THE GRADISON GOVERNMENT RESERVES FUND
SEMIANNUAL
REPORT
MARCH 31,
1999
(LOGO) (R)
Victory Funds
<PAGE>
TABLE OF CONTENTS
Shareholder Letter 2
Financial Statements
Schedule of Investments 3
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Notes to Financial Statements 7
Financial Highlights 10
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 fees 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 Gradison
Government Reserves Fund.
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.
NOT FDIC INSURED
Shares of The Victory Funds are not insured by the FDIC and 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 Issues. Like all mutual funds, the Fund could be adversely
affected if the computer systems used by its service providers, including
shareholder servicing agents, are unable to recognize dates after 1999. The
risk of such a computer failure may be greater as it relates to investments
in foreign countries. The Fund's service providers have been actively
updating their systems to be able to process Year 2000 data. There can be no
assurance, however, that these steps will be adequate to avoid a temporary
service disruption or other adverse impact on the Fund. In addition, an
issuer's failure to process accurately Year 2000 data may cause that issuer's
securities to decline in value or delay the payment of interest to the Fund.
(LOGO) (R)
Victory Funds
Call Victory at: Or Call Gradison McDonald at:
800-539-FUND (800-539-3863) 800-869-5999 or 513-579-5999
<PAGE>
Letter to our Shareholders
On behalf of the Victory Funds, welcome! We are pleased to present the
Victory Gradison Government Reserves Fund semiannual report for the period
ended March 31, 1999. We hope you find this report useful, easy to read, and
a valuable tool provided by the Victory Funds. But, before you delve into the
report, we would like to share some highlights from this past six months and
some brief economic commentary.
In October, KeyCorp acquired McDonald & Company Investments, Inc. and its
related dealer, McDonald & Company Securities Inc., a full service investment
and banking securities brokerage firm. In addition, during the Funds' second
fiscal quarter, the merger of the Gradison Funds into the Victory Funds was
substantially completed. We acknowledge your support in this effort -- your
votes ensured the merger progressed without disturbance to investment
management and shareholder servicing efforts. The combined assets of the
Victory Funds are now over 18 billion dollars spread across 32 distinct
funds, giving the Victory Funds the ability to serve an even wider variety of
investors. We have every hope that these recent additions and structural
changes will serve to enhance the Victory Funds' ability to meet your
specific investment goals.
Currently, Key Asset Management reports the domestic economy is in great
shape. Unemployment is low, and real income growth is high. News from Asia
seems to be getting better, a prerequisite for global acceleration. Consumer
confidence is high, and investor sentiment is almost as buoyant. Cash flows
into equities are strong. The Dow Jones recently hit 10,000, and the S&P 500
spent much of the Funds' second fiscal quarter in record territory, too.
This healthy economic picture provides all of our shareholders with the
opportunity to further diversify their holdings among the broad investment
options of the expanded Victory Fund complex. As you may know,
diversification can be a powerful tool in helping investors manage risk and
achieving one's investment objectives, through good and bad economic periods.
Thank you for choosing the Victory Funds to help you realize your investment
goals and, as always, we welcome your comments on this report.
/s/ Leigh A. Wilson /s/ Bradley E. Turner
Leigh A. Wilson Bradley E. Turner
President President
The Victory Funds The Gradison Funds
Dow Jones Industrial Average: A price weighted average of thirty blue-chip
stocks that are generally the leaders in their industry and are noted on the
New York Stock Exchange.
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.
<PAGE>
THE VICTORY PORTFOLIOS Schedule of Investments
Gradison U.S. Government Reserves Fund March 31, 1999
(Amounts in Thousands) (Unaudited)
Principal Amortized
Security Description Amount Cost
U.S. Government Agencies (74.6%)
Federal Farm Credit Bank (18.8%):
4.84%, 4/1/99 $ 17,077 $ 17,077
4.73%*, 4/1/99, MTN 25,000 24,994
4.77%*, 4/1/99, MTN 25,000 24,991
4.77%**, 4/1/99 49,700 49,700
5.50%, 4/1/99, MTN 32,000 32,000
4.71%, 4/7/99 75,000 74,942
4.73%, 4/13/99 44,000 43,931
4.70%, 4/14/99 11,000 10,981
4.76%, 4/16/99 11,000 10,978
4.75%, 7/1/99 21,419 21,418
5.55%, 7/1/99, MTN 15,000 14,999
5.24%, 9/29/99,
Callable 4/9/99 @ 100, MTN 25,000 25,000
5.00%, 12/15/99,
Callable 6/10/99 @ 100 25,000 25,000
5.00%, 12/30/99,
Callable 6/10/99 @ 100 10,000 10,000
4.76%, 1/18/00 25,000 24,953
410,964
Federal Home Loan Bank (31.6%):
4.71%*, 4/1/99 50,000 50,000
4.73%, 4/7/99 63,000 62,950
4.94%*, 4/7/99 50,000 49,989
5.54%, 4/7/99 10,150 10,150
4.74%, 4/14/99 173,000 172,704
4.77%, 4/23/99 37,600 37,490
4.75%, 4/28/99 25,000 24,911
4.76%*, 5/3/99 30,000 29,988
4.73%, 5/7/99 30,000 29,858
5.65%, 5/19/99 19,500 19,517
4.75%, 5/26/99 25,000 24,818
5.53%, 6/10/99 10,000 9,997
5.61%, 6/11/99 13,700 13,699
5.51%, 8/17/99 20,000 19,996
4.72%, 8/25/99 17,000 16,674
4.74%, 9/8/99 30,050 29,417
5.00%, 10/28/99,
Callable 4/28/99 @ 100 21,000 20,995
4.90%, 12/1/99 25,000 25,023
4.86%, 1/14/00 25,000 24,988
4.95%, 2/22/00 15,000 14,992
688,156
Student Loan Marketing
Assoc. (22.4%):
4.80%, 4/1/99 20,000 20,000
4.85%*, 4/6/99, MTN 25,000 25,000
4.93%*, 4/6/99, MTN 25,000 25,000
5.08%*, 4/6/99, MTN 50,000 50,000
5.09%*, 4/6/99, MTN 50,000 49,991
5.15%*, 4/6/99, MTN 25,000 25,000
5.45%*, 4/6/99, MTN 25,000 24,999
4.76%*, 5/7/99, MTN 50,000 49,979
5.63%, 6/2/99, MTN 14,565 14,584
5.52%, 6/10/99, MTN 10,000 9,997
4.78%*, 6/16/99, MTN 50,000 49,985
4.70%, 6/30/99 13,291 13,135
5.89%, 11/17/99, MTN 60,230 60,636
4.93%, 2/8/00, MTN 25,000 24,983
4.90%, 2/10/00, MTN 15,000 14,994
5.05%, 3/10/00, MTN 30,000 29,991
488,274
Tennessee Valley Authority (1.8%):
4.71%, 4/9/99 40,000 39,958
Total U.S. Government Agencies
(Amortized Cost $1,627,352) 1,627,352
U.S. Treasury Bills (25.4%)
U.S. Treasury Bills (25.4%):
4.80%, 4/19/99 250,000 249,400
4.81%, 4/22/99 305,000 304,146
Total U.S. Treasury Bills
(Amortized Cost $553,546) 553,546
Total Investments
(Amortized Cost $2,180,898) (a) -- 100.0% 2,180,898
Other assets in excess of liabilities -- 0.0% 309
TOTAL NET ASSETS -- 100.0% $2,181,207
(a) Cost and value for federal income tax and financial reporting purposes
are the same.
* Variable rate securities having interest rates, that will change
periodically, are based upon and index of market interest rates. The rate
reflected on the Schedule of Investments is the rate in effect at 3/31/99.
The date reflects the next rate change date.
** Variable rate securities having liquidity agreements.
MTN -- Medium Term Note
See notes to financial statements.
<PAGE>
Statement of Assets and Liabilities
THE VICTORY PORTFOLIOS March 31, 1999
(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
Gradison
Government
Reserves
Fund
ASSETS:
Investments, at value (cost $2,180,898) $2,180,898
Interest and dividends receivable 11,007
Prepaid expenses 50
Total Assets 2,191,955
LIABILITIES:
Payable to Custodian 1,520
Dividends payable 7,821
Accrued expenses and other payables:
Investment advisory fees 891
Distribution fees 206
Accounting fees 21
Transfer agency fees 289
Total Liabilities 10,748
NET ASSETS:
Capital 2,181,212
Accumulated undistributed net realized loss on investments (5)
Net Assets $2,181,207
Net Assets
Class G $2,181,207
Total $2,181,207
Outstanding units of beneficial interest (shares)
Class G 2,181,212
Total 2,181,212
Net asset value
Redemption price per share -- Class G $ 1.00
See notes to financial statements.
<PAGE>
Statement of Operations
THE VICTORY PORTFOLIOS For the Six Months Ended March 31, 1999
(Amounts in Thousands) (Unaudited)
Gradison
Government
Reserves
Fund
Investment Income:
Interest Income $53,455
Expenses:
Investment management fees 4,511
Transfer agent fees 1,491
Distribution fees 1,040
Legal and audit fees 37
Fund accounting fees 105
Printing fees 73
Registration fees 98
Trustees' fees 23
Miscellaneous expenses 29
Total expenses 7,407
Net Investment Income 46,048
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from investment transactions (5)
Change in unrealized appreciation/depreciation from investments --
Net realized/unrealized gains (losses) from investments (5)
Change in net assets resulting from operations $46,043
See notes to financial statements.
<PAGE>
THE VICTORY PORTFOLIOS Statement of Changes in Net Assets
(Amounts in Thousands)
Gradison Government Reserves Fund
For the Six
Months Ended Year Ended
March 31, September 30,
1999 1998
(Unaudited)
From Investment Activities:
Operations:
Net investment income $ 46,048 $ 87,166
Net realized gains/(losses) from
investment transactions (5) --
Change in net assets resulting from
operations 46,043 87,166
Distributions to Shareholders:
From net investment income
Class G (46,048) (87,166)
Change in net assets from distributions
to shareholders (46,048) (87,166)
Capital Transactions:
Proceeds from shares issued 4,485,237 9,220,289
Dividends reinvested 37,345 85,372
Cost of shares redeemed (4,275,194) (8,981,895)
Change in net assets from
capital transactions 247,388 323,766
Change in net assets 247,383 323,766
Net Assets:
Beginning of period 1,933,824 1,610,058
End of period $ 2,181,207 $ 1,933,824
Share Transactions:
Issued 4,485,237 9,220,289
Reinvested 37,345 85,372
Redeemed (4,275,194) (8,981,895)
Change in shares 247,388 323,766
See notes to financial statements.
<PAGE>
Notes to Financial Statements
THE VICTORY PORTFOLIOS March 31, 1999
(Unaudited)
1. Organization:
The Victory Portfolios (the "Trust") were 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. As of March 31, 1999, the Trust offers shares of
30 active funds. The Trust commenced offering shares of two additional Funds
effective April 1, 1999 as described below, in relevant part, under
"Reorganization." The accompanying financial statements and financial
highlights are those of the Victory Gradison Government Reserves Fund (the
"Fund").
The Victory Gradison Government Reserves Fund is authorized to issue Class G
Shares effective April 1, 1999, as described under "Reorganization."
The Fund seeks to maximize current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
2. Reorganization:
The Trust entered an Agreement and Plan of Reorganization and Termination
(the "Agreement") with The Gradison McDonald Cash Reserves Trust, also
registered as an open-end investment management company under the 1940 Act,
pursuant to which all of the assets and liabilities of the Gradison U.S.
Government Reserves (the "Gradison Fund") were transferred to the Victory
Gradison Government Reserves Fund of the Trust in exchange for Class G
shares, a new class of shares issued in connection with the reorganization,
of that Fund. The reorganization, which qualified as a tax-free exchange for
federal income tax purposes, was completed on April 1, 1999 (the "Effective
Date of the Reorganization"), following approval by shareholders of The
Gradison McDonald Cash Reserves Trust, at a special shareholder meeting held
on March 5, 1999.
For accounting purposes as a result of the reorganization, the historical
basis of assets and liabilities of the Fund is that of the Gradison Fund. The
accompanying financial statements and financial highlights of the Fund
reflect the operations of the Gradison Fund for the six months ended March
31, 1999.
The following is a summary of shares outstanding, net assets and net asset
value per share immediately before and after the reorganization:
Before Reorganization After Reorganization
Gradison Victory Gradison Victory Gradison
U.S. Government Government Government
Reserves Reserves Fund Reserves Fund
Shares (000) 2,190,366 -- 2,190,366
Net Assets (000) $2,190,366 -- $2,190,366
Net Asset Value $ 1.00 -- $ 1.00
3. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its 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 Fund 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 Fund 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 the 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 Fund's 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.
Dividends to Shareholders:
Dividends from net investment income are declared daily and paid monthly by
the Fund. 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 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 the Fund are charged directly to the
Fund. Other operating expenses of the Trust are prorated on the basis of
relative net assets of all funds included in the Trust or other appropriate
basis. Fees paid under the Fund's shareholder servicing or distribution plans
are borne by the specific class of shares to which they apply.
4. Related Party Transactions:
As of the Effective Date of the Reorganization, investment advisory services
are provided to the Fund by Key Asset Management Inc. ("the Adviser"), 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 computed daily and paid monthly based
on the Fund's average daily net assets, at an annual rate of 0.50% on the
first $400 million, 0.45% on the next $600 million, 0.40% on the next $1
billion, and 0.35% in excess of $2 billion. KeyTrust Company of Ohio, serving
as custodian for the Funds as of the Effective Dates of the Reorganization,
receives custodian fees in addition to reimbursement of actual out-of-pocket
expenses incurred.
As of the Effective Date of the Reorganization, BISYS Fund Services (the
"Administrator" or the "Distributor," as applicable), an indirect,
wholly-owned subsidiary of The BISYS Group, Inc. ("BISYS") serves as the
administrator and distributor to the Fund. Under the terms of the
administration agreement the Administrator's fee is computed at the annual
rate of 0.15% of the Fund's average daily net assets up to $300 million,
0.12% of the 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 the Adviser a fee
of up to 0.05% of the Fund's average daily net assets to perform some of the
administrative duties for the Fund. Pursuant to the Trust's 12b-1 Plan, the
Distributor may receive a monthly service fee at an annual rate of 0.10% of
the average daily net assets of the Fund. The service fee is paid to
securities broker dealers or other financial intermediaries for providing
personal services to shareholders of the Fund, including responding to
inquiries, providing information to shareholders about their Fund accounts,
establishing and maintaining accounts and records, processing dividend and
distribution payments, arranging for bank wires, assisting in transactions,
and changing account information. McDonald Investments Inc. provides certain
shareholder services for the Fund under the terms of an administrative
services agreement with the Fund, and receives a monthly fee at an annual
rate of $23.50 per shareholder non-zero balance account and $5.00 per closed
shareholder account, as defined. Effective March 1, 1999, BISYS also serves
as the Fund's Mutual Fund Accountant and receives a fee for these services
under the terms of the Fund Accounting Agreement.
<PAGE>
Certain officers of the Trust are affiliated with BISYS. Such officers
receive no direct payments or fees from the Fund for serving as officers of
the Trust.
Fees may be voluntarily reduced or reimbursed to assist the Fund in
maintaining competitive expense ratios. No fees were reduced or reimbursed
during the six months ended March 31, 1999. The Adviser has agreed to waive
its management fee or to reimburse expenses, as allowed by law, to the extent
necessary to maintain the net operating expenses of the Class G shares of the
Fund at a maximum of 0.72% until at least April 1, 2001.
Prior to the Effective Date of the Reorganization, investment advisory
services were provided by McDonald & Company Securities, Inc. ("McDonald"),
pursuant to an investment advisory agreement between the Gradison Fund and
McDonald under substantially the same terms as the Fund's investment advisory
agreement described above. Transfer agent services, including dividend
disbursing, fund accounting services and administrative services were
provided by McDonald prior to the Effective Date of the Reorganization,
pursuant to the terms of a Transfer Agency, Accounting Services and
Administrative Services agreement between the Gradison Fund and McDonald.
Under the terms of that agreement, the Gradison Fund paid McDonald a monthly
fee for transfer agent and administrative services at an annual rate of
$23.50 per shareholder non-zero balance account and $5.00 per closed
shareholder account, as defined, plus out-of-pocket costs for statement
paper, statement and reply envelopes and reply postage. The Gradison Fund
paid fund accounting fees to McDonald under substantially the same terms as
the Fund. Distribution fees, prior to the Effective Date of the
Reorganization, were paid by the Gradison Fund to McDonald pursuant to an
agreement under substantially the same terms as the Funds' agreement. Prior
to the Effective Date of the Reorganization, officers of the Gradison Fund
were also officers of McDonald.
5. Voting Results of a Special Meeting of Gradison U.S. Government Reserves
Shareholders:
A Special Meeting of Shareholders of the Gradison Fund was held on March 5,
1999. At the meeting, shareholders voted on the following matters with the
following results as indicated below:
Proposal 1
To approve an Agreement and Plan of Reorganization and Termination pursuant
to which the Gradison Fund will transfer all of its assets and liabilities
solely in exchange (the "Exchange") for Class G Shares of the Fund. The
Gradison Fund will distribute Class G shares of the Fund received in the
Exchange to its shareholders in an amount equal in net asset value to the
shares of the Gradison Fund held by such shareholders as of the date of the
Exchange, after which the Gradison Fund will be terminated.
For Against Abstain
Gradison U.S. Government Reserves 1,103,846,562 32,553,832 63,522,119
Proposal 2
To approve a new Investment Advisory Agreement between the Gradison McDonald
Cash Reserves Trust, on behalf of the Gradison Fund, and McDonald
Investments, Inc. because the merger of McDonald's corporate parent with
KeyCorp caused the previous agreement to terminate.
For Against Abstain
Gradison U.S. Government Reserves 1,107,712,491 29,425,603 62,784,420
<PAGE>
THE VICTORY PORTFOLIOS Financial Highlights
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Gradison Government Reserves Fund
For the
Six Months
Ended
March 31, Year Ended September 30,
1999<F2> 1998 1997 1996 1995 1994
(Unaudited)
<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 0.022 0.049 0.047 0.047 0.050 0.029
Net realized and unrealized gains
(losses) from investments -- -- -- -- -- --
Total from
Investment Activities 0.022 0.049 0.047 0.047 0.050 0.029
Distributions:
Net investment income (0.022) (0.049) (0.047) (0.047) (0.050) (0.029)
Net realized gains -- -- -- -- -- --
Total Distributions (0.022) (0.049) (0.047) (0.047) (0.050) (0.029)
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 2.24%<F3> 4.98% 4.85% 4.86% 5.10% 2.97%
Ratios/Supplemental Data:
Net Assets, End of
Period (000) $2,181,207 $1,933,824 $1,610,058 $1,333,063 $1,224,129 $1,001,233
Ratio of expenses to
average net assets 0.72%<F4> 0.72% 0.72% 0.75% 0.78% 0.80%
Ratio of net investment
income to average
net assets 4.48%<F4> 4.86% 4.75% 4.72% 5.00% 2.90%
Ratio of expenses to
average net assets<F1> 0.72%<F4> 0.73% 0.73% 0.76% 0.80% 0.81%
Ratio of net investment
income to average
net assets<F1> 4.48%<F4> 4.85% 4.74% 4.71% 4.98% 2.89%
<FN>
<F1> During the period, certain fees were reduced through the use of earnings credits on cash balances, or waiver of a portion
of advisory fees. If such fee reductions had not occurred, the ratios would have been as indicated.
<F2> Effective April 1, 1999, the Gradison U.S. Government Reserves became the Victory Gradison Government Reserves Fund.
Financial highlights prior to April 1, 1999 represent the Gradison U.S. Government Reserves.
<F3> Not annualized.
<F4> Annualized.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns 7-Day
(for the Periods ended March 31, 1999) Yield QTR 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C> <C>
Gradison Government Reserves Fund 4.23% 1.07% 4.75% 4.81% 4.74% 4.97%
</TABLE>
Past performance does not indicate future results.
As of March 31, 1999, the Fund's seven day yield and seven day effective yield
were 4.23% and 4.32%, respectively.
The yield quotation more closely reflects the current earnings of the Fund
than the total return quotation.
See notes to financial statements.
<PAGE>
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<PAGE>
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<PAGE>
The Victory Funds Bulk Rate
127 Public Square U.S. Postage
OH-01-27-1612 PAID
Cleveland, Ohio 44114 Cleveland, OH
Permit No. 469
(LOGO) (R)
Victory Funds
Call Victory at: Or Call Gradison McDonald at:
800-539-FUND (800-539-3863) 800-869-5999 or 513-579-5999
1VF-GGR-SEMI 3/99
