THE INSTITUTIONAL MONEY MARKET FUND
THE FEDERAL MONEY MARKET FUND
ANNUAL
REPORT
OCTOBER 31,
1999
LOGO(R)
Victory Funds
<PAGE>
Victory Funds
Risk/Reward Investment Spectrum
The Victory Funds offer a combined total of 32 money market, fixed income,
specialty and equity mutual funds for individuals and institutions.
LOW REWARD HIGH
Money Market
Ohio Municipal Money Market
Tax-Free Money Market
Institutional Money Market
Financial Reserves
Prime Obligations
Gradison Government Reserves
Federal Money Market
U.S. Government Obligations
Income
Taxable
Investment Quality Bond
Government Mortgage
Fund for Income
Intermediate Income
Limited Term Income
Tax-Free
Ohio Municipal Bond
New York Tax-Free
National Municipal Bond
Specialty
Real Estate Investment
Convertible Securities
Balanced
Growth/Equity
International Growth
Small Co. Opportunity
Ohio Regional Stock
Special Value
Growth
Stock Index
Diversified Stock
Established Value
Lakefront
Value
LOW RISK HIGH
Source: Investment Product Group, Key Asset Management.
This report is authorized for distribution only when preceded or accompanied
by a current prospectus for the Institutional Money Market Fund or the
Federal Money Market Fund. For more complete information including a
prospectus, which includes fees and ongoing expenses, please call
1-800-539-FUND.(R) Please read it carefully before investing or sending
money.
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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 13
Report of Independent Accountants 16
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 Issues. Like all mutual funds, the Funds 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 Funds' 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 Funds. 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 Funds.
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
Institutional Money Market Fund or the Victory Federal Money Market Fund.
An investment in the Funds is not insured or guaranteed by the FDIC or any
other government agency. Although the Funds seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing
in the Funds.
LOGO(R)
Victory Funds
1-800-539-FUND(R)
(1-800-539-3863)
1
<PAGE>
Letter to our Shareholders
On behalf of Victory Funds, thank you for your continued support
and confidence in using Victory Funds to help realize your
investment goals! I am pleased to present the Victory Institutional
Money Market and Federal Money Market Fund's Annual Report for the
year ended October 31, 1999. I hope you find this report useful,
easy to read, and a valuable tool.
At Victory Funds, we recognize that you, our valued shareholder, are the key
to our continued success. Your ongoing investor confidence has enabled the
Funds, as a whole, to grow year-after-year. Victory Funds are now 32 mutual
funds strong with more than $18 billion in assets under management.
Because we believe that an informed investor is the best investor, I thought
it was important to share with you "What Makes Victory Funds Different?" I am
confident that after you review the following points of interest you will be
further reassured of your investment in Victory Funds and in a better
position to share the Victory story with your family, friends, and business
associates. So, "What Makes Victory Funds Different?"
Truth in Labeling. It's the essence of Victory Funds. Our portfolio
managers and teams are known for adhering to a fund's investment
style and objective. In simple terms, "we stick to our knitting."
A Disciplined Investment Process. Key Asset Management, the adviser to
Victory Funds, draws from over 100 years of investment management experience
and employs a structured and disciplined process of selecting securities for
Victory portfolios.
Team Approach to Investment Management. A knowledgeable team of investment
professionals backs the portfolio management of each Victory Fund. Although
each Victory Fund features one or two portfolio managers, you benefit from a
number of talented investment minds supporting their efforts.
Guidance. Victory strives to make sure you have the information you need to
make the best investment decisions. The guidance available through investment
consultants, "www.victoryfunds.com," our educational materials, and Victory
Funds Service Center (1-800-539-FUND) all come together for one purpose --
our shareholders.
Performance. The bottom-line -- results. At Victory Funds, we strive for
optimal investment returns at reasonable risk levels. We are committed to
managing the risk/return equation for Victory shareholders.
Again, thank you for choosing the Victory Funds to help you realize your
financial goals and, as always, we welcome your comments on this report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President
Victory Funds
As of October 31, 1999
INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
INVESTOR SELECT INVESTOR SELECT
CLASS CLASS CLASS CLASS
Seven-Day Yield 5.28% 4.95% 5.07% 4.81%
Seven-Day Effective Yield 5.42% 5.08% 5.20% 4.93%
One Year Total Return 5.03% 4.72% 4.82% 4.56%
Maturity Schedule
As of 10/31/99
Days to Maturity INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
Less than 30 Days 46.4% 56.0%
31 to 60 Days 20.2% 18.0%
61 to 90 Days 11.0% 9.9%
Greater than 90 Days 22.4% 16.1%
Past performance is not predictive of future results.
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.
Fund holdings are subject to change.
2
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THE VICTORY PORTFOLIOS Schedule of Investments
Institutional Money Market Fund October 31, 1999
(Amounts in thousands)
Principal Amortized
Security Description Amount Cost
Bankers Acceptances (1.0%)
Toronto Dominion,
5.30%, 11/1/99 $ 25,000 $ 25,000
Total Bankers Acceptances
(Amortized Cost $25,000) 25,000
Certificates of Deposit (7.0%)
ABN-AMRO North American Bank,
5.12%, 4/28/00 10,000 9,996
Bank of America,
6.01%, 2/3/00 25,000 25,000
Bayerische Landesbank
New York,
5.12%, 2/23/00 20,000 19,994
Bayerische Landesbank
New York,
5.12%, 3/21/00 8,000 7,994
Canadian Imperial Bank
of Commerce,
5.41%, 12/28/99 25,000 25,000
Deutsche Bank,
5.06%, 2/10/00 20,000 19,938
Dresdner Bank,
4.95%, 11/9/99 10,000 9,999
Rabobank,
5.11%, 2/18/00 10,000 9,999
Rabobank,
5.14%, 3/27/00 5,000 5,000
Rabobank,
5.29%, 5/19/00 15,000 14,996
Royal Bank of Canada,
4.97%, 2/3/00 5,000 4,996
Societe Generale,
5.29%, 3/3/00 7,000 6,998
UBS Finance,
5.29%, 3/1/00 10,000 10,000
Total Certificates of Deposit
(Amortized Cost $169,910) 169,910
Commercial Paper (61.6%)
Abbey National,
5.35%, 12/3/99 100,000 99,524
Abbey National,
5.16%, 12/13/99 20,000 19,880
Arizona Educational Loan Marketing,
5.35%, 11/15/99, LOC Mellon Bank 25,500 25,447
Asset Securitization Capital Corp.,
5.33%, 11/30/99 15,000 14,936
Asset Securitization Capital Corp.,
6.00%, 1/27/00 37,000 36,464
Asset Securitization Capital Corp.,
6.00%, 1/28/00 20,000 19,707
Associates Corp. N.A., 5.40%, 12/6/99 8,000 7,958
Baker Hughes, Inc., 5.33%, 11/16/99 50,000 49,888
Baker Hughes, Inc., 5.31%, 11/18/99 50,000 49,875
Bellsouth Capital Funding, 5.30%, 11/16/99 8,017 7,999
Bellsouth Capital Funding, 5.30%, 12/1/99 (b) 40,000 39,823
Canada Wheat Board, 5.62%, 2/28/00 15,000 14,722
COFCO Capital Corp., 5.34%, 11/15/99,
LOC Bank of America 35,000 34,927
Delaware Funding Corp., 5.35%, 11/30/99 (b) 9,505 9,464
Delaware Funding Corp., 5.78%, 2/8/00 (b) 28,000 27,555
Delaware Funding Corp., 5.82%, 2/22/00 (b) 30,000 29,452
Edison Asset Securities, 5.38%, 11/22/99 30,000 29,906
Edison Asset Securities, 6.00%, 1/28/00 (b) 55,000 54,194
Fleet Funding Corp., 5.94%, 2/15/00 (b) 25,000 24,563
Fleet Funding Corp., 5.79%, 2/17/00 (b) 35,500 34,883
Fuji Photo Film, 5.34%, 11/9/99 27,188 27,156
General Electric Capital Corp., 5.33%, 11/1/99 50,000 50,000
General Electric Capital Corp., 5.92%, 3/21/00 30,000 29,304
Great Lakes Chemical Corp., 5.89%, 2/15/00 20,000 19,653
Household Finance, 5.33%, 11/1/99 35,000 35,000
Iowa Student Loan Liquidity Corp.,
5.35%, 11/23/99, LOC Bank of America 38,496 38,370
JP Morgan, 5.95%, 1/20/00 50,000 49,339
3
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Mont Blanc Capital Corp., 5.38%, 11/18/99 (b) $ 10,000 $ 9,975
Mont Blanc Capital Corp., 6.15%, 1/25/00 (b) 22,000 21,681
Mont Blanc Capital Corp., 5.87%, 2/11/00 (b) 9,360 9,204
Mont Blanc Capital Corp., 5.95%, 2/14/00 (b) 19,531 19,192
Monte Rosa Capital Corp., 5.38%, 11/5/99 (b) 14,256 14,247
Monte Rosa Capital Corp., 5.42%, 12/14/99 (b) 15,000 14,903
Monte Rosa Capital Corp., 5.95%, 2/15/00 (b) 20,000 19,650
Pemex Capital, 5.35%, 11/15/99 25,000 24,948
Pemex Capital, 5.35%, 11/22/99 45,000 44,860
Redwood Receivables Corp., 5.38%, 11/17/99 50,000 49,880
Redwood Receivables Corp., 5.37%, 11/17/99 15,000 14,964
Redwood Receivables Corp., 5.40%, 11/18/99 32,000 31,919
SBC Communications, Inc., 5.27%, 11/19/99 25,000 24,934
SBC Communications, Inc., 5.27%, 11/22/99 25,000 24,923
Sheffield Receivables, 5.38%, 11/22/99 15,000 14,953
Sigma Finance, Inc., 5.00%, 11/15/99 25,000 24,951
Sino Chemical, 5.37%, 11/8/99 12,000 11,987
Sony Capital Corp., 5.80%, 1/28/00 40,000 39,433
Southern California Edison, 5.30%, 11/30/99 10,000 9,957
Texas Agricultural Finance Authority,
5.78%, 1/19/00 14,000 13,822
Toronto Dominion, 4.90%, 11/22/99 25,000 24,929
Transamerica Financial Corp., 5.30%, 11/22/99 20,000 19,938
Transamerica Financial Corp., 5.71%, 3/21/00 18,300 17,887
UBS Finance, 4.90%, 11/22/99 20,000 19,943
UBS Finance, 5.33%, 12/13/99 60,000 59,627
Weyerhauser Real Estate, 5.30%, 11/15/99 12,000 11,975
Xerox Corp., 5.40%, 12/8/99 21,050 20,933
Total Commercial Paper
(Amortized Cost $1,495,604) 1,495,604
Corporate Bonds (22.9%)
American General Financial Corp., 7.20%, 11/30/99 2,000 2,003
American General Financial Corp., 6.13%, 9/15/00 12,000 12,003
Associates Corp., N.A., 8.25%, 12/1/99 7,180 7,198
Beta Finance, 5.94%*, 11/2/99** 10,000 10,000
CIT Group, Inc., 6.13%, 11/15/99, MTN 5,000 5,001
CIT Group, Inc., 5.88%, 12/9/99, MTN 21,210 21,221
Dell Tin Fiber, 5.50%*, 11/3/99**,
LOC First Chicago 12,000 12,000
First Union National, 5.71%*, 11/1/99** 45,000 45,000
General Electric Capital Corp., 6.66%, 5/1/00 7,200 7,232
General Motors Acceptance Corp.,
9.63%, 5/15/00, MTN 7,500 7,649
General Motors Acceptance Corp.,
5.04%*, 11/11/99**, MTN 5,000 4,995
Goldman Sachs Group, 6.05%*, 11/2/99** 10,000 10,000
Goldman Sachs Group, 5.58%*, 11/1/99** 10,000 10,001
Household Finance, 5.46%*, 12/10/99** 35,000 35,003
Household Finance, 6.00%, 5/8/00 6,000 6,006
IBM Credit Corp., 5.79%, 3/20/00 5,000 5,005
John Deere Capital Corp., 5.83%, 3/16/00, MTN 10,000 9,987
John Deere Capital Corp., 5.73%, 7/13/00, MTN 10,000 9,997
Lehman Brothers Holdings, Inc., 5.46%*, 11/22/99** 45,000 45,000
Lexington Financial Services,
5.50%*, 11/3/99**, LOC LaSalle National Bank 5,430 5,430
4
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Merrill Lynch, 5.54%*, 11/1/99**, MTN $ 10,000 $ 10,000
Morgan Stanley Dean Witter, 6.82%, 12/15/99 10,000 10,021
Morgan Stanley Dean Witter, 5.56%*, 11/1/99** 50,000 50,000
Morgan Stanley Dean Witter, 5.61%*, 12/16/99** 13,000 13,000
Nationsbank, 5.00%, 1/5/00 20,000 19,999
Norwest Financial, Inc., 6.05%, 11/19/99 6,800 6,803
Norwest Financial, Inc., 6.88%, 12/15/99 10,400 10,422
Norwest Financial, Inc., 7.25%, 3/15/00 10,000 10,073
PNC Bank, 5.21%*, 11/13/99** 8,500 8,491
Pomeroy Investments, 5.47%*, 11/4/99**,
LOC Fifth Third Bank 3,350 3,350
Presrite Corp., 5.41%*, 11/4/99**,
LOC National City Bank 4,250 4,250
Salomon Smith Barney, Inc., 6.50%, 3/1/00 18,000 18,066
Sara Lee Corp., 7.95%, 11/9/99, MTN 10,000 10,005
Sara Lee Corp., 5.75%, 7/14/00, MTN 7,500 7,500
Sea River Maritime, Inc.,
5.40%*, 11/1/99**, Guaranteed by Exxon Corp. 32,500 32,500
Sigma Finance, Inc., 5.76%*, 11/2/99** 10,000 10,000
Sigma Finance, Inc., 5.55%*, 11/5/99** 20,000 20,000
Transamerica Finance Corp., 5.05%*, 11/12/99** 8,000 8,000
USL Capital Corp., 7.40%, 11/2/99 5,000 5,000
USL Capital Corp., 5.78%*, 12/8/99** 5,000 5,002
USL Capital Corp., 7.54%, 12/22/99 5,000 5,017
Xerox Corp., 5.32%, 3/31/00 18,000 17,997
Total Corporate Bonds
(Amortized Cost $556,227) 556,227
Repurchase Agreements (7.1%)
Donaldson-Lufkin Jenrette Securities Corp.,
5.23%, 11/1/99, (Collateralized by $49,287
various U.S. Government Securities,
0.00%-9.88%, 10/31/99-5/15/21,
market value $25,051) 25,000 25,000
Lehman Brothers, Inc., 5.23%, 11/1/99,
(Collateralized by $45,640 various U.S.
Government Securities, 5.88%,
2/15/04, market value $45,355) 45,000 45,000
Paine Weber, 5.23%, 11/1/99, (Collateralized
by $104,510 various U.S. Government securities,
5.63%-7.50%, 9/30/01-2/15/05, market value
$104,920) 103,472 103,472
Total Repurchase Agreements
(Amortized Cost $173,472) 173,472
U.S. Government Agencies (0.4%)
Federal Home Loan Bank (0.4%):
5.00%, 1/5/00 10,000 10,000
Total U.S. Government Agencies
(Amortized Cost $10,000) 10,000
Total Investments
(Amortized Cost $2,430,213) (a) -- 100.0% 2,430,213
Liabilities in excess of other assets -- 0.0% (631)
TOTAL NET ASSETS -- 100.0% $2,429,582
(a) Cost and value for federal income tax and financial reporting
purposes are the same.
(b) Section 4(2) commercial paper which is restricted as to resale.
* 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, 1999. 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.
5
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THE VICTORY PORTFOLIOS Schedule of Investments
Federal Money Market Fund October 31, 1999
(Amounts in thousands)
Principal Amortized
Security Description Amount Cost
U.S. Government Agencies (66.4%)
Federal Agricultural Mortgage Corp. (4.7%):
5.13%, 11/23/99 $ 52,793 $ 52,627
Federal Farm Credit Bank (12.9%):
5.10%, 11/1/99 25,000 25,000
5.22%, 12/1/99 54,500 54,500
5.56%, 1/18/00 40,000 40,000
5.63%, 2/1/00 25,000 25,000
144,500
Federal Home Loan Bank (17.8%):
5.56%, 1/14/00 30,000 29,657
4.95%, 2/24/00 10,000 9,977
5.56%, 3/14/00 48,600 47,595
5.00%, 4/20/00 10,000 9,999
5.10%, 5/11/00 19,175 19,173
5.21%, 5/24/00, Callable 11/24/99 @ 100 14,000 14,000
5.51%, 6/22/00, Callable 12/28/99 @ 100 10,000 10,000
6.03%, 9/15/00 10,000 9,505
6.00%, 9/28/00, Callable 12/28/99 @ 100 10,000 10,000
6.04%, 10/25/00, Callable 1/25/00 @ 100 20,000 20,000
6.05%, 10/25/00, Callable 1/25/00 @ 100 8,800 8,800
6.25%, 11/17/00, Callable 2/17/00 @ 100 10,000 10,000
198,706
Federal Home Loan Mortgage Corp. (5.2%):
5.26%, 12/3/99 20,000 19,907
5.03%, 12/9/99 18,608 18,509
5.26%, 12/15/99 20,000 19,871
58,287
Federal National Mortgage Assoc. (23.1%):
5.14%, 11/2/99 27,321 27,317
4.74%, 11/5/99 50,000 49,975
5.22%, 11/12/99 6,000 5,990
5.20%, 11/15/99 40,000 39,919
5.24%, 12/6/99 30,000 29,847
5.28%, 12/10/99 40,000 39,771
5.26%, 12/17/99 15,000 14,899
5.56%, 1/19/00 35,000 34,573
5.33%, 6/9/00 10,000 9,990
5.49%, 8/18/00 5,300 5,282
257,563
Student Loan Marketing Assoc. (2.7%):
5.67%*, 11/2/99** 20,000 20,001
5.05%, 1/19/00 10,000 10,000
30,001
Total U.S. Government Agencies
(Amortized Cost $741,684) 741,684
Repurchase Agreements (36.9%)
Bear Stearns & Co., Inc., 5.31%,
11/1/99 (Collateralized by
$51,338 various U.S.
Government Securities,
0.00%-7.20%, 12/12/12-1/1/28,
market value -- $51,063) 50,000 50,000
Donaldson-Lufkin Jenrette
Securities Corp., 5.30%,
11/1/99 (Collateralized by
$196,358 various U.S.
Government Securities,
0.00%-6.00%, 7/17/02-5/15/08,
market value -- $193,809) 192,507 192,507
Hongkong-Shanghai
Banking Corp., 5.31%,
11/1/99 (Collateralized by
$122,819 various U.S.
Government Securities,
0.00%, 11/16/99-4/26/00,
market value -- $122,402) 120,000 120,000
Lehman Brothers, Inc.,
5.27%, 11/1/99 (Collateralized
by $50,998 various U.S.
Government Securities,
6.00%-7.00%, 7/1/06-11/1/14,
market value -- $50,746) 50,000 50,000
Total Repurchase Agreements
(Amortized Cost $412,507) 412,507
Total Investments
(Amortized Cost $1,154,191) (a) -- 103.3% 1,154,191
Liabilities in excess of other assets -- (3.3)% (36,511)
TOTAL NET ASSETS-- 100.0% $1,117,680
(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, 1999. 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.
See notes to financial statements.
6
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Statements of Assets and Liabilities
THE VICTORY PORTFOLIOS October 31, 1999
(Amounts in Thousands, Except Per Share Amounts)
Institutional Federal
Money Market Money Market
Fund Fund
ASSETS:
Investments, at amortized cost $2,256,741 $ 741,684
Repurchase agreements, at amortized cost 173,472 412,507
Total Investments 2,430,213 1,154,191
Cash 37 --
Interest receivable 10,570 3,269
Receivable for capital shares issued -- 11
Receivable from brokers for investments sold -- 25,000
Prepaid expenses and other assets 351 29
Total Assets 2,441,171 1,182,500
LIABILITIES:
Dividends payable 10,503 4,569
Payable to brokers for investments purchased -- 60,000
Accrued expenses and other payables:
Investment advisory fees 371 140
Administration fees 128 9
Custodian fees 40 18
Accounting fees 2 1
Transfer agent fees 51 14
Shareholder service fees -- Select Shares 434 40
Other 60 29
Total Liabilities 11,589 64,820
NET ASSETS:
Capital 2,429,436 1,117,730
Undistributed net investment income 160 14
Accumulated undistributed net realized gains
(losses) from investment transactions (14) (64)
Net Assets $2,429,582 $1,117,680
Net Assets
Investor Shares $1,313,571 $ 834,055
Select Shares 1,116,011 283,625
Total $2,429,582 $1,117,680
Outstanding units of beneficial interest (shares)
Investor Shares 1,313,560 834,088
Select Shares 1,116,011 283,640
Total 2,429,571 1,117,728
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
See notes to financial statements.
7
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Statements of Operations
THE VICTORY PORTFOLIOS For the Year Ended October 31, 1999
(Amounts in Thousands)
Institutional Federal
Money Market Money Market
Fund Fund
Investment Income:
Interest income $110,686 $50,982
Securities lending income 34 --
Total Income 110,720 50,982
Expenses:
Investment advisory fees 5,330 2,550
Administration fees 2,343 1,230
Shareholder service fees -- Select Shares 2,030 666
Custodian fees 417 207
Accounting fees 120 104
Legal and audit fees 158 78
Trustees' fees and expenses 50 26
Transfer agent fees 382 61
Registration and filing fees 186 220
Printing fees 127 52
Other 40 48
Total Expenses 11,183 5,242
Expenses voluntarily reduced (2,952) (1,754)
Net Expenses 8,231 3,488
Net Investment Income 102,489 47,494
Realized Gains (Losses) from Investments:
Net realized gains (losses)
from investment transactions (14) (64)
Change in net assets
resulting from operations $102,475 $47,430
See notes to financial statements.
8
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THE VICTORY PORTFOLIOS Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
Institutional Money Market Fund Federal Money Market Fund<F1>
Year Ended Year Ended Year Ended Eleven Months Year Ended
October 31, October 31, October 31, Ended October 31, November 30,
1999 1998 1999 1998 1997
<S> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 102,489 $ 70,214 $ 47,494 $ 27,461 $ 5,455
Net realized gains (losses)
from investment transactions (14) 19 (64) 16 --
Change in net assets resulting
from operations 102,475 70,233 47,430 27,477 5,455
Distributions to Shareholders:
From net investment income
Investor Shares (64,880) (44,160) (35,599) (22,345) (5,455)
Select Shares (37,609) (26,052) (11,895) (5,116) --
From net realized gains from
investment transactions -- (15) -- (3) --
Change in net assets from
distributions to shareholders (102,489) (70,227) (47,494) (27,464) (5,455)
Capital Transactions:
Proceeds from shares issued 9,707,193 5,290,832 4,573,820 2,715,391 471,869
Dividends reinvested 55,255 37,208 42,935 23,954 3,317
Cost of shares redeemed (8,973,406) (4,761,794) (4,415,124) (2,066,744) (273,846)
Change in net assets from
capital transactions 789,042 566,246 201,631 672,601 201,340
Change in net assets 789,028 566,252 201,567 672,614 201,340
Net Assets:
Beginning of period 1,640,554 1,074,302 916,113 243,499 42,159
End of period $ 2,429,582 $ 1,640,554 $ 1,117,680 $ 916,113 $ 243,499
Share Transactions:
Issued 9,707,193 5,290,832 4,573,820 2,715,391 471,869
Reinvested 55,255 37,208 42,935 23,954 3,317
Redeemed (8,973,406) (4,761,794) (4,415,124) (2,066,744) (273,846)
Change in shares 789,042 566,246 201,631 672,601 201,340
<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.
9
<PAGE>
THE VICTORY PORTFOLIOS Financial Highlights
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Institutional Money Market Fund
Investor Shares
Year Year Year Year Period
Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, October 31,
1999 1998 1997 1996<F5> 1995<F4>
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.049 0.054 0.053 0.053 0.290
Distributions
Net investment income (0.049) (0.054) (0.053) (0.053) (0.290)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 5.03% 5.53% 5.46% 5.41% 2.90%<F2>
Ratios/Supplemental Data:
Net Assets, End of Period (000) $1,313,571 $1,068,521 $585,663 $671,575 $504,536
Ratio of expenses to
average net assets 0.27% 0.27% 0.28% 0.27% 0.26%<F3>
Ratio of net investment income
to average net assets 4.91% 5.38% 5.32% 5.27% 5.69%<F3>
Ratio of expenses to
average net assets<F1> 0.49% 0.42% 0.48% 0.48% 0.49%<F3>
Ratio of net investment income
to average net assets<F1> 4.69% 5.23% 5.12% 5.06% 5.46%<F3>
<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> Not annualized.
<F3> Annualized.
<F4> 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.
<F5> 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.
10
<PAGE>
<TABLE>
<CAPTION>
Institutional Money Market Fund
Select Shares
Year Year Year Year June 5, Year
Ended Ended Ended Ended 1995 to Ended
October 31, October 31, October 31, October 31, October 31, April 30,
1999 1998 1997 1996<F5> 1995<F4><F6> 1995
<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 0.046 0.051 0.051 0.050 0.012 0.500
Distributions
Net investment income (0.046) (0.051) (0.051) (0.050) (0.012) (0.500)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 4.72% 5.22% 5.17% 5.16% 1.23%<F2> 4.91%
Ratios/Supplemental Data:
Net Assets,
End of Period (000) $1,116,011 $572,033 $488,639 $373,090 $11,479 $449,814
Ratio of expenses to
average net assets 0.57% 0.56% 0.55% 0.52% 0.51%<F3> 0.27%
Ratio of net investment income
to average net assets 4.63% 5.09% 5.06% 4.97% 5.33%<F3> 4.91%
Ratio of expenses to
average net assets<F1> 0.79% 0.71% 0.75% 0.73% 1.00%<F3> 0.51%
Ratio of net investment income
to average net assets<F1> 4.41% 4.94% 4.86% 4.77% 4.84%<F3> 4.67%
<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> Not annualized.
<F3> Annualized.
<F4> 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.
<F5> Effective March 1, 1996, the Fund redesignated Institutional Shares as Investor Shares and Service Shares
as Select Shares.
<F6> Period from commencement of operations.
</FN>
</TABLE>
See notes to financial statements.
11
<PAGE>
THE VICTORY PORTFOLIOS Financial Highlights
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Federal Money Market Fund
Investor Select
Shares Shares
Eleven
Year months Year Period
Ended Ended Ended Ended Fiscal Year Ended November 30,
October 31, October 31, October 31, October 31,
1999 1998<F2> 1999 1998<F2> 1997 1996 1995 1994
<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 0.047 0.048 0.045 0.031 0.048 0.047 0.051 0.034
Distributions
Net investment income (0.047) (0.048) (0.045) (0.031) (0.048) (0.047) (0.051) (0.034)
Net Asset Value,
End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 4.82% 4.91%<F3> 4.56% 3.14%<F3> 4.94% 4.65% 5.26% 3.37%
Ratios/Supplementary Data:
Net Assets at end
of period (000) $834,055 $717,972 $283,625 $198,141 $243,499 $42,159 $21,848 $28,606
Ratio of expenses to
average net assets 0.28% 0.27%<F4> 0.53% 0.43%<F4> 0.53% 0.64% 0.63% 0.59%
Ratio of net investment
income to average
net assets 4.72% 5.22%<F4> 4.47% 5.06%<F4> 4.91% 4.59% 5.15% 3.35%
Ratio of expenses to
average net assets<F1> 0.45% 0.48%<F4> 0.71% 0.54%<F4> 0.90% 0.92% 0.91% 0.87%
Ratio of net investment
income to average
net assets<F1> 4.55% 5.01%<F4> 4.29% 4.95%<F4> 4.54% 4.31% 4.90% 3.10%
<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.
12
<PAGE>
Notes to Financial Statements
THE VICTORY PORTFOLIOS October 31, 1999
1. Organization:
The Victory Portfolios (the "Trust") was organized on December 6, 1995 as a
successor to a company of the same name organized as a Massachusetts business
trust on February 5, 1986. The Trust is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end investment
company established as a Delaware business trust. The Trust is authorized to
issue an unlimited number of shares which are units of beneficial interest
without a par value of $0.001. The Trust presently offers shares of 32 active
funds. The accompanying financial statements and financial highlights are
those of the Institutional Money Market Fund and the Federal Money Market
Fund (collectively, the "Funds").
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:
Before Reorganization After
Reorganization
Key Victory Federal Victory Federal
Money Market Money Market Money Market
Fund Fund Fund
Shares (000) 517,095 -- 517,095
Net Assets (000) $517,095 -- $517,095
Net Asset Value $ 1.00 -- $ 1.00
Unrealized appreciation (000) $ -- -- $ --
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 advisor 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 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.
13
<PAGE>
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 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 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 Advisor, 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 Advisor, may invest the collateral in
short-term debt instruments that the Advisor 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 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. There were no securities
on loan as of October 31, 1999.
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.
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 Fund by Key Asset
Management, Inc. ("the Advisor), a wholly owned subsidiary of KeyCorp. Under
the terms of the investment advisory agreements, the Advisor is entitled to
receive fees based on a percentage of the average daily net assets of the
Fund. 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 Select Shares of each Fund. 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.
14
<PAGE>
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
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.
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 Advisor, 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.
Additional information regarding related party transactions is as follows for
the year ended October 31, 1999:
Investment Advisory Fees Administration Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
Institutional Money Market Fund 0.25% $1,888 $1,064
Federal Money Market Fund 0.25% 1,136 618
The Trust and KeyCorp entered into an agreement (the "Put Agreement") dated
August 13, 1999 which provided the Trust the right to require KeyCorp to
purchase certain General American Life Insurance Company ("GALIC") securities
held by the Institutional Money Market Fund, and other funds within the
Trust, on or before October 15, 1999. On August 23, 1999 and October 1, 1999,
approximately $7 million and $63 million par value of GALIC securities,
respectively, were sold by the Institutional Money Market Fund at par in
connection with the terms of the acquisition of GALIC by an unaffiliated
external party. Accordingly, the Put Agreement expired on October 15, 1999
without any transactions described therein having been exercised.
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 Year Eleven Months
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1999 1998 1999 1998<F1>
<S> <C> <C> <C> <C>
Capital Share Transactions:
Investor Shares:
Issued 4,336,459 2,546,563 3,339,377 2,003,171
Reinvested 19,944 11,444 31,417 19,609
Redeemed (4,111,344) (2,075,151) (3,254,666) (1,548,317)
Total 245,059 482,856 116,128 474,463
Select Shares:
Issued 5,370,734 2,744,269 1,234,442 712,220
Reinvested 35,311 25,764 11,518 4,345
Redeemed (4,862,062) (2,686,643) (1,160,457) (518,427)
Total 543,983 83,390 85,503 198,138
<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>
6. Federal Income Tax (unaudited):
As of October 31, 1999, for federal income tax purposes, the following funds
have capital loss carryforwards available to offset future capital gains, if
any (amounts in thousands):
Amount Expires
Institutional Money Market Fund 14 2007
Federal Money Market Fund 63 2007
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of
The Victory Portfolios:
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and changes in net assets, and the financial highlights present
fairly, in all material respects, the financial position of the Institutional
Money Market Fund and the Federal Money Market Fund (two of the funds
constituting the Victory Portfolios) at October 31, 1999, the results of
operations for the year then ended, the changes in each of their net assets
for the periods presented, 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, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights of
the Institutional Money Market Fund for the year 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 16, 1999
16
<PAGE>
Bulk Rate
U.S. Postage
PAID
Cleveland, OH
Permit No. 1535
LOGO(R)
Victory Funds
Call Victory at: Visit our web site at:
800-539-FUND (800-539-3863) www.victoryfunds.com
1AR-IMMVF 10/99
