THE INSTITUTIONAL MONEY MARKET FUND
THE FEDERAL MONEY MARKET FUND
SEMIANNUAL
REPORT
APRIL 30,
1998
(LOGO)
Victory Funds
TABLE OF CONTENTS
Shareholder Letter 2
Financial Statements
Schedule of Investments 3
Statement of Assets and Liabilities 8
Statement of Operations 9
Statement of Changes in Net Assets 10
Notes to Financial Statements 11
Financial Highlights 15
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
for The Victory 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.
(LOGO)
1-800-KEY-FUND(R)
(1-800-539-3863)
Letter to our Shareholders
Welcome to the April 30, 1998 semiannual report of the Federal Money Market
and the Institutional Money Market Funds. The merger of the Key Funds family
with the Victory Funds group, and the resultant increase in operational
efficiencies is likely to benefit investors in many ways. We are happy to
have this opportunity to welcome all our new shareholders, as well as to
share information on your Funds' financial performance, which follows in the
next few pages.
The tone of the financial markets continues to remain generally upbeat,
although there are expectations of a tightening of monetary policy down the
road. Thus far in 1998 the US economy has exhibited powerful forward
momentum, accompanied by a somewhat troubling asset price bubble, but without
any indication, as yet, of significant wage and price pressures. First
quarter real GDP growth surged to 4.2% from 3.7% in the final quarter of last
year but inflation has been subdued. Productivity growth has kept pace with
robust job growth, thereby mitigating some of the pressures on wage
increases.
Although the Federal Reserve Board left short term interest rates unchanged
at its most recent Federal Open Market Committee meeting, pressures are
mounting for a rate hike. In reality, the Fed has been passively restraining
the economy over the last year by not lowering short-term interest rates when
inflation was declining. This caused the inflation-adjusted or real Fed funds
rate to rise. In any event, given the recent turmoil in Asia, it would appear
that policy moves are as likely to be dictated by overseas developments as
internal ones.
As always, we welcome your comments on this semiannual report.
Thank you
/s/ Leigh A. Wilson
Leigh A. Wilson
President
The Victory Funds
The Funds are neither issued nor guaranteed by the U.S. Government and
there can be no assurance that the Fund will be able to maintain a stable NAV of
$1.00 per share.
<TABLE>
THE VICTORY PORTFOLIOS Schedule of Investments
Federal Money Market Fund April 30, 1998
(Amounts in Thousands, Except Shares) (Unaudited)
<CAPTION>
Shares or
Principal Amortized
Security Description Amount Cost
<S> <C> <C>
U.S. Government Agencies (75.2%)
Federal Farm Credit Bank (40.1%):
5.45%, 5/13/98 9,848 $ 9,830
5.46%, 7/1/98 60,000 60,000
5.50%, 6/1/98 60,000 60,000
5.51%, 8/3/98 50,000 50,000
5.54%, 6/1/98 10,000 10,000
189,830
Federal Home Loan Bank (7.3%):
5.38%, 5/27/98 1,565 1,559
5.65%, 3/30/99,
Callable 6/30/98 @ 100 10,000 10,000
5.71%, 3/17/99,
Callable 6/17/98 @ 100 10,000 10,000
5.72%, 3/26/99,
Callable 6/26/98 @ 100 10,000 10,000
5.72%, 6/23/98 3,000 3,001
34,560
Federal Home Loan Mortgage
Corp. (14.8%):
5/8/98 50,000 49,947
5/29/98 20,000 19,916
69,863
Federal National Mortgage
Assoc. (12.9%):
5.32%, 6/12/98 55,000 54,658
5.10%, 7/22/98 1,740 1,738
5.25%, 5/13/98 1,065 1,065
5.41%, 6/25/98 3,575 3,575
61,036
Student Loan Marketing
Assoc. (0.1%):
5.60%, 8/11/98 425 425
Total U.S. Government Agencies
(Amortized Cost $355,714) 355,714
Repurchase Agreements (35.6%)
Donaldson-Lufkin Jenrette
Securities Corp., 5.52%,
5/1/98, (Collateralized by
$74,602 various U.S. Government
Securities, 0.00%-6.45%,
6/4/99-8/15/06,
market
value--$61,200) 60,000 $ 60,000
Lehman Brothers, Inc., 5.52%,
5/1/98, (Collateralized by
$88,480 U.S. Government
Securities,
0.00%, 11/13/17, market
value--$18,430) 18,068 18,068
Nomura, 5.55%, 5/1/98,
(Collateralized by $98,123,
U.S. Government Securities,
0.00%-7.52%, 7/28/00-2/15/08,
market value--$91,800) 90,000 90,000
Total Repurchase Agreements
(Amortized Cost $168,068) 168,068
Total Investments
(Amortized Cost
$523,782)<F1>--110.8% 523,782
Liabilities in excess of other
assets (10.8)% (51,062)
TOTAL NET ASSETS--100.0% $472,720
<FN>
<F1> Cost and value for federal income tax and financial reporting purposes
are the same.
</FN>
</TABLE>
See notes to financial statements.
<TABLE>
THE VICTORY PORTFOLIOS Schedule of Investments
Institutional Money Market Fund April 30, 1998
(Amounts in Thousands, Except Shares) (Unaudited)
<CAPTION>
Shares or
Principal Amortized
Security Description Amount Cost
<S> <C> <C>
Certificates of Deposit (7.3%)
Bank Nova Scotia,
5.83%, 10/2/98 5,000 $ 5,002
Bankers Trust New York,
6.14%, 5/12/98 5,000 5,000
Bankers Trust New York,
5.91%, 8/7/98 5,000 4,998
Bankers Trust New York,
5.98%, 8/12/98 18,000 18,008
Banque National de Paris,
5.62%, 9/23/98 5,000 5,000
Canadian Imperial
Bank of Commerce,
5.74%, 4/1/99 10,000 9,995
Deutschbank,
5.96%, 8/17/98 4,000 4,000
Deutschbank,
5.70%, 3/30/99 10,000 9,994
Morgan Guaranty Trust,
5.77%, 6/16/98 10,000 10,000
Morgan Guaranty Trust,
5.87%, 8/6/98 5,000 5,000
Societe Generale,
5.43%<F2>, 5/1/98 7,000 7,000
Societe Generale,
5.42%<F2>, 5/1/98 9,000 8,999
Societe Generale,
5.42%<F2>, 5/1/98 5,000 5,000
Total Certificates of Deposit
(Cost $97,996) 97,996
Commercial Paper (46.5%)
Arizona Educational Loan
Marketing Corp.,
5.53%, 5/15/98 15,600 15,566
Asset Securitization
Capital Corp.,
5.51% 05/06/98 35,000 34,972
AVCO Financial Services,
5.50%, 5/11/98 10,000 9,985
AVCO Financial Services,
5.48%, 6/22/98 20,000 19,842
Bell South Telecommunications,
5.50%, 5/14/98 50,000 49,900
Brown Forman,
5.51%, 5/12/98 10,225 10,208
Diageo Capital PLC,
5.52%, 6/2/98 30,000 29,853
Diageo Capital PLC,
5.49%, 8/31/98 20,000 19,631
Eiger Capital Corp.,
5.52%, 5/14/98 6,000 5,988
Fleet Funding,
5.53%, 5/29/98 8,554 8,517
Fleet Funding,
5.50%, 6/1/98 11,253 11,200
General Electric Capital Corp.,
5.46%, 7/15/98 25,000 24,714
General Motors Acceptance Corp.,
5.95%, 2/12/99 10,900 10,915
Goldman Sachs Group, Inc.,
5.68%, 5/14/98 20,000 19,959
Matson Navigation,
5.54%, 6/1/98 12,600 12,540
McCormick & Co.,
5.43%, 8/10/98 10,000 9,848
McCormick & Co.,
5.43%, 10/13/98 12,000 11,701
McGraw Hill,
5.45%, 8/14/98 10,000 9,841
Nalco Chemical,
5.52%, 5/13/98 8,000 7,985
Nalco Chemical,
5.51%, 5/21/98 8,124 8,099
Nalco Chemical,
5.49%, 6/5/98 8,000 7,957
Nalco Chemical,
5.51%, 6/19/98 5,000 4,963
Nalco Chemical,
5.51%, 5/7/98 20,000 19,982
Nebraska Higher Education
Loan Program,
5.51%, 5/15/98, SLMA 30,000 29,936
Redwood Receivables Corp.,
5.53%, 5/14/98 10,000 9,980
Redwood Receivables Corp.,
5.55%, 5/15/98 20,000 19,957
Reed Elsevier Inc.,
5.49%, 7/2/98 10,000 9,905
Saloman Smith Barney,
5.52%, 6/1/98 25,000 24,881
Saloman Smith Barney,
5.52%, 7/13/98 25,000 24,720
Sheffield Receivables,
5.50%, 6/10/98 13,271 13,190
Southern California Edison,
5.44%, 5/18/98 16,505 16,463
Southern California Edison,
5.48%, 6/16/98 5,752 5,712
Southwest Student Services,
5.54%, 5/18/98 8,550 8,528
Toshiba America,
5.55%, 5/19/98 15,000 14,958
Toshiba America,
5.60%, 9/4/98 10,000 9,804
Transamerica Financial Corp.,
5.50%, 2/27/98 26,000 25,897
Unibanco,
5.51%, 6/11/98,
LOC Westduetsche Landsbank 10,000 9,937
Vehicle Services,
5.52%, 6/9/98,
Loc: Nationsbank 20,000 19,881
Vehicle Services,
5.51%, 6/11/98 14,000 13,912
Total Commercial Paper
(Cost $621,827) 621,827
Corporate Bonds (26.3%)
Anne Aurndel Medical Center,
5.75%<F2>, 5/6/98<F3>,
LOC Mellon Bank N.A. 9,850 9,850
Automated Packaging System,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 1,925 1,925
AVCO Financial Services,
5.50%, 5/1/98 3,200 3,200
AVCO Financial Services,
5.47%, 6/4/98, MTN 5,000 4,974
Bank of America,
5.37%<F2>, 5/1/98<F3>, MTN 5,000 4,998
Beta Finance,
6.13%, 5/15/98 5,000 5,000
Buckeye Corrugated, Inc.,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 1,100 1,100
Burton I Saltzman,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 2,710 2,710
CIT Group Holdings,
6.35%, 7/31/98, MTN 7,000 7,009
Danis Construction Co.,
5.64%<F2>, 5/7/98<F3>,
LOC Fifth Third Bank 6,000 6,000
Fairborn Christel Mann,
5.70%<F2>, 5/7/98<F3>,
LOC Fifth Third Bank 1,180 1,180
Ford Motor Credit Corp.,
9.25%, 6/15/98 5,000 5,020
Ford Motor Credit Corp.,
5.89%<F2>, 5/26/98, MTN 10,440 10,449
Ford Motor Credit Corp.,
5.63%, 12/15/98 4,000 3,997
General American Life Insurance,
5.89%<F2>, 5/1/98 60,000 60,000
General Electric Capital Corp.,
6.13%, 9/18/98, MTN 5,000 5,003
General Motors Acceptance Corp.,
7.13%, 5/11/98, MTN 2,000 2,000
General Motors Acceptance Corp.,
7.375%, 7/20/98, MTN 9,150 9,182
General Motors Acceptance Corp.,
5.63%, 10/19/98 11,000 10,998
General Motors Acceptance Corp.,
6.50%, 4/16/99, MTN 5,000 5,037
Hannah Boulevard Limited Partnership,
5.66%<F2>, 5/7/98<F3>,
LOC Commerica Bank 4,875 4,875
IBM Credit Corp.,
6.17%, 5/12/98 5,000 5,000
Industrial Developement
Authority of Bedford, Va.,
5.68%, 6/12/98,
LOC Society Generale 7,000 7,000
John Deere Capital Corp.,
5.85%, 10/28/98, MTN 10,000 9,997
John Deere Capital Corp.,
6.00%, 2/1/99, MTN 5,000 5,009
Lehman Brothers Holding, Inc.,
5.75%<F2>, 5/13/98, MTN 12,000 12,000
Lehman Brothers Holding, Inc.,
5.74%<F2>, 5/5/98, MTN 20,000 19,994
Lexington Financial Services,
5.75%<F2>, 5/6/98<F3>,
LOC LaSalle National Bank 5,780 5,780
Maximum Principal Mubea Project,
5.69%<F2>, 5/7/98<F3>,
LOC Fifth Third Bank 1,650 1,650
Merril Lynch,
6.38%, 3/30/99, MTN 6,585 6,623
Miami Valley Steel,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 2,950 2,950
Miami Valley Steel,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 2,050 2,050
Monticello Investments,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 2,245 2,245
Morgan Stanley Dean Witter,
5.61%<F2>, 7/15/98, MTN 10,000 9,999
Morgan Stanley Dean Witter,
5.79%<F2>, 6/15/98<F3>, MTN 13,000 13,000
Ottawa County, EDR,
Sunset Manor, Inc.,
Series C, 5.80%<F2>, 5/7/98<F3>,
LOC Old Kent Bank 1,030 1,030
PepsiCo, Inc.,
5.80%, 8/31/98, MTN 8,000 7,994
Philip Morris,
9.00%, 5/15/98, MTN 19,800 19,824
Philip Morris,
8.75%, 6/1/98, MTN 4,500 4,510
PNC Bank,
5.40%<F2>, 5/1/98 10,000 10,000
Pomeroy Investments,
5.69%<F2>, 5/7/98<F3>,
LOC Fifth Third Bank 3,550 3,550
Presrite Corp.,
5.69%<F2>, 5/7/98 5,000 5,000
Professional Center Associates Ltd.,
5.69%<F2>, 5/7/98<F3>,
LOC National City Bank 1,450 1,450
Sara Lee Corp.,
4.75%, 10/22/98, MTN 5,000 4,973
Sea River Maritime, Inc.,
5.65%<F2>, 5/1/98<F3>,
Guaranteed by Exxon Corp. 13,900 13,900
Sedlak Interiors, Inc.,
5.70%<F2>, 5/7/98<F3>,
LOC Fifth Third Bank 1,430 1,430
Southwestern Ohio Steel,
5.69%<F2>, 5/7/98,
LOC Star Bank 5,000 5,000
Transamerica Finance,
5.60%, 11/30/98, MTN 5,000 4,989
Total Corporate Bonds (Cost $351,454) 351,454
U.S. Government Agencies (9.0%)
Federal Home Loan Bank (0.7%)
5.72%, 4/23/99,
Callable 7/23/98 @ 100 10,000 10,000
Federal National
Mortgage Assoc. (5.1%)
5.40%, 12/30/98,
Callable 6/22/98 @ 100 10,000 9,972
5.25%<F2>, 5/5/98<F3> 25,000 25,000
5.33<F2>, 5/5/98<F3> 33,000 33,000
67,972
Student Loan Marketing Assoc. (3.2%)
5.26%<F2>, 5/5/98<F3> 4,000 4,000
5.28%<F2>, 5/5/98<F3> 6,000 6,000
5.29%<F2>, 5/5/98<F3> 32,500 32,500
42,500
Total U.S. Government Agencies
(Cost $120,472) 120,472
Repurchase Agreements (10.8%)
Donald-Lufkin Jenrette Securities Corp.,
5.52%, 5/1/98, (Collateralized by
$34,519 various U.S. Government
Securities, 0.00%-13.75%,
5/15/98-5/15/09,
market value--$35,700) 35,000 35,000
Goldman Sachs Group L.P.,
5.52%, 5/1/98, (Collateralized by
$31,680 U.S. Government Security,
6.13%, 8/15/07,
market value--$32,641) 32,000 32,000
Lehman Brothers, Inc.,
5.52%, 5/1/98, (Collateralized by
$44,290 U.S. Treasury Note,
5.63%, 4/30/00,
market value--$44,290) 43,351 43,351
Paine Weber, 5.52%, 5/1/98,
(Collateralized by $32,237
various U.S. Government Securities,
6.25%-7.87%, 11/15/04-2/15/07,
market value--$34,676) 33,995 33,995
Total Repurchase Agreements
(Cost $144,346) 144,346
Total Investments
(Cost $1,336,095)<F1>--99.9% 1,336,095
Other assets in excess of
liabilities 0.1% 1,404
TOTAL NET ASSETS--100.0% $1,337,499
<FN>
<F1> Cost and value for federal income tax and financial reporting purposes
are the same.
<F2> Variable rate securities having liquidity sources through bank letters of
credit and/or liquidity agreements. The interest rate, which will change
periodically, is based upon bank prime rates or an index of market interest
rates. The rate reflected on the Schedule of Portfolio Investments is the
rate in effect at April 30, 1998. The date reflects the next rate change
date.
<F3> Put and demand features exist allowing the Fund to require the
repurchase of the investment within variable time periods less than one
year.
EDR--Economic Development Revenue
LOC--Letter of Credit
MTN--Medium Term Note
SLMA--Student Loan Marketing Assoc.
</FN>
</TABLE>
See notes to financial statements.
<TABLE>
Statement of Assets and Liabilities
THE VICTORY PORTFOLIOS April 30, 1998
(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
<CAPTION>
Federal Institutional
Money Market Money Market
Fund Fund
<S> <C> <C>
ASSETS:
Investments, at amortized cost $355,714 $1,191,749
Repurchase agreements, at cost 168,068 144,346
Total 523,782 1,336,095
Cash 1 1
Interest receivable 1,426 7,615
Receivable from affiliates 2 --
Prepaid expenses and other assets 65 35
Total Assets 525,276 1,343,746
LIABILITIES:
Dividends payable 2,383 5,869
Payable to brokers for investments purchased 50,000 --
Accrued expenses and other payables:
Investment advisory fees 52 167
Administration fees 3 9
Custodian fees 29 18
Transfer agent fees 7 34
Shareholder service fees--Select Shares -- 97
Other 82 53
Total Liabilities 52,556 6,247
NET ASSETS:
Capital 472,723 1,337,355
Undistributed net investment income 1 140
Accumulated undistributed net realized gains (losses)
from investment transactions (4) 4
Net Assets $472,720 $1,337,499
Net Assets
Investor Shares $378,810 $ 819,904
Select Shares 93,910 517,595
Total $472,720 $1,337,499
Outstanding units of beneficial interest (shares)
Investor Shares 378,810 819,894
Select Shares 93,910 517,597
Total 472,720 1,337,491
Net asset value
Offering and redemption price per share--Investor Shares $ 1.00 $ 1.00
Offering and redemption price per share--Select Shares $ 1.00 $ 1.00
</TABLE>
See notes to financial statements.
<TABLE>
Statements of Operations
THE VICTORY PORTFOLIOS For the Six Months Ended April 30, 1998
(Amounts in Thousands) (Unaudited)
Federal Institutional
Money Market Money Market
Fund<F1> Fund
<S> <C> <C>
Investment Income:
Interest income $9,238 $33,687
Expenses:
Investment advisory fees 417 1,477
Administration fees 258 695
Shareholder service fees 249 --
Shareholder service fees--Select Shares 17 601
Accounting fees 16 52
Custodian fees 33 114
Legal and audit fees 47 73
Trustees' fees and expenses 14 19
Transfer agent fees 17 73
Registration and filing fees 24 12
Printing fees 42 75
Other -- 9
Total Expenses 1,134 3,200
Expenses voluntarily reduced (395) (977)
Expenses before reimbursement from distributor 739 2,223
Expenses reimbursed by distributor (275) --
Net Expenses 464 2,223
Net Investment Income 8,774 31,464
Realized Gains from Investments:
Net realized gains (losses) from investment transactions (1) 4
Change in net assets resulting from operations $8,773 $31,468
<FN>
<F1> For the period December 1, 1997 through April 30, 1998.
</FN>
</TABLE>
See notes to financial statements.
<TABLE>
THE VICTORY PORTFOLIOS Statements of Changes in Net Assets
(Amounts in Thousands) (Unaudited)
<CAPTION>
Federal Money Market Fund<F1> Institutional Money Market Fund
Five Months Ended Year Ended Six Months Ended Year Ended
April 30, November 30, April 30, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 8,774 $ 5,455 $ 31,464 $ 52,041
Net realized gains (losses)
from investment transactions (1) -- 4 15
Change in net assets resulting
from operations 8,773 5,455 31,468 52,056
Distributions to Shareholders:
From net investment income
Investor Shares (7,812) (5,455) (19,055) (31,873)
Select Shares (962) -- (12,409) (20,168)
From net realized gains from
investment transactions (3) -- (15) --
Change in net assets from
distributions to shareholders (8,777) (5,455) (31,479) (52,041)
Capital Transactions:
Proceeds from shares issued 909,705 471,869 2,580,253 4,221,092
Dividends reinvested 7,255 3,317 16,457 21,609
Cost of shares redeemed (687,735) (273,846) (2,333,502) (4,213,079)
Change in net assets from
capital transactions 229,225 201,340 263,208 29,622
Change in net assets 229,221 201,340 263,197 29,637
Net Assets:
Beginning of period 243,499 42,159 1,074,302 1,044,665
End of period $ 472,720 $ 243,499 $ 1,337,499 $ 1,074,302
Share Transactions:
Issued 909,705 471,869 2,580,253 4,221,092
Reinvested 7,255 3,317 16,457 21,609
Redeemed (687,735) (273,846) (2,333,502) (4,213,079)
Change in shares 229,225 201,340 263,208 29,622
<FN>
<F1> Effective March 23, 1998, the Key Money Market Fund became the Victory
Federal Money Market Fund. Changes in net assets prior to March 23, 1998
represent the Key Money Market Fund.
</FN>
</TABLE>
See notes to financial statements.
Notes to Financial Statements
THE VICTORY PORTFOLIOS April 30, 1998
(Unaudited)
1. Organization:
The Victory Portfolios (collectively, the "Trust" and individually, a "Fund")
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 without a par value of $0.001.
The Trust presently offers shares of 30 active funds. The accompanying
financial statements and financial highlights are those of the Institutional
Money Market Fund and the Federal Money Market Fund.
The Institutional Money Market Fund and the Federal Money Market Fund are
authorized to issues two classes of shares: Investor Shares and Select
Shares. Each class of shares has identical rights and privileges except with
respect to fees paid under shareholders service plans, expenses allocable
exclusively to each class of shares, voting rights on matters affecting a
single class of shares, and the exchange privilege of each class of shares.
The Institutional Money Market Fund seeks to obtain a high level of current
income as is consistent with preserving capital and providing liquidity. The
Federal Money Market Fund seeks to provide high current income to the extent
consistent with the preservation of capital.
2. Reorganization:
The Trust entered an Agreement and Plan of Reorganization with The SBSF
Funds, Inc. d/b/a Key Mutual Funds pursuant to which all of the assets and
liabilities of each Key Mutual Fund transferred to a Fund of the Victory
Portfolios in exchange for shares of the corresponding Fund. The Key Money
Market Fund transferred its assets and liabilities to the Victory Federal
Money Market Fund. The reorganization, which qualified as a tax-free exchange
for federal income tax purposes, was completed on March 23, 1998, following
approval by shareholders of SBSF Funds, Inc. d/b/a Key Mutual Funds at a
special shareholder meeting held on March 6, 1998. The following is a summary
of shares outstanding, net assets, net asset value per share and unrealized
appreciation immediately before and after the reorganization:
<TABLE>
<CAPTION>
Before Reorganization After Reorganization
Key Victory Federal Victory Federal
Money Market Money Market Money Market
Fund Fund Fund
<S> <C> <C> <C>
Shares (000) 517,095 -- 517,095
Net Assets (000) $517,095 -- $517,095
Net Asset Value $ 1.00 -- $ 1.00
Unrealized appreciation (000) -- -- --
</TABLE>
3. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses for the
period. Actual results could differ from those estimates.
Securities Valuation:
Investments of the Funds are valued at either amortized cost which
approximates market value, or at original cost which, combined with accrued
interest, approximates market value. Under the amortized cost valuation
method, discount or premium is amortized on a constant basis to the maturity
of the security. In addition, the Funds may not (a) purchase any instrument
with a remaining maturity greater than 397 days unless such instrument is
subject to a demand feature, or (b) maintain a dollar-weighted-average
portfolio maturity which exceeds 90 days.
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 Fund's 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 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.
Securities Purchased on a When-Issued Basis:
Each Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal settlement
date at a stated price and/or yield, thereby, involving the risk that the
price and/or yield obtained may be more or less than those available in the
market when delivery takes place. At the time the Fund makes the commitment
to purchase a security on a when-issued basis, the Fund records the
transaction and reflects the value of the security in determining net asset
value. Normally, the settlement date occurs within one month of the purchase.
A segregated account is established and the Funds maintain cash and
marketable securities at least equal in value to commitments for when-issued
securities. Securities purchased on a when-issued basis do not earn income
until settlement date.
Securities Lending:
The Institutional Money Market Fund may, from time to time, lend securities
from their portfolio to broker-dealers, banks, financial institutions and
institutional borrowers of securities approved by the Board. The Fund will
limit its securities lending to 331/3% of total assets. Key Trust Company of
Ohio, N.A. ("Key Trust"), an affiliate of the Adviser, serves as the lending
agent for the Fund pursuant to a Securities Lending Agency Agreement (the
"Lending Agreement"). Under guidelines established by the Board of Trustees,
Key Trust must maintain the loan collateral at all times in an amount equal
to at least 102% of the current market value of the loaned securities in the
form of cash or U.S. Government obligations, to secure the return of the
loaned securities. Key Trust, at the direction of the Adviser, may invest the
collateral in short-term debt instruments that the Adviser has determined
present minimal credit risks. There is a risk of delay in receiving
collateral or in receiving the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. By
lending its securities, a Fund can increase its income by continuing to
receive interest or dividends on the loaned securities as well as investing
the cash collateral in short-term U.S. Government securities, repurchase
agreements, or other short-term securities. The cash or subsequent short-term
investments are recorded as assets of the Fund, offset by a corresponding
liability to repay the cash at the termination of the loan. In addition, the
short-term securities purchased with the cash collateral are included in the
accompanying Schedules of Investments. Fixed income securities received as
collateral are not recorded as an asset or liability of the Fund because the
Fund does not have effective control of such securities. Loans are subject to
termination by the Fund or the borrower at any time. During the period ended
April 30, 1998, the Institutional Money Market Fund did not loan any
securities.
Dividends to Shareholders:
Dividends from net investment income are declared daily and paid monthly by
the Funds. 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, 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 each Fund are prorated on the basis
of relative net assets or other appropriate basis. Fees paid under each
Fund's shareholder servicing or distribution plans are borne by the specific
class of shares to which they apply.
4. Related Party Transactions:
Investment advisory services are provided to the Funds by Key Asset
Management Inc. ("the Adviser"), a wholly owned subsidiary of KeyBank
National Association ("Key"), formerly Society National Bank, a wholly owned
subsidiary of KeyCorp. On February 28, 1997, Key Asset Management Inc. became
the surviving corporation after the reorganization of four indirect
investment adviser subsidiaries of KeyCorp, including KeyCorp Mutual Fund
Advisers. 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, 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
Shareholder Servicing Agent for the Institutional Money Market Fund (Select
Shares) and the Federal Money Market Fund (Select Shares). 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 Fund serviced. 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 Fund for serving as officers of the Funds.
Under the terms of the administration agreement, effective October 1, 1997,
the Administrator's fee is computed at the annual rate of 0.15% of each
Fund's average daily net assets of $300 million and less, 0.12% of each
Fund's average daily net assets between $300 million and $600 million and
0.10% of each Fund's average daily net assets greater than $600 million.
Under a Sub-Administration agreement, BISYS pays Key Asset Management Inc. a
fee of up to 0.05% of each Fund's average daily net assets to perform some of
the administrative duties for the Funds.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios.
Additional information regarding related party transactions is as follows for
the period ended April 30, 1998:
<TABLE>
<CAPTION>
Investment Advisory Fees Administration Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
(000) (000)
<S> <C> <C> <C>
Federal Money Market Fund 0.25% $350 $ 45
Institutional Money Market Fund 0.25% 637 340
</TABLE>
5. Capital Share Transactions:
<TABLE>
Transactions in capital shares were as follows (amounts in thousands):
<CAPTION>
Federal Money Market Fund Institutional Money Market Fund
Five Months Six Months Year
Ended Ended Ended
April 30, April 30, October 31,
1998<F1> 1998 1997
<S> <C> <C> <C>
Capital Share Transactions:
Investor Shares:
Issued $ 668,000 $ 1,183,912 $ 1,422,308
Reinvested 7,011 4,108 1,983
Redeemed (539,696) (953,771) (1,510,212)
Total $ 135,315 $ 234,249 $ (85,921)
Select Shares:
Issued $ 241,704 $ 1,396,341 $ 2,798,784
Reinvested 245 12,349 19,626
Redeemed (148,039) (1,379,731) (2,702,867)
Total $ 93,910 $ 28,959 $ 115,543
<FN>
<F1> Effective March 23, 1998, the Key Money Market Fund became the Victory
Federal Money Market Fund, and the Fund designated the existing shares as
Investor Shares and commenced offering Select Shares.
</FN>
</TABLE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
<CAPTION>
Federal Money Market Fund
Investor Select
Shares Shares
Five months Period
Ended April 30, Ended April 30, Fiscal Year Ended November 30,
1998<F2> 1998<F2> 1997 1996 1995 1994 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.022 0.005 0.048 0.047 0.051 0.034 0.026
Distributions
Net investment income (0.022) (0.005) (0.048) (0.047) (0.051) (0.034) (0.026)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 2.20%<F3> 0.55%<F3> 4.94% 4.65% 5.26% 3.37% 2.61%
Ratios/Supplementary Data:
Net Assets at end
of period (000) $378,810 $93,910 $243,499 $42,159 $21,848 $28,606 $16,222
Ratio of expenses to
average net assets 0.27%<F4> 0.36%<F4> 0.53% 0.64% 0.63% 0.59% 0.55%
Ratio of net investment
income to average
net assets 5.26%<F4> 5.17%<F4> 4.91% 4.59% 5.15% 3.35% 3.16%
Ratio of expenses to
average net assets<F1> 0.69%<F4> 0.57%<F4> 0.90% 0.92% 0.91% 0.87% 0.83%
Ratio of net investment
income to average
net assets<F1> 4.84%<F4> 4.96%<F4> 4.54% 4.31% 4.87% 3.07% 2.88%
<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> Effective March 23, 1998, the Key Money Market Fund became the Victory
Federal Money Market Fund, and the Fund designated the existing shares as
Investor Shares and commenced offering Select Shares. Financial highlights
prior to March 23, 1998 represent the Key Money Market Fund. Financial
highlights for the Select Shares are for the period from March 23, 1998
through April 30, 1998.
<F3> Not annualized.
<F4> Annualized.
</FN>
</TABLE>
See notes to financial statements.
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
Institutional Money Market Fund
Investor Shares Select Shares
Six Months Year Year Six Months Six Months Year Year June 5, 1995
Ended Ended Ended Ended Ended Ended Ended to
April October October October April October October October
30, 31, 31, 31, 30, 31, 31, 31,
Year Ended April 30,
1998 1997 1996<F6> 1995<F5> 1998 1997 1996<F6> 1995<F2><F5>
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.027 0.053 0.053 0.290 0.026 0.051 0.050 0.012
Distributions
Net investment income (0.027) (0.053) (0.053) (0.290) (0.026) (0.051) (0.050) (0.012)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 2.73%<F3> 5.46% 5.41% 2.90%<F3> 2.59%<F3> 5.17% 5.16% 1.23%<F3>
Ratios/Supplemental Data:
Net Assets,
End of Period (000) $819,904 $585,663 $671,575 $504,536 $517,595 $488,639 $373,090 $11,479
Ratio of expenses to
average net assets 0.26%<F4> 0.28% 0.27% 0.26%<F4> 0.54%<F4> 0.55% 0.52% 0.51%<F4>
Ratio of net investment
income to average net
assets 5.44%<F4> 5.32% 5.27% 5.69%<F4> 5.17%<F4> 5.06% 4.97% 5.33%<F4>
Ratio of expenses to
average net assets<F1> 0.43%<F4> 0.48% 0.48% 0.49%<F4> 0.71%<F4> 0.75% 0.73% 1.00%<F4>
Ratio of net investment
income to average net
assets<F1> 5.27%<F4> 5.12% 5.06% 5.46%<F4> 5.00%<F4> 4.86% 4.77% 4.84%<F4>
<FN>
<F1> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
<F2> Period from commencement of operations.
<F3> Not annualized.
<F4> Annualized.
<F5> Effective June 5, 1995, the Victory Institutional Money Market Portfolio
became the Institutional Money Market Fund, and the Fund designated the
existing shares as Institutional Shares and commenced offering Service
Shares.
<F6> Effective March 1, 1996, the Fund redesignated Institutional
Shares as Investor Shares and Service Shares as Select Shares.
</FN>
</TABLE>
See notes to financial statements.
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
Institutional Money Market Fund
Year Ended April 30,
1995 1994 1993
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.500 0.028 0.032
Distributions
Net investment income (0.500) (0.028) (0.032)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000
Total Return 4.91% 2.80% 3.26%
Ratios/Supplemental Data:
Net Assets,
End of Period (000) $449,814 $541,229 $155,097
Ratio of expenses to
average net assets 0.27% 0.55% 0.43%
Ratio of net investment income
to average net assets 4.91% 2.78% 3.19%
Ratio of expenses to
average net assets<F1> 0.51% 0.55% 0.48%
Ratio of net investment income
to average net assets<F1> 4.67% 2.78% 3.14%
<FN>
<F1> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
<F2> Period from commencement of operations.
<F3> Not annualized.
<F4> Annualized.
<F5> Effective June 5, 1995, the Victory Institutional Money Market Portfolio
became the Institutional Money Market Fund, and the Fund designated the
existing shares as Institutional Shares and commenced offering Service
Shares.
<F6> Effective March 1, 1996, the Fund redesignated Institutional
Shares as Investor Shares and Service Shares as Select Shares.
</FN>
</TABLE>
See notes to financial statements.
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