the worst areas of the market next year.
S&P 400 Mid-Cap Value is constructed by dividing the stocks in the S&P
Mid-Cap Index according to the price-to-book ratio. The lower ratios are in
the Value Index.
S&P 400 Mid-Cap Growth is constructed by dividing the stocks
in the S&P Mid-Cap Index according to the price-to-book ratio. The higher
ratios are in the Growth Index.
MSCI All Country World XUSA Index is an unmanaged index, generally
representative of all developed and emerging markets in the Morgan Stanley
universe excluding the USA, with free versions of countries where they exist.
Total of 47 countries currently included.
Lipper Convertible Securities Fund Index invests its portfolio primarily in
convertible bonds and convertible preferred shares. Lipper Mutual Fund
Indices are equally weighted and composed of the largest mutual funds within
their respective investment objectives, adjusted for the reinvestment of
capital gains distributions and income dividends.
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. The
index was developed with a base value of 200 as of December 31, 1994.
The Lipper Balanced Fund Index is a non-weighted index of the 30 largest
funds within the Lipper Balanced Fund investment category.
The Lehman Brothers Aggregate Bond Index is a broad-based unmanaged
index that represents the general performance of longer term (greater than 1
year) investment-grade fixed-income securities.
The Merrill Lynch All Convertibles Index is an unmanaged index
representative of all US Convertible securities, excluding those with
mandatory conversion requirements.
The S&P/Barra Growth Index is an unmanaged index, generally
representative of all the stocks in the Standard & Poor's 500 that have high
price-to-book ratios.
The S&P/Barra Value Index is an unmanaged index, generally
representative of all the stocks in the Standard & Poor's 500 that have lower
price-to-book ratios.
The Standard & Poor's 500 Stock Index (S&P 500) is an unmanaged index,
generally representative of domestically traded common stocks of mid- to
large-size companies.
The Russell 2000 Value Index measures the performance of those Russell
2000 companies with lower price-to-book ratios and lower forecasted growth
values.
The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth
values.
An investor cannot invest directly in an index.
3
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LifeChoice Conservative Investor Fund
Total Return
As of October 31, 2000
One Year 11.56%
Three Years 7.43%
Since Inception
12/31/96 8.74%
(Dollars in thousands)
Conservative S&P 500 Lehman Aggregate
12/31/96 10000 10000 10000
1/31/97 10110 10626 10031
2/28/97 10110 10709 10056
3/31/97 9939 10269 9944
4/30/97 10091 10882 10093
5/31/97 10434 11545 10188
6/30/97 10676 12063 10309
7/31/97 11093 13022 10587
8/31/97 10920 12292 10497
9/30/97 11286 12965 10652
10/31/97 11122 12532 10806
11/30/97 11163 13112 10856
12/31/97 11271 13338 10965
1/31/98 11333 13485 11106
2/28/98 11624 14458 11098
3/31/98 11905 15198 11136
4/30/98 11967 15351 11194
5/31/98 11831 15087 11300
6/30/98 11925 15700 11396
7/31/98 11725 15533 11420
8/31/98 10902 13291 11606
9/30/98 11205 14138 11878
10/31/98 11418 15289 11815
11/30/98 11738 16216 11882
12/31/98 11999 17149 11918
1/31/99 12088 17866 12003
2/28/99 11798 17311 11794
3/31/99 11993 18004 11859
4/30/99 12420 18701 11896
5/31/99 12330 18259 11792
6/30/99 12538 19275 11755
7/31/99 12390 18671 11705
8/31/99 12288 18578 11699
9/30/99 12153 18069 11835
10/31/99 12359 19213 11878
11/30/99 12525 19607 11877
12/31/99 12913 20758 11820
1/31/2000 12736 19715 11781
2/29/2000 12996 19342 11924
3/31/2000 13462 21234 12081
4/30/2000 13212 20595 12046
5/31/2000 13141 20172 12041
6/30/2000 13560 20670 12291
7/31/2000 13536 20347 12403
8/31/2000 14076 21610 12583
9/30/2000 13934 20469 12662
10/31/2000 13789 20383 12746
Past performance is not predictive of future results.
LifeChoice Moderate Investor Fund
Total Return
As of October 31, 2000
One Year 12.92%
Three Years 8.71%
Since Inception
12/31/96 10.28%
(Dollars in thousands)
Moderate S&P 500 Lehman Aggregate
12/31/96 10000 10000 10000
1/31/97 10140 10626 10031
2/28/97 10250 10709 10056
3/31/97 9953 10269 9944
4/30/97 10094 10882 10093
5/31/97 10576 11545 10188
6/30/97 10877 12063 10309
7/31/97 11352 13022 10587
8/31/97 11130 12292 10497
9/30/97 11619 12965 10652
10/31/97 11324 12532 10806
11/30/97 11365 13112 10856
12/31/97 11483 13338 10965
1/31/98 11514 13485 11106
2/28/98 11977 14458 11098
3/31/98 12354 15198 11136
4/30/98 12447 15351 11194
5/31/98 12199 15087 11300
6/30/98 12308 15700 11396
7/31/98 11995 15533 11420
8/31/98 10704 13291 11606
9/30/98 11063 14138 11878
10/31/98 11462 15289 11815
11/30/98 11923 16216 11882
12/31/98 12382 17149 11918
1/31/99 12447 17866 12003
2/28/99 12034 17311 11794
3/31/99 12253 18004 11859
4/30/99 12733 18701 11896
5/31/99 12646 18259 11792
6/30/99 13029 19275 11755
7/31/99 12876 18671 11705
8/31/99 12755 18578 11699
9/30/99 12564 18069 11835
10/31/99 12885 19213 11878
11/30/99 13199 19607 11877
12/31/99 13781 20758 11820
1/31/2000 13467 19715 11781
2/29/2000 13746 19342 11924
3/31/2000 14411 21234 12081
4/30/2000 14002 20595 12046
5/31/2000 13850 20172 12041
6/30/2000 14338 20670 12291
7/31/2000 14220 20347 12403
8/31/2000 14938 21610 12583
9/30/2000 14691 20469 12662
10/31/2000 14549 20383 12746
Past performance is not predictive of future results.
LifeChoice Growth Investor Fund
Total Return
As of October 31, 2000
One Year 14.23%
Three Years 9.97%
Since Inception
12/31/96 11.72%
(Dollars in thousands)
Growth S&P 500 Lehman Aggregate
12/31/96 10000 10000 10000
1/31/97 10200 10626 10031
2/28/97 10170 10709 10056
3/31/97 9918 10269 9944
4/30/97 10109 10882 10093
5/31/97 10741 11545 10188
6/30/97 11105 12063 10309
7/31/97 11609 13022 10587
8/31/97 11347 12292 10497
9/30/97 11951 12965 10652
10/31/97 11497 12532 10806
11/30/97 11547 13112 10856
12/31/97 11691 13338 10965
1/31/98 11670 13485 11106
2/28/98 12307 14458 11098
3/31/98 12795 15198 11136
4/30/98 12908 15351 11194
5/31/98 12568 15087 11300
6/30/98 12684 15700 11396
7/31/98 12323 15533 11420
8/31/98 10679 13291 11606
9/30/98 11084 14138 11878
10/31/98 11608 15289 11815
11/30/98 12142 16216 11882
12/31/98 12720 17149 11918
1/31/99 12730 17866 12003
2/28/99 12230 17311 11794
3/31/99 12472 18004 11859
4/30/99 13050 18701 11896
5/31/99 12952 18259 11792
6/30/99 13472 19275 11755
7/31/99 13319 18671 11705
8/31/99 13177 18578 11699
9/30/99 12925 18069 11835
10/31/99 13387 19213 11878
11/30/99 13852 19607 11877
12/31/99 14680 20758 11820
1/31/2000 14202 19715 11781
2/29/2000 14482 19342 11924
3/31/2000 15381 21234 12081
4/30/2000 14809 20595 12046
5/31/2000 14598 20172 12041
6/30/2000 15127 20670 12291
7/31/2000 14916 20347 12403
8/31/2000 15830 21610 12583
9/30/2000 15456 20469 12662
10/31/2000 15291 20383 12746
Past performance is not predictive of future results.
Graphs reflect investment growth of a $10,000 investment, since inception.
Investment return and net asset value may fluctuate so that an investor's
shares may be worth more or less than their original cost.
Total returns are historical and include the change in share price and
reinvestment of dividends and capital gains distributions. Total returns for
more than one year are average annual total returns.
The Lehman Brothers Aggregate Bond Index (Lehman Aggregate) is a
broad-based unmanaged index that represents the general performance of
longer-term (greater than 1 year), investment-grade fixed-income securities.
The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based
unmanaged index that represents the general performance of domestically
traded common stocks of mid- to large-size companies.
The total return figures set forth above may reflect the waiver of a
portion of certain fees for various periods since the Fund's inception date.
In such instances and without such waiver of fees, the total returns would
have been lower. Fee waivers are voluntary and may be modified or terminated
at any time.
Investment returns and principal values will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
4
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The Victory Portfolios Schedules of Investments
LifeChoice Conservative Investor Fund October 31, 2000
(Amounts in Thousands, Except Shares)
Market
Security Description Shares Value
Mutual Funds (100.3%)
Equity Funds (31.5%):
Victory Value Fund, Class A............. 33,727 $ 610
Victory Diversified Stock Fund,
Class A............................... 47,047 841
INVESCO Dynamics Fund................... 9,915 289
Victory Small Company Opportunity
Fund, Class A (b)..................... 5,599 147
Berger Small Company Growth Fund........ 21,007 139
Victory International Growth Fund,
Class A............................... 25,315 351
2,377
Fixed Income/Specialty Funds (64.1%):
Victory Real Estate Investment Fund, ...
Class A............................... 37,791 434
Victory Convertible Securities Fund,
Class A............................... 76,317 1,090
Loomis Sayles Bond Fund,
Institutional Class................... 78,893 867
Victory Investment Quality Bond Fund,
Class A............................... 79,902 745
Victory Intermediate Income Fund,
Class A............................... 79,810 742
Victory Fund For Income, Class A........ 75,713 967
4,845
Money Market Funds (4.7%):
Victory Financial Reserves Fund......... 353,223 353
Total Mutual Funds 7,575
Total Investments (Cost $7,410) (a) -- 100.3% 7,575
Liabilities in excess of other assets -- (0.3)% (22)
TOTAL NET ASSETS -- 100.0% $7,553
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $80. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
Unrealized appreciation $ 243
Unrealized depreciation (158)
Net unrealized appreciation $ 85
(b) Non-income producing securities.
See notes to financial statements.
5
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The Victory Portfolios Schedules of Investments
LifeChoice Moderate Investor Fund October 31, 2000
(Amounts in Thousands, Except Shares)
Market
Security Description Shares Value
Mutual Funds (100.1%)
Equity Funds (54.4%):
Victory Value Fund, Class A............. 187,886 $ 3,393
Victory Diversified Stock Fund,
Class A............................... 249,265 4,449
Victory Special Value Fund, Class A..... 32,586 522
INVESCO Dynamics Fund................... 42,780 1,249
Victory Small Company Opportunity
Fund, Class A (b)..................... 28,812 759
Berger Small Company Growth Fund........ 143,922 956
Victory International Growth Fund,
Class A............................... 156,404 2,171
13,499
Fixed Income/Specialty Funds (45.6%):
Victory Real Estate Investment Fund, ...
Class A............................... 129,688 1,490
Victory Convertible Securities Fund,
Class A............................... 157,585 2,252
Loomis Sayles Bond Fund,
Institutional Class................... 202,552 2,226
Victory Investment Quality Bond Fund,
Class A............................... 301,300 2,808
Victory Intermediate Income Fund,
Class A............................... 274,045 2,549
11,325
Money Market Funds (0.1%):
Victory Financial Reserves Fund......... 35,429 35
Total Mutual Funds 24,859
Total Investments (Cost $24,072) (a) -- 100.1% 24,859
Liabilities in excess of other assets -- (0.1)% (21)
TOTAL NET ASSETS -- 100.0% $24,838
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $300. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
Unrealized appreciation $1,079
Unrealized depreciation (592)
Net unrealized appreciation $ 487
(b) Non-income producing securities.
See notes to financial statements.
6
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The Victory Portfolios Schedules of Investments
LifeChoice Growth Investor Fund October 31, 2000
(Amounts in Thousands, Except Shares)
Market
Security Description Shares Value
Mutual Funds (100.1%)
Equity Funds (75.4%):
Victory Value Fund, Class A............. 169,444 $ 3,060
Victory Diversified Stock Fund,
Class A............................... 242,639 4,331
Victory Special Value Fund, Class A..... 33,667 539
INVESCO Dynamics Fund................... 46,820 1,367
Victory Small Company Opportunity
Fund, Class A (b)..................... 26,483 698
Berger Small Company Growth Fund........ 123,940 823
Victory International Growth Fund,
Class A............................... 167,274 2,322
13,140
Fixed Income/Specialty Funds (22.8%):
Victory Real Estate Investment Fund,
Class A............................... 89,280 1,026
Victory Convertible Securities Fund,
Class A............................... 84,154 1,203
Loomis Sayles Bond Fund,
Institutional Class................... 77,653 853
Victory Investment Quality Bond Fund,
Class A............................... 94,444 880
3,962
Money Market Funds (1.9%):
Victory Financial Reserves Fund......... 329,168 329
Total Mutual Funds 17,431
Total Investments (Cost $16,789) (a) -- 100.1% 17,431
Liabilities in excess of other assets -- (0.1)% (18)
TOTAL NET ASSETS -- 100.0% $17,413
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting purposes in excess of federal income tax
reporting of approximately $161. Cost for federal income tax purposes
differs from value by net unrealized appreciation of securities as
follows (amounts in thousands):
Unrealized appreciation $ 968
Unrealized depreciation (487)
Net unrealized appreciation $ 481
(b) Non-income producing securities.
See notes to financial statements.
7
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Statements of Assets and Liabilities
LifeChoice Funds October 31, 2000
(Amounts in Thousands, Except Per Share Amounts)
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
<S> <C> <C> <C>
ASSETS:
Investments, at value (Cost $7,410; $24,072 & $16,789) $7,575 $24,859 $17,431
Dividends receivable 2 1 2
Receivable from affiliates 8 8 12
Unamortized organization costs 11 11 11
Prepaid expenses and other assets 2 3 3
Total Assets 7,598 24,882 17,459
LIABILITIES:
Payable for organization costs 11 11 11
Accrued expenses and other payables:
Investment advisory fees 1 2 1
Transfer agent fees 2 3 5
Other 31 28 29
Total Liabilities 45 44 46
NET ASSETS:
Capital 7,268 22,594 15,270
Undistributed net investment income 31 64 20
Net unrealized appreciation/depreciation from investments 165 787 642
Accumulated undistributed net realized gains
from investment transactions 89 1,393 1,481
Net Assets $7,553 $24,838 $17,413
Outstanding units of beneficial interest (shares) 664 2,020 1,337
Net asset value
Offering and Redemption price per share $11.37 $ 12.30 $ 13.02
</TABLE>
See notes to financial statements.
8
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Statements of Operations
LifeChoice Funds For the Year Ended October 31, 2000
(Amounts in Thousands)
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
<S> <C> <C> <C>
Investment Income:
Dividend income $353 $ 887 $ 447
Total Income 353 887 447
Expenses:
Investment advisory fees 14 47 33
Administration fees 12 12 12
Shareholder service fees 2 4 2
Accounting fees 40 41 38
Custodian fees 3 3 3
Legal and audit fees 2 4 3
Amortization of organization costs 11 11 11
Transfer agent fees 9 12 18
Registration and filing fees 10 12 11
Printing fees 1 4 13
Other -- 1 2
Total Expenses 104 151 146
Expenses voluntarily reduced (7) (23) (17)
Expenses before reimbursement from distributor 97 128 129
Expenses reimbursed from distributor (83) (81) (96)
Total Expenses 14 47 33
Net Investment Income 339 840 414
Realized/Unrealized Gains/(Losses) from Investments:
Net realized gains/(losses) from investment transactions 259 1,659 1,715
Change in unrealized appreciation/depreciation
from investments 174 314 69
Net realized/unrealized gains/(losses) from investments 433 1,973 1,784
Change in net assets resulting from operations $772 $2,813 $2,198
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS
LifeChoice Funds Statements of Changes in Net Assets
(Amounts in Thousands)
<CAPTION>
LifeChoice LifeChoice LifeChoice
Conservative Moderate Growth
Investor Fund Investor Fund Investor Fund
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, October 31, October 31,
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 339 $ 312 $ 840 $ 579 $ 414 $ 197
Net realized gains/(losses) from
investment transactions 259 (13) 1,659 499 1,715 463
Net change in unrealized
appreciation/depreciation
from investments 174 315 314 1,379 69 1,220
Change in net assets resulting
from operations 772 614 2,813 2,457 2,198 1,880
Distributions to Shareholders:
From net investment income (335) (411) (824) (676) (406) (295)
From net realized gains from
investment transactions (60) (162) (754) (434) (684) (338)
Change in net assets from
distributions to shareholders (395) (573) (1,578) (1,110) (1,090) (633)
Capital Transactions:
Proceeds from shares issued 2,651 2,737 4,287 11,834 4,721 7,578
Dividends reinvested 395 573 1,578 1,110 1,090 633
Cost of shares redeemed (2,556) (4,298) (5,060) (10,621) (5,620) (5,362)
Change in net assets from
capital transactions 490 (988) 805 2,323 191 2,849
Change in net assets 867 (947) 2,040 3,670 1,299 4,096
Net Assets:
Beginning of period 6,686 7,633 22,798 19,128 16,114 12,018
End of period $ 7,553 $ 6,686 $24,838 $ 22,798 $17,413 $16,114
Share Transactions:
Issued 237 251 354 1,032 372 635
Reinvested 36 53 133 98 88 55
Redeemed (229) (396) (423) (923) (445) (452)
Change in shares 44 (92) 64 207 15 238
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS
LifeChoice Conservative Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Year Year Period Period
Ended Ended Ended Ended
October 31, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.78 $10.72 $10.89 $10.00
Investment Activities
Net investment income 0.53 0.45 0.37 0.31
Net realized and unrealized gains/(losses)
from investments 0.69 0.41 (0.12) 0.84<F6>
Total from Investment Activities 1.22 0.86 0.25 1.15
Distributions
Net investment income (0.53) (0.58) (0.39) (0.26)
Net realized gains (0.10) (0.22) (0.03) --
Total Distributions (0.63) (0.80) (0.42) (0.26)
Net Asset Value, End of Period $11.37 $10.78 $10.72 $10.89
Total Return 11.56% 8.24% 2.29%<F4> 11.62%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $7,553 $6,686 $7,633 $9,137
Ratio of expenses to average net assets 0.20% 0.19% 0.23%<F5> 0.29%<F5>
Ratio of net investment income to
average net assets 4.74% 3.97% 3.72%<F5> 3.41%<F5>
Ratio of expenses to average net assets<F1> 1.46% 1.46% 1.50%<F5> 5.18%<F5>
Ratio of net investment income to
average net assets<F1> 3.48% 2.70% 2.45%<F5> (1.48)%<F5>
Portfolio Turnover 56% 57% 78% 19%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense
reimbursements had not occurred, the ratios would have been as
indicated.
<F2> For the period December 31, 1996 (commencement of operations) through
November 30, 1997.
<F3> Effective March 23, 1998, the KeyChoice Income & Growth Fund became the
Victory LifeChoice Conservative Investor Fund. Financial highlights
prior to March 23, 1998 represent the KeyChoice Income & Growth Fund.
<F4> Not annualized
<F5> Annualized
<F6> The amount shown for a share outstanding throughout the period does not
accord with the change in the aggregate gains and losses in the
portfolio of securities during the period because of the timing of sales
and purchases of fund shares in relation to fluctuating market values
during the period.
</FN>
</TABLE>
See notes to financial statements.
11
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS
LifeChoice Moderate Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Year Year Period Period
Ended Ended Ended Ended
October 31, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.66 $ 10.94 $ 11.19 $10.00
Investment Activities
Net investment income 0.43 0.30 0.24 0.20
Net realized and unrealized gains/(losses)
from investments 1.02 1.03 (0.14) 1.16
Total from Investment Activities 1.45 1.33 0.10 1.36
Distributions
Net investment income (0.42) (0.36) (0.26) (0.17)
Net realized gains (0.39) (0.25) (0.09) --
Total Distributions (0.81) (0.61) (0.35) (0.17)
Net Asset Value, End of Period $ 12.30 $ 11.66 $ 10.94 $11.19
Total Return 12.92% 12.42% 0.90%<F4> 13.64%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $24,838 $22,798 $19,128 $7,728
Ratio of expenses to average net assets 0.20% 0.20% 0.22%<F5> 0.27%<F5>
Ratio of net investment income to
average net assets 3.58% 2.53% 2.32%<F5> 2.26%<F5>
Ratio of expenses to average net assets<F1> 0.64% 0.71% 0.93%<F5> 3.32%<F5>
Ratio of net investment income to
average net assets<F1> 3.14% 2.02% 1.61%<F5> (.79)%<F5>
Portfolio Turnover 48% 69% 42% 50%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense
reimbursements had not occurred, the ratios would have been as
indicated.
<F2> For the period December 31, 1996 (commencement of operations) through
November 30, 1997.
<F3> Effective March 23, 1998, the KeyChoice Moderate Growth Fund became the
Victory LifeChoice Moderate Investor Fund. Financial highlights prior to
March 23, 1998 represent the KeyChoice Moderate Growth Fund
<F4> Not annualized
<F5> Annualized
</FN>
</TABLE>
See notes to financial statements.
12
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS
LifeChoice Growth Investor Fund Financial Highlights
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Year Year Period Period
Ended Ended Ended Ended
October 31, October 31, October 31, November 30,
2000 1999 1998<F3> 1997<F2>
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.19 $ 11.08 $ 11.44 $10.00
Investment Activities
Net investment income 0.32 0.16 0.13 0.11
Net realized and unrealized gains/(losses)
from investments 1.35 1.51 (0.07) 1.43
Total from Investment Activities 1.67 1.67 0.06 1.54
Distributions
Net investment income (0.31) (0.25) (0.14) (0.10)
Net realized gains (0.53) (0.31) (0.28) --
Total Distributions (0.84) (0.56) (0.42) (0.10)
Net Asset Value, End of Period $ 13.02 $ 12.19 $ 11.08 $11.44
Total Return 14.23% 15.33% 0.52%<F4> 15.46%<F4>
Ratios/Supplementary Data:
Net Assets at end of period (000) $17,413 $16,114 $12,018 $7,515
Ratio of expenses to average net assets 0.20% 0.20% 0.23%<F5> 0.30%<F5>
Ratio of net investment income to
average net assets 2.48% 1.31% 1.19%<F5> 0.81%<F5>
Ratio of expenses to average net assets<F1> 0.88% 1.01% 1.16%<F5> 3.67%<F5>
Ratio of net investment income to
average net assets<F1> 1.80% 0.50% 0.26%<F5> (2.56)%<F5>
Portfolio Turnover 62% 52% 30% 106%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or
reimbursed. If such voluntary fee reductions and/or expense
reimbursements had not occurred, the ratios would have been as
indicated.
<F2> For the period December 31, 1996 (commencement of operations) through
November 30, 1997.
<F3> Effective March 23, 1998, the KeyChoice Growth Fund became the Victory
LifeChoice Growth Investor Fund. Financial highlights prior to March 23,
1998 represent the KeyChoice Growth Fund.
<F4> Not annualized
<F5> Annualized
</FN>
</TABLE>
See notes to financial statements.
13
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements
LifeChoice Funds October 31, 2000
1. Organization:
The Victory Portfolios (the "Trust") was organized on December 6, 1995,
as a successor to a company of the same name organized as a
Massachusetts business trust on February 5, 1986. The Trust is
registered under the Investment Company Act of 1940, as amended, (the
"1940 Act") as an open-end investment company established as a Delaware
business trust. The Trust is authorized to issue an unlimited number of
shares which are units of beneficial interest with a par value of
$0.001. The Trust presently offers shares of 30 active funds. Included
are the financial statements and financial highlights of the LifeChoice
Conservative Investor Fund, LifeChoice Moderate Investor Fund, and the
LifeChoice Growth Investor Fund (collectively, the "Funds").
The LifeChoice Conservative Investor Fund seeks to provide current
income combined with moderate growth of capital by allocating its assets
primarily among registered investment companies that invest in fixed
income securities and, to a lesser extent, equity securities. The
LifeChoice Moderate Investor Fund seeks to provide growth of capital
combined with a moderate level of current income by allocating its
assets primarily among registered investment companies that invest in
equity securities and, to a lesser extent, fixed income securities. The
LifeChoice Growth Investor Fund seeks to provide growth of capital by
allocating its assets primarily among registered investment companies
that invest in equity securities.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed
by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles
in the United States. The preparation of financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
Securities Valuation:
Investments in registered investment companies are valued at the closing
net asset value per share on the day of valuation. Short-term
investments of the Funds are valued at amortized cost, which
approximates market value or at original cost which, combined with
accrued interest, approximates market value.
Securities Transactions and Related Income:
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis and includes, where applicable, the pro rata amortization
of premium or accretion of discount. Dividend income is recorded on the
ex-dividend date. Gains or losses realized on sales of securities are
determined by comparing the identified cost of the security lot sold
with the net sales proceeds.
Repurchase Agreements:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker-dealers which the Funds' investment adviser
deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally
equals the price paid by a Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying Fund securities. The seller, under a repurchase agreement, is
required to maintain the value of collateral held pursuant to the
agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
Dividends to Shareholders:
Dividends payable to shareholders are declared and distributed
quarterly. Distributable net realized capital gains, if any, are
declared and distributed at least annually.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the components of net
assets based on their Federal tax-basis treatment; temporary differences
do not require reclassification. Dividends and distributions to
shareholders which exceed net investment income and realized capital
gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or
distributions in excess of net realized gains. To the extent they exceed
net investment income and net realized gains for tax purposes, they are
reported as distributions of capital.
Federal Income Taxes:
It is the policy of each Fund to continue to qualify as a regulated
investment company by complying with the provisions available to certain
investment companies, as defined in applicable sections of the Internal
Revenue Code of 1986, as amended, and to make distributions of net
investment income and net realized capital gains sufficient to relieve
it from all, or substantially all, Federal income taxes.
Other:
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Funds are
prorated to each Fund on the basis of relative net assets or other
appropriate basis.
Costs incurred in connection with the organization of the Funds are
being amortized on a straight-line basis over a period not to exceed
sixty months from the date the Funds commenced operations. Organization
costs were paid by the Distributor on behalf of the Funds and are being
amortized over a five-year period with a corresponding payable from the
Funds to the Distributor to repay such cost at the conclusion of the
amortization period.
Continued
14
<PAGE>
THE VICTORY PORTFOLIOS Notes to Financial Statements--continued
LifeChoice Funds October 31, 2000
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for
the year ended October 31, 2000 were as follows (amounts in thousands):
Purchases Sales
LifeChoice Conservative Investor Fund.... $ 4,573 $ 3,958
LifeChoice Moderate Investor Fund........ $12,814 $11,004
LifeChoice Growth Investor Fund.......... $10,958 $10,187
4. Related Party Transactions:
Investment advisory services are provided to the Funds by Key Asset
Management, Inc. ("the Adviser"), a wholly owned subsidiary of KeyCorp.
Under the terms of the investment advisory agreements, the Adviser is
entitled to receive fees based on a percentage of the average daily net
assets of the Funds. KeyTrust Company of Ohio, N.A., a subsidiary of
KeyCorp and an affiliate of the Adviser, serving as custodian for the
Funds, receives custodian fees in addition to reimbursement of actual
out-of-pocket expenses incurred.
Key and its affiliated brokerage and banking companies also serve as a
Shareholder Servicing Agent for the Funds. As such, Key and its
affiliates provide support services to their clients who are
shareholders, which may include establishing and maintaining accounts
and records, processing dividend and distribution payments, providing
account information, assisting in processing of purchase, exchange and
redemption requests, and assisting shareholders in changing dividend
options, account designations and addresses. For providing such
services, Key and its affiliates may receive a fee of up to 0.25% of the
average daily net assets of the Funds.
BISYS Fund Services (the "Administrator"), an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. ("BISYS") serves as the
administrator and distributor to the Funds. Certain officers of the
Funds are affiliated with BISYS. Such officers receive no direct
payments or fees from the Funds for serving as officers.
Under the terms of the administration agreement, the Administrator's fee
is computed at the annual rate of 0.01% of the average daily net assets
of each of the Funds with a minimum of $12,000 per Fund per year.
BISYS Fund Services, Ohio Inc., an affiliate of BISYS, serves the Funds
as Fund Accountant. Under the terms of the Fund Accounting Agreement,
the fee is based on a percentage of the average daily net assets of the
Funds with a minimum of $20,000 per Fund per year.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
Additional information regarding related party transactions is as
follows for the year ended October 31, 2000:
Investment Advisory Fees
Percentage
of Average Voluntary
Daily Fee
Net Assets Reductions
(000)
LifeChoice Conservative Investor Fund....... 0.20% $ 7
LifeChoice Moderate Investor Fund........... 0.20% $23
LifeChoice Growth Investor Fund............. 0.20% $17
5. Federal Income Tax Information (Unaudited):
For the year ended October 31, 2000, the following percentages of income
dividends paid by the Funds qualify for the dividends received deduction
available to corporations:
Qualified Dividend Income
LifeChoice Conservative Investor Fund........ 12.44%
LifeChoice Moderate Investor Fund............ 13.98%
LifeChoice Growth Investor Fund.............. 16.52%
During the taxable year ended October 31, 2000, the following Funds paid
long-term capital gain distributions:
Capital Gain Distributions
(000)
LifeChoice Moderate Investor Fund ........... $153
LifeChoice Growth Investor Fund ............. 58
These amounts are included in distributions to shareholders from net
realized gains from investment transactions in the accompanying
statements of changes in net assets.
6. Subsequent Events:
Distributions of short-term and long-term capital gains were declared
and paid November 17, 2000 to shareholders of record on November 16,
2000 as follows:
<TABLE>
<CAPTION>
Short-Term Long-Term
Capital Gain Capital Gain Total
<S> <C> <C> <C>
LifeChoice Conservative Investor Fund........ 0.0454 0.2065 0.2519
LifeChoice Moderate Investor Fund............ 0.1306 0.7241 0.8547
LifeChoice Growth Investor Fund.............. 0.1921 1.0111 1.2032
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
The Victory Portfolios:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the LifeChoice
Conservative Investor Fund, the LifeChoice Moderate Investor Fund, and the
LifeChoice Growth Investor Fund (three of the Funds constituting The Victory
Portfolios, hereafter referred to as the "Funds") at October 31, 2000, the
results of each of their operations for the year then ended, the changes in
each of their net assets for two years then ended, and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation and verification by examination of
securities at October 31, 2000, by correspondence with the custodian, provide
a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
December 14, 2000
16
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
PRSRT STD
U.S. POSTAGE
PAID
Cleveland, OH
Permit No. 1535
Victory Funds
(LOGO) (R)
Call Victory at:
800-539-FUND (800-539-3863)
Visit our web site at:
www.victoryfunds.com
1VF-LCHF-AR 11/00
