THE INSTITUTIONAL MONEY MARKET FUND
THE FEDERAL MONEY MARKET FUND
ANNUAL
REPORT
OCTOBER 31,
1998
(LOGO)(R)
Victory Funds
<PAGE>
TABLE OF CONTENTS
Letter to our Shareholders 2
Financial Statements
Schedules of Investments 3
Statements of Assets and Liabilities 7
Statements of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 12
Report of Independent Accountants 16
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.
Year 2000 Risk. Like other mutual funds, each of the Funds could be
adversely affected if the computer systems used by their third party service
providers do not properly process and calculate date-related information.
The Funds' service providers have been actively updating their systems to
be able to process year 2000 data. However, there can be no assurance that
these steps will be adequate to avoid a temporary service disruption or any
adverse impact on the Funds.
(LOGO)(R)
Victory Funds(R)
1-800-539-FUND(R)
(1-800-539-3863)
<PAGE>
Letter
to our
Shareholders
Welcome to the October 31, 1998 Annual Report of the Victory Institutional
Money Market and Federal Money Market Funds. The first half of fiscal year
1998 was relatively calm, with monetary policy continuing to lean towards a
tighter money supply. The second half of the year was witness to a total
shift in Federal Reserve Board policy.
The first and second quarters of the year continued to be dominated by
concerns of an overheating economy led by a robust housing sector and
continued strength in overall employment statistics. The Fed made known its
intentions to control inflationary pressures by declaring it had changed its
stance from neutral to a tighter policy bias. All thinking changed when it
became clear that international economic developments would have a negative
impact on the US economy. Growing concern over the effects of the Russian and
Asian economies and a possible global recession sparked a large sell-off in
stock markets around the globe. The mounting economic evidence compelled the
Federal Reserve Board to change course and actually lower interest rates in
an effort to provide the stability that was lacking in international stock
and bond markets. The policy board voted to lower interest rates twice
between September 29th and October 15th. By the end of October, stock markets
had rallied considerably from their summertime lows and tensions eased in
financial markets around the world.
Going forward, further short term interest rate declines are widely
anticipated, demonstrating the commitment the Fed has towards maintaining
economic stability and sustainable growth. In this environment, we will
continue to manage the Funds' with the philosophy of preservation of
capital, high level of liquidity to the shareholder and striving for a
competitive market yield.
As always, we welcome your comments on this Annual Report.
Yours Sincerely,
/s/ Leigh A. Wilson
Leigh A. Wilson
President
Victory Funds
<TABLE>
As of October 31, 1998
<CAPTION>
INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
INVESTOR SELECT INVESTOR SELECT
CLASS CLASS CLASS CLASS
<S> <C> <C> <C> <C>
Seven-Day Yield 5.14% 4.83% 4.89% 4.65%
Seven-Day Effective Yield 5.27% 4.94% 5.01% 4.76%
One Year Total Return 5.53% 5.22% 5.33% N/A
</TABLE>
<TABLE>
Maturity Schedule
As of 10/31/98
<CAPTION>
Days to Maturity INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
<S> <C> <C>
Less than 30 Days 63.5% 68.6%
31 to 60 Days 17.8% 17.8%
61 to 90 Days 8.7% 0.0%
Greater than 90 Days 10.0% 13.6%
</TABLE>
An investment in the Fund is not insured or guaranteed by the FDIC or any
other Government Agency. Although the Fund seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing
in the Fund.
<PAGE>
THE VICTORY PORTFOLIOS Schedule of Investments
Institutional Money Market Fund October 31, 1998
(Amounts in thousands)
Principal Amortized
Security Description Amount Cost
Bankers Acceptances (2.5%)
Bank of Hawaii, 5.57%, 11/12/98 $10,177 $ 10,160
Toronto Dominion Bank Ltd., 5.24%, 12/2/98 25,000 24,887
Toronto Dominion Bank Ltd., 5.21%, 2/23/99 6,250 6,147
Total Bankers Acceptances
(Amortized Cost $41,194) 41,194
Certificates of Deposit (6.5%)
Bankers Trust New York, 5.70%, 3/5/99 10,000 9,997
Bankers Trust New York, 5.84%, 4/30/99 10,000 10,003
Canadian Imperial Bank
of Commerce, 5.74%, 4/1/99 10,000 9,998
Deutschbank, 5.70%, 3/30/99 10,000 9,997
Harris Bank and Trust, 5.54%, 11/2/98 15,000 15,000
Royal Bank of Canada, 5.70%, 6/23/99 7,000 6,998
Societe Generale, 5.33%*, 11/2/98 25,000 24,991
Societe Generale, 5.25%*, 11/2/98 5,000 4,998
Societe Generale, 5.32%*, 11/2/98 10,000 9,995
Swiss Bank, 5.82%, 5/4/99 5,000 5,001
Total Certificates of Deposit
(Amortized Cost $106,978) 106,978
Commercial Paper (54.6%)
Asset Securitization Capital Corp.,
5.18%, 1/28/99 10,000 9,873
Asset Securitization Capital Corp.,
5.10%, 2/12/99 20,000 19,708
AVCO Financial Services,
5.50%, 11/17/98 12,000 11,971
AVCO Financial Services,
5.44%, 11/20/98 15,000 14,957
AVCO Financial Services,
5.10%, 11/23/98 10,000 9,969
Delaware Funding Corp., 5.48%, 11/3/98 7,069 7,067
Delaware Funding Corp., 5.35%, 11/12/98 30,000 29,951
Delaware Funding Corp., 5.19%, 11/13/98 17,070 17,040
Delaware Funding Corp., 5.50%, 11/20/98 12,000 11,967
Delaware Funding Corp., 5.17%, 1/20/99 10,000 9,885
Diageo Capital PLC, 5.48%, 12/1/98 7,000 6,968
Diageo Capital PLC, 5.00%, 12/22/98 25,000 24,823
Fleet Funding, 5.32%, 11/19/98 10,256 10,229
Fleet Funding Corp., 5.51%, 11/2/98 55,000 54,992
Fleet Funding Corp., 5.22%, 11/13/98 15,000 14,974
Fuji Photo Film Co., Ltd,
5.25%, 12/14/98 18,000 17,887
General Electric Capital Corp.,
5.75%, 11/2/98 60,000 59,991
General Motors Acceptance Corp.,
5.49%, 1/14/9 10,000 9,887
General Motors Acceptance Corp.,
5.95%, 2/12/99 10,900 10,905
Great Lakes Chemical Corp.,
5.51%, 11/16/98 15,000 14,963
Iowa Student Loan Liquidity Corp.,
5.35%, 11/24/98 32,072 31,962
Louis Dreyfus Corp., 5.33%, 11/12/98 15,761 15,735
Louis Dreyfus Corp., 5.17%, 11/12/98 11,500 11,482
Matson Navigation, 5.22%, 11/19/98 10,000 9,974
McCormick & Co., 5.42%, 11/10/98 10,000 9,986
McGraw Hill, 5.52%, 12/3/98 10,000 9,951
Mont Blanc Capital Corp., 5.52%, 11/5/98 15,000 14,991
Mont Blanc Capital Corp., 5.47%, 11/20/98 25,000 24,928
Mont Blanc Capital Corp., 5.39%, 12/21/98 35,000 34,738
Monte Rosa Capital Corp., 5.50%, 11/16/98 25,000 24,943
Monte Rosa Capital Corp., 5.22%, 1/21/99 15,000 14,824
Nalco Chemical, Corp., 5.42%, 12/1/98 16,000 15,928
Nalco Chemical Corp., 5.49%, 11/23/98 9,000 8,970
Rabobank Finance Corp., 5.73%, 11/2/98 25,000 24,996
Redwood Receivables Corp., 5.22%, 11/19/98 11,553 11,523
Redwood Receivables Corp., 5.12%, 11/20/98 24,140 24,075
Redwood Receivables Corp., 5.18%, 12/10/98 15,000 14,916
Salomon Smith Barney, 5.52%, 11/2/98 20,000 19,997
Salomon Smith Barney, 5.51%, 11/16/98 10,000 9,977
Salomon Smith Barney, 5.09%, 12/11/98 30,000 29,830
SBC Communications, Inc., 5.45%, 11/3/98 10,000 9,997
Sony Capital Corp., 5.20%, 11/17/98 11,059 11,033
Sony Capital Corp., 5.48%, 11/19/98 21,800 21,740
Sony Capital Corp., 5.22%, 12/10/98 20,000 19,887
Sony Capital Corp., 5.22%, 1/12/99 14,000 13,854
Southwest Student Services, 5.25%, 11/16/98 5,850 5,837
Texas Agricultural Finance Authority,
5.25%, 1/11/99 9,000 8,907
Toronto Dominion, 5.17%, 11/30/98 10,000 9,959
Transamerica Financial Corp., 5.48%, 12/23/98 20,000 19,842
Transamerica Financial Corp., 5.07%, 1/21/99 16,100 15,916
Weyerhauser Real Estate, 5.25%, 11/3/98 11,500 11,497
Xerox Corp., 5.19%, 12/10/98 15,000 14,916
Total Commercial Paper
(Amortized Cost $895,118) 895,118
Corporate Bonds (22.0%)
Associates Corp., N.A., 6.00%, 3/15/99 4,250 4,254
Associates Corp., N.A., 6.75%, 6/28/99 5,000 5,026
Associates Corp., N.A., 6.63%, 7/15/99 7,250 7,294
Automated Packaging System, 5.20%*, 11/5/98**,
LOC National City Bank 1,840 1,840
Beta Finance, 4.73%*, 11/3/98 10,000 10,000
Buckeye Corrugated, Inc., 5.20%*, 11/5/98**,
LOC National City Bank 1,100 1,100
Burton I Saltzman, 5.20%*, 11/5/98**,
LOC National City Bank 2,580 2,580
CIT Group Holdings, 5.88%, 11/9/98, MTN 5,000 5,000
Danis Construction Co., 5.20%*, 11/5/98**,
LOC Fifth Third Bank 6,000 6,000
Ford Motor Credit Corp., 5.63%, 12/15/98 4,000 3,999
Ford Motor Credit Corp., 7.90%, 5/17/99, MTN 5,000 5,057
General American Life Insurance,
5.93%*, 12/31/98 60,000 59,999
General Motors Acceptance Corp.,
6.50%, 4/16/99, MTN 5,000 5,018
General Motors Acceptance Corp.,
5.64%*, 11/19/98, MTN 15,000 14,994
IBM Credit Corp., 5.69%, 3/9/99, MTN 5,000 5,000
John Deere Capital Corp., 6.00%, 2/1/99, MTN 5,000 5,003
Lehman Brothers Holding, Inc.,
5.47%*,11/12/98, MT 12,000 12,000
Lehman Brothers Holding, Inc.,
5.22%*, 11/23/98, MTN 45,000 45,000
Lexington Financial Services,
5.30%*, 11/4/98**,
LOC LaSalle National Bank 5,780 5,780
Maximum Principal Mubea Project,
5.20%*, 11/5/98**,
LOC Fifth Third Bank 1,650 1,650
Merril Lynch, 6.38%, 3/30/99, MTN 6,585 6,602
Miami Valley Steel, 5.20%*, 11/5/98**,
LOC National City Bank 2,050 2,050
Miami Valley Steel, 5.20%*, 11/5/98**,
LOC National City Bank 2,950 2,950
Monticello Investments, 5.20%*, 11/5/98**,
LOC National City Bank 2,210 2,210
Morgan Guaranty Trust Co., 5.17%*, 11/27/98 30,000 29,989
Morgan Stanley Dean Witter,
5.30%*, 1/15/99, MTN 10,000 10,000
Morgan Stanley Dean Witter, 5.63%, 3/1/99 4,000 3,998
Morgan Stanley Dean Witter,
5.60%*, 12/15/98**, MTN 13,000 13,000
Pomeroy Investments, 5.24%*, 11/5/98**,
LOC Fifth Third Bank 3,450 3,450
Presrite Corp., 5.20%*, 11/5/98 4,750 4,750
Professional Center Associates Ltd.,
5.20%*, 11/5/98**, LOC National City Bank 1,425 1,425
Salomon Smith Barney, 6.25%, 10/1/99 10,000 10,089
Sea River Maritime, Inc., 5.37%*, 11/2/98**,
Guaranteed by Exxon Corp. 13,200 13,200
Sedlak Interiors, Inc., 5.27%*, 11/5/98**,
LOC Fifth Third Bank 280 280
Southwestern Ohio Steel, 5.24%*, 11/5/98**,
LOC Star Bank 5,000 5,000
Transamerica Finance Corp.,
5.60%, 11/30/98, MTN 5,000 4,998
Transamerica Finance Corp.,
5.45%*, 1/22/99**, MTN 40,000 40,000
Total Corporate Bonds
(Amortized Cost $360,585) 360,585
Municipal Bonds (0.4%)
Virginia (0.4%):
Industrial Development
Authority of Bedford,
5.62%, 11/16/98,
LOC Society Generale 7,000 7,000
Total Municipal Bonds
(Amortized Cost $7,000) 7,000
<PAGE>
U.S. Government Agencies (12.3%)
Federal Home Loan Bank (0.6%)
4.38%*, 11/4/98 10,000 9,999
Federal Maritime Commission (4.1%)
5.41%. 11/5/98 67,845 67,804
Federal National Mortgage Assoc. (5.3%)
5.40%, 12/30/98, Callable 11/2/98 @ 100 10,000 9,993
5.60%, 4/22/99, MTN 18,000 18,046
4.35%*, 11/3/98 25,000 25,000
4.30%*, 11/3/98** 33,000 33,000
86,039
Student Loan Marketing Assoc. (2.3%)
4.38%*, 11/3/98** 6,000 6,000
4.39%*, 11/3/98** 32,500 32,500
38,500
Total U.S. Government Agencies
(Amortized Cost $202,342) 202,342
Repurchase Agreements (1.8%)
Paine Weber, 5.40%, 11/2/98,
(Collateralized by $30,315
various U.S. Government
securities, 0.00%-4.47%,
12/17/98-4/15/03, market
value $29,571) 28,988 28,988
Total Repurchase Agreements
(Cost $28,988) 28,988
Total Investments
(Amortized Cost $1,642,205) (a) -- 100.1% 1,642,205
Liabilities in excess of other assets -- (0.1)% (1,651)
TOTAL NET ASSETS -- 100.0% $1,640,554
(a) Cost and value for federal income tax and financial reporting purposes
are the same.
* 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 Investments is the rate in
effect at October 31, 1998. The date reflects the next rate change date.
** Put and demand features exist allowing the Fund to require the repurchase
of the investment within variable time periods less than one year.
LOC -- Letter of Credit
MTN -- Medium Term Note
See notes to financial statements.
<PAGE>
THE VICTORY PORTFOLIOS Schedule of Investments
Federal Money Market Fund October 31,1998
(Amounts in thousands)
Principal Amortized
Security Description Amount Cost
U.S. Government Agencies (54.9%)
Federal Farm Credit Bank (25.1%):
5.50%, 11/2/98 $100,000 $100,000
5.11%, 11/10/98 30,000 29,962
5.48%, 12/1/98 100,000 100,000
229,962
Federal Home Loan Bank (14.6%):
5.83%, 12/17/98 3,000 3,001
5.72%, 12/22/98 5,000 5,001
5.76%, 12/23/98 3,000 3,001
5.27%, 12/30/98 250 250
5.60%, 3/10/99 25,000 25,024
4.57%*, 11/4/98 6,500 6,484
5.63%, 8/27/99, Callable 11/27/98 @ 100 11,000 11,000
5.15%, 9/30/99, Callable 12/30/98 @ 100 25,000 25,000
5.13%, 10/13/99, Callable 1/13/99 @ 100 25,000 25,000
5.00%, 10/28/99, Callable 1/28/99 @ 100 15,000 15,000
5.03%, 10/29/99, Callable 1/29/99 @ 100 5,000 5,000
5.12%, 11/5/99, Callable 2/5/99 @ 100 10,000 10,000
133,761
Federal Home Loan Mortgage Corp.(8.7%):
5.12%, 11/9/98 10,000 9,989
5.05%, 12/28/98 50,000 49,600
5.60%, 4/21/99 20,000 20,057
79,646
Federal National Mortgage Assoc. (2.7%):
4.54%*, 11/3/98 25,000 24,980
Student Loan Marketing Assoc. (3.8%):
5.74%, 12/17/98 5,000 5,001
4.49%*, 11/3/98 30,000 29,889
34,890
Total U.S. Government Agencies
(Amortized Cost $503,239) 503,239
Repurchase Agreements (46.2%)
Donaldson-Lufkin Jenrette
Securities Corp., 5.45%,
11/2/98 (Collateralized
by $209,032 various U.S. Government
Securities, 0.00%-8.70%,
11/12/98-3/10/16, market
value -- $212,212) 208,050 208,050
Lehman Brothers, Inc., 5.47%,
11/2/98 (Collateralized by
$357,460 various U.S.
Goverment securities,
0.00%-6.25%, 12/8/98-1/15/38,
market value --$219,303) 215,000 215,000
Total Repurchase Agreements
(Cost $423,050) 423,050
Total Investments
(Amortized Cost $926,289) (a) -- 101.1% 926,289
Liabilities in excess of other assets (1.1)% (10,176)
TOTAL NET ASSETS -- 100.0% $916,113
(a) Cost and value for federal income tax and financial reporting purposes
are the same.
* Variable rate securities having liquidity agreements. The interest rate,
which will change periodically, is based upon an index of market interest
rates. The rate reflected on the Schedule of Investments is the rate in
effect at October 31, 1998. The date reflects the next rate change date.
See notes to financial statements.
<PAGE>
<TABLE>
Statement of Assets and Liabilities
THE VICTORY PORTFOLIOS October 31,1998
(Amounts in Thousands, Except Per Share Amounts)
<CAPTION>
Institutional Federal
Money Market Money Market
Fund Fund
<S> <C> <C>
ASSETS:
Investments, at amortized cost $1,613,217 $503,239
Repurchase agreements, at cost 28,988 423,050
Total 1,642,205 926,289
Interest receivable 5,745 3,654
Prepaid expenses and other assets 29 25
Total Assets 1,647,979 929,968
LIABILITIES:
Payable to Custodian -- 2
Dividends payable 6,929 3,650
Payable to brokers for investments purchased -- 10,000
Accrued expenses and other payables:
Investment advisory fees 232 115
Administration fees 10 6
Shareholder service fees -- Select Shares 114 22
Custodian fees 34 20
Accounting fees 1 --
Transfer agent fees 13 15
Other 92 25
Total Liabilities 7,425 13,855
NET ASSETS:
Capital 1,640,394 916,099
Undistributed net investment income 141 1
Accumulated undistributed net realized gains
from investment transactions 19 13
Net Assets $1,640,554 $916,113
Net Assets
Investor Shares $1,068,521 $717,972
Select Shares 572,033 198,141
Total $1,640,554 $916,113
Outstanding units of beneficial interest (shares)
Investor Shares 1,068,501 717,959
Select Shares 572,028 198,138
Total 1,640,529 916,097
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.
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Statements of Operations
(Amounts in Thousands)
<CAPTION>
Institutional Federal
Money Market Fund Money Market Fund<F1>
Year Ended Eleven Months Year Ended
October 31, Ended October 31, November 30,
1998 1998 1997
<S> <C> <C> <C>
Investment Income:
Interest income $75,254 $29,041 $6,039
Total Income 75,254 29,041 6,039
Expenses:
Investment advisory fees 3,330 1,322 277
Administration fees 1,542 430 213
Shareholder service fees -- -- 176
Shareholder service fees -- Select Shares 1,278 404 --
Custodian fees 271 114 27
Accounting fees 108 65 14
Legal and audit fees 171 73 110
Trustees' fees and expenses 38 22 12
Transfer agent fees 159 42 28
Registration and filing fees 33 77 24
Printing fees 98 9 15
Other 34 32 54
Total Expenses 7,062 2,590 950
Expenses voluntarily reduced (2,022) (733) (277)
Expenses before reimbursement from distributor 5,040 1,857 673
Expenses reimbursed by distributor -- (277) (89)
Net Expenses 5,040 1,580 584
Net Investment Income 70,214 27,461 5,455
Realized Gains from Investments:
Net realized gains (losses) from
investment transactions 19 16 --
Change in net assets resulting from operations $70,233 $27,477 $5,455
<FN>
<F1> Effective March 23, 1998, the Key Money Market Fund became the Victory
Federal Money Market Fund. Activity prior to March 23, 1998 represents that
of the Key Money Market Fund.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Statements of Changes in Net Assets
(Amounts in Thousands)
Institutional Money Market Fund Federal Money Market Fund<F1>
<CAPTION>
Year Year Eleven Months Year Year
Ended Ended Ended Ended Ended
October 31, October 31, October 31, November 30, November 30,
1998 1997 1998 1997 1996
<S> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 70,214 $ 52,041 $ 27,461 $ 5,455 $ 1,189
Net realized gains (losses) from
investment transactions 19 15 16 -- --
Change in net assets resulting
from operations 70,233 52,056 27,477 5,455 1,189
Distributions to Shareholders:
From net investment income
Investor Shares (44,160) (31,873) (22,345) (5,455) (1,189)
Select Shares (26,052) (20,168) (5,116) -- --
From net realized gains from
investment transactions (15) -- (3) -- --
Change in net assets from
distributions to shareholders (70,227) (52,041) (27,464) (5,455) (1,189)
Capital Transactions
Proceeds from shares issued 5,290,832 4,221,092 2,715,391 471,869 85,243
Dividends reinvested 37,208 21,609 23,954 3,317 1,067
Cost of shares redeemed (4,761,794) (4,213,079) (2,066,744) (273,846) (65,999)
Change in net assets from
capital transactions 566,246 29,622 672,601 201,340 20,311
Change in net assets 566,252 29,637 672,614 201,340 20,311
Net Assets:
Beginning of period 1,074,302 1,044,665 243,499 42,159 21,848
End of period $ 1,640,554 $ 1,074,302 $ 916,113 $ 243,499 $ 42,159
Share Transactions:
Issued 5,290,832 4,221,092 2,715,391 471,869 85,243
Reinvested 37,208 21,609 23,954 3,317 1,067
Redeemed (4,761,794) (4,213,079) (2,066,744) (273,846) (65,999)
Change in shares 566,246 29,622 672,601 201,340 20,311
<FN>
<F1> Effective March 23, 1998, the Key Money Market Fund became the Victory Federal Money Market Fund.
Activity prior to March 23, 1998 represents that of the Key Money Market Fund.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
<CAPTION>
Institutional Money Market Fund
Investor Shares
Year Year Year Six Months
Ended Ended Ended Ended
October October October October
31, 31, 31, 31,
1998 1997 1996<F6> 1995<F5>
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.054 0.053 0.053 0.290
Distributions
Net investment income (0.054) (0.053) (0.053) (0.290)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 5.53% 5.46% 5.41% 2.90%<F3>
Ratios/Supplemental
Data:
Net Assets,
End of Period (000) $1,068,521 $585,663 $671,575 $504,536
Ratio of expenses to
average net assets 0.27% 0.28% 0.27% 0.26%<F4>
Ratio of net
investment income
to average net assets 5.38% 5.32% 5.27% 5.69%<F4>
Ratio of expenses to
average net assets<F1> 0.42% 0.48% 0.48% 0.49%<F4>
Ratio of net investment
income to average
net assets<F1> 5.23% 5.12% 5.06% 5.46%<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.
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
<CAPTION>
Institutional Money Market Fund
Select Shares
Year Year Year June 5, 1995
Ended Ended Ended to
October October October October Year Ended April 30,
31, 31, 31, 31,
1998 1997 1996<F6> 1995<F2><F5> 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.051 0.051 0.050 0.012 0.500 0.028
Distributions
Net investment income (0.051) (0.051) (0.050) (0.012) (0.500) (0.028)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 5.22% 5.17% 5.16% 1.23%<F3> 4.91% 2.80%
Ratios/Supplemental
Data:
Net Assets,
End of Period (000) $572,033 $488,639 $373,090 $11,479 $449,814 $541,229
Ratio of expenses to
average net assets 0.56% 0.55% 0.52% 0.51%<F4> 0.27% 0.55%
Ratio of net
investment income
to average net assets 5.09% 5.06% 4.97% 5.33%<F4> 4.91% 2.78%
Ratio of expenses to
average net assets<F1> 0.71% 0.75% 0.73% 1.00%<F4> 0.51% 0.55%
Ratio of net investment
income to average
net assets<F1> 4.94% 4.86% 4.77% 4.84%<F4> 4.67% 2.78%
<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.
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
Federal Money Market Fund
<CAPTION>
Investor Select
Shares Shares
Eleven months Period
Ended October 31, Ended October 31, Fiscal Year Ended November 30,
1998<F2> 1998<F2> 1997 1996 1995 1994 1993
<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 0.048 0.031 0.048 0.047 0.051 0.034 0.026
Distributions
Net investment income (0.048) (0.031) (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 4.91%<F3> 3.14%<F3> 4.94% 4.65% 5.26% 3.37% 2.61%
Ratios/Supplementary Data:
Net Assets at end
of period (000) $717,972 $198,141 $243,499 $42,159 $21,848 $28,606 $16,222
Ratio of expenses to
average net assets 0.27%<F4> 0.43%<F4> 0.53% 0.64% 0.63% 0.59% 0.55%
Ratio of net investment
income to average
net assets 5.22%<F4> 5.06%<F4> 4.91% 4.59% 5.15% 3.35% 3.16%
Ratio of expenses to
average net assets<F1> 0.48%<F4> 0.54%<F4> 0.90% 0.92% 0.91% 0.87% 0.83%
Ratio of net investment
income to average
net assets<F1> 5.01%<F4> 4.95%<F4> 4.54% 4.31% 4.90% 3.10% 2.91%
<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 of
Key Money Market Fund as Investor Shares and commenced offering Select
Shares. Financial highlights prior to March 23, 1998 represent the Key Money
Market Fund.
<F3> Not annualized.
<F4> Annualized.
</FN>
</TABLE>
See notes to financial statements.
<PAGE>
Notes to Financial Statements
THE VICTORY PORTFOLIOS October 31,1998
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. 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 issue 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>
Before Reorganization After Reorganization
<CAPTION>
Key Victory Victory
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.
<PAGE>
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 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 the Funds under the 1940 Act.
Securities Purchased on a When-Issued Basis:
The Funds 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 Funds make the commitment
to purchase a security on a when-issued basis, the Funds record 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 Funds 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 100% 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 Funds, 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 Funds because the
Funds do not have effective control of such securities. Loans are subject to
termination by the Funds or the borrower at any time. During the period ended
October 31, 1998, the Funds 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 the Funds 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.
<PAGE>
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 on the basis
of relative net assets or other appropriate basis. Fees paid under the Funds'
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, Spears, Benzak, Salomon & Farrell, Inc. ("SBSF"), Society Asset
Management, Inc. and Applied Technology Investment, Inc. Pursuant to terms of
the reorganization, the subsidiaries above were merged into SBSF and SBSF
then changed its name to Key Asset Management, Inc. 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 Funds 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 the fund's
average daily net assets of $300 million and less, 0.12% of the fund's
average daily net assets between $300 million and $600 million and 0.10% of
the 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 the Fund's average daily net assets to perform some of the
administrative duties for the Funds. Prior to October 1, 1997, the
Administrator's fee was computed at the annual rate of 0.15% of the Fund's
average daily net assets.
During the year ended October 31, 1998, the Trust retained an affiliate of
BISYS and, for Federal Money Market during the year ended October 31, 1997,
an affiliate of the Adviser, to serve as Mutual Fund Accountant. The Trust
pays a fee for these services based on a percentage of average daily net
assets under the terms of its Fund Accounting Agreement.
Fees may be voluntarily reduced or reimbursed to assist the Funds in
maintaining competitive expense ratios.
<PAGE>
Additional information regarding related party transactions is as follows for
the period ended October 31, 1998:
<TABLE>
<CAPTION>
Investment Advisory Fees Administration Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
<S> <C> <C> <C>
Institutional Money Market Fund 0.25% $1,279 $743
Federal Money Market Fund 0.25% 733 --
</TABLE>
Additional information regarding related party transactions is as follows for
the period ended November 30, 1997:
<TABLE>
<CAPTION>
Investment Advisory Fees Administration Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
<S> <C> <C> <C>
Federal Money Market Fund 0.25% $277 --
</TABLE>
5. Capital Share Transactions:
Transactions in capital shares were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Institutional Federal
Money Market Fund Money Market Fund
Year Year Eleven Months
Ended Ended Ended
October 31, October 31, October 31,
1998 1997 1998<F1>
<S> <C> <C> <C>
Capital Share Transactions:
Investor Shares:
Issued 2,546,563 1,422,308 2,003,171
Reinvested 11,444 1,983 19,609
Redeemed (2,075,151) (1,510,212) (1,548,317)
Total 482,856 (85,921) 474,463
Select Shares:
Issued 2,744,269 2,798,784 712,220
Reinvested 25,764 19,626 4,345
Redeemed (2,686,643) (2,702,867) (518,427)
Total 83,390 115,543 198,138
<FN>
<F1> Effective March 23, 1998, the Key Money Market Fund became the Victory
Money Market Fund, and the Fund designated the existing shares as Investor
Shares and commenced offering Select Shares.
</FN>
</TABLE>
<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 changes in net assets, and the financial highlights present
fairly, in all material respects, the financial position of the Victory
Institutional Money Market Fund and the Victory Federal Money Market Fund at
October 31, 1998, the results of operations, the changes in net assets, and
the financial highlights for each of the periods presented in conformity with
generally accepted accounting principles. The 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 generally
accepted auditing standards which require that we plan and perform the audit
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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The Victory Institutional Money Market Fund's financial highlights for
each of the three years in the period ended April 30, 1995 were audited by
other auditors, whose report dated June 20, 1995 expressed an unqualified
opinion on those financial highlights.
PricewaterhouseCoopers LLP
Columbus, Ohio
December 11, 1998
<PAGE>
(LOGO)(R)
Victory Funds
1-800-KEY-FUND(R)
(1-800-539-3863)
1AR-IMMVF 10/98
