VICTORY FUNDS
40-17F2, 1999-04-22
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Independent Auditors' Report

To the Trustees of The Victory Portfolios

We have examined management's assertion about The Victory Portfolios' 
(comprising the U.S. Government Obligations Fund, the Prime Obligations Fund, 
the Financial Reserves Fund, the Institutional Money Market Fund, the Tax-Free 
Money Market Fund, the Ohio Municipal Money Market Fund, the Federal Money 
Market Fund, the Limited Term Income Fund, the Intermediate Income Fund, the 
Investment Quality Bond Fund, the Government Mortgage Fund, the Fund for Income,
the National Municipal Bond Fund, the New York Tax-Free Fund, the Ohio Municipal
Bond Fund, the Balanced Fund, the Stock Index Fund, the Diversified Stock Fund, 
the Value fund, the Growth Fund, the Special Value Fund, the Special Growth 
Fund, the Ohio Regional Stock Fund, the International Growth Fund, the Lakefront
Fund, the Real Estate Investment Fund, the Convertible Securities Fund, the 
LifeChoice Growth Investor Fund, the LifeChoice Moderate Investor Fund, and the 
LifeChoice Conservative Investor Fund) compliance with the requirements of 
subsections (b) and (c) of Rule 17f-2 under the Investment Company Act of 1940 
as of October 31, 1998, included in the accompanying Management Statement 
Regarding Compliance with Certain Provisions of the Investment Company Act of 
1940. Management is responsible for The Victory Portfolios' compliance with 
those requirements. Our responsibility is to express an opinion on management's 
assertion about The Victory Portfolios' compliance based on our examination.

Our examination was made in accordance with standards established by the 
American Institute of Certified Public Accountants and, accordingly, included 
examining, on a test basis, evidence about The Victory Portfolios' compliance 
with those requirements and performing such other procedures as we considered 
necessary in the circumstances. Included among our procedures were the 
following tests performed as of October 31, 1998, with respect to securities of 
The Victory Portfolios:

     .  Count and inspection of all securities located in the vault of Key Trust
        Company of Ohio, N.A. in Cleveland, Ohio

     .  Confirmation, or other procedures as we considered necessary, of all
        securities held in book entry form by the Federal Reserve Bank of
        Cleveland, Depository Trust Company, Bank of New York or Morgan Stanley
        Trust Company;

     .  Confirmation, or other procedures as we considered necessary, of all 
        securities out for transfer with brokers;
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   .  Confirmation, or other procedures as we considered necessary, of all
      repurchase agreements with brokers/banks and agreement of underlying
      collateral with Key Trust Company of Ohio, N.A.'s records;

   .  Confirmation, or other procedures as we considered necessary, of all 
      mutual fund investments with transfer agents; and

   .  Reconciliation of all such securities to the books and records of The 
      Victory Portfolios and Key Trust Company of Ohio, N.A.

We believe that our examination provides a reasonable basis for our opinion. Our
examination does not provide a legal determination on The Victory Portfolios' 
compliance with specified requirements.

In our opinion, management's assertion that The Victory Portfolios was in 
compliance with the requirements of subsections (b) and (c) of Rule 17f-2 of the
Investment Company Act of 1940 as of October 31, 1998, with respect to 
securities reflected in the investment accounts of The Victory Portfolios is 
fairly stated, in all material respects.

This report is intended solely for the information and use of management of The 
Victory Portfolios and the Securities and Exchange Commission and should not be 
used for any other purpose. 



                                          /s/ PricewaterhouseCoopers LLP
                                   
                                              PricewaterhouseCoopers LLP


Columbus, Ohio
December 11, 1998

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       Management Statement Regarding Compliance With Certain Provisions
                     of the Investment Company Act of 1940

We, as members of management of The Victory Portfolios (comprising the U.S. 
Government Obligations Fund, the Prime Obligations Fund, the Financial Reserves 
Fund, the Institutional Money Market Fund, the Tax-Free Money Market Fund, the 
Ohio Municipal Money Market Fund, the Federal Money Market Fund, the Limited 
Term Income Fund, the Intermediate Income Fund, the Investment Quality Bond 
Fund, the Government Mortgage Fund, the Fund for Income, the National Municipal 
Bond Fund, the New York Tax-Free Fund, the Ohio Municipal Bond Fund, the
Balanced Fund, the Stock Index Fund, the Diversified Stock Fund, the Value Fund,
the Growth Fund, the Special Value Fund, the Special Growth Fund, the Ohio 
Regional Stock Fund, the International Growth Fund, the Lakefront Fund, the Real
Estate Investment Fund, the Convertible Securities Fund, the LifeChoice Growth 
Investor Fund, the LifeChoice Moderate Investor Fund, and the LifeChoice 
Conservative Investor Fund) are responsible for complying with the requirements 
of subsections (b) and (c) of Rule 17f-2, "Custody of Investments by Registered 
Management Investment Companies," of the Investment Company Act of 1940. We are 
also responsible for establishing and maintaining effective internal controls 
over compliance with those requirements. We have performed an evaluation of The 
Victory Portfolios' compliance with the requirements of subsections (b) and (c) 
of Rule 17f-2 as of October 31, 1998. Based on this evaluation, we assert that 
The Victory Portfolios was in compliance with the provisions of subsections (b) 
and (c) of Rule 17f-2 of the Investment Company Act of 1940 as of October 31, 
1998, with respect to securities reflected in the investment accounts of The 
Victory Portfolios.


The Victory Portfolios


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