THE INSTITUTIONAL MONEY MARKET FUND
THE FEDERAL MONEY MARKET FUND
SEMIANNUAL
REPORT
APRIL 30,
1999
(LOGO)(R)
Victory Funds
<PAGE>
TABLE OF CONTENTS
Shareholder Letter 2
Financial Statements
Schedules of Investments 3
Statements of Assets and Liabilities 8
Statements of Operations 9
Statements of Changes in Net Assets 10
Notes to Financial Statements 11
Financial Highlights 15
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 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 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
Institutional Money Market Fund and 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 seek 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
Call Victory at:
800-539-FUND (800-539-3863)
Or Call Gradison McDonald at:
800-869-5999 or 513-579-5999
<PAGE>
Letter to our Shareholders
On behalf of the Victory Funds, thank you for your continued confidence in
Victory. If you are new to the Victory Funds, welcome! We are pleased to
present the Semi-Annual Report for the Victory Federal and Institutional
Money Market Funds for the period ended April 30, 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 the first half of the fiscal year 1999 and some brief
economic commentary.
Since our last report, KeyCorp completed its acquisition of McDonald
Investments, Inc. and its related dealer, McDonald & Company Securities, a
full-service investment banking and securities brokerage firm. Soon after
that acquisition, the Gradison Funds, the proprietary mutual fund offering of
McDonald-Gradison Investments, Inc., were merged into the Victory Funds. The
combined assets of the Victory Funds, advised by Key Asset Management, an
affiliate of KeyCorp, 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 objectives.
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.
We encourage our shareholders to take 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.
Again, 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
Leigh A. Wilson
President
The Victory 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 Schedules of Investments
Institutional Money Market Fund April 30, 1999
(Amounts in Thousands) (Unaudited)
Principal Amortized
Security Description Amount Cost
Bankers Acceptances (1.5%)
Bank Of Hawaii Nassar,
5.11%, 6/21/99 $14,651 $14,545
Toronto Dominion Bank, Ltd.,
4.80%, 5/17/99 15,000 14,968
Total Bankers Acceptances
(Amortized Cost $29,513) 29,513
Certificates of Deposit (5.8%)
Bayerische Landesbank NY,
5.12%, 3/21/00 8,000 7,985
Rabobank,
5.11%, 2/18/00 10,000 9,998
Rabobank,
5.14%, 3/27/00 5,000 4,999
Royal Bank of Canada,
5.70%, 6/23/99 7,000 7,000
Royal Bank of Canada,
4.97%, 2/3/00 5,000 4,989
Societe Generale,
4.85%*, 5/1/99** 5,000 5,000
Societe Generale,
4.99%*, 5/1/99** 10,000 9,998
Societe Generale,
5.00%*, 5/1/99** 25,000 24,998
Societe Generale,
5.29%, 3/3/00 7,000 6,995
Swiss Bank,
5.82%, 5/4/99 5,000 5,000
Toronto Dominion Bank, Ltd.,
4.84%, 6/15/99 20,000 20,000
UBS,
5.29%, 3/1/00 10,000 9,999
Total Certificates of Deposit
(Amortized Cost $116,961) 116,961
Commercial Paper (46.2%)
Abbey National N.A.,
4.82%, 7/8/99 65,000 64,408
ABN AMRO North American
Finance, Inc.,
4.83%, 5/19/99 20,000 19,952
Asset Securitization Capital Corp.,
4.80%, 6/1/99 10,000 9,959
Baker Hughes, Inc.,
4.85%, 6/28/99 20,000 19,844
Brown Forman,
4.79%, 5/20/99 20,000 19,949
Coca-Cola,
4.80%, 5/26/99 15,000 14,950
Delaware Funding Corp.,
4.81%, 5/20/99 20,000 19,949
Delaware Funding Corp.,
4.83%, 6/8/99 20,000 19,898
Edison Asset Securities,
4.84%, 5/19/99 31,496 31,419
Edison Asset Securities,
4.82%, 6/1/99 15,000 14,938
Edison Asset Securities,
4.85%, 7/12/99 30,000 29,709
Fleet Funding Corp.,
4.86%, 5/10/99 25,000 24,970
Fleet Funding Corp.,
4.82%, 5/20/99 36,442 36,348
Fuji Photo Co., Ltd.,
4.82%, 6/8/99 15,000 14,924
Goldman Sachs Group,
4.95%, 5/28/99 20,000 19,926
Great Lakes Chemical,
4.84%, 5/19/99 15,000 14,964
Household Finance,
6.77%, 6/7/99 1,000 1,002
Iowa Student Loan Liquidity Corp.,
4.84%, 5/27/99 15,000 14,948
Matson Navigation,
4.86%, 5/17/99 10,000 9,978
McCormick and Co.,
4.80%, 6/8/99 10,000 9,949
McGraw-Hill,
4.85%, 5/3/99 9,000 8,998
McGraw-Hill,
4.82%, 5/5/99 20,700 20,688
McGraw-Hill,
4.82%, 5/13/99 20,000 19,968
McGraw-Hill,
4.83%, 7/28/99 14,000 13,835
Mont Blanc Capital Corp.,
4.85%, 5/20/99 25,000 24,937
Mont Blanc Capital Corp.,
4.83%, 5/21/99 16,677 16,632
Mont Blanc Capital Corp.,
4.87%, 5/24/99 18,000 17,944
Mont Blanc Capital Corp.,
4.82%, 6/4/99 16,836 16,759
Morgan Stanley Group,
4.83%, 7/7/99 15,000 14,865
<PAGE>
Nalco Chemical Corp.,
5.01%, 5/12/99 12,000 11,982
Nalco Chemical Corp.,
4.78%, 6/29/99 9,000 8,929
Redwood Receivables Corp.,
4.84%, 5/25/99 20,000 19,935
Redwood Receivables Corp.,
4.82%, 5/27/99 15,000 14,948
Redwood Receivables Corp.,
4.83%, 6/1/99 20,000 19,917
Redwood Receivables Corp.,
4.80%, 6/8/99 10,000 9,949
Reed Elsevier, Inc.,
4.81%, 6/8/99 15,000 14,924
Reed Elsevier, Inc.,
4.80%, 7/16/99 25,000 24,747
Salomon Smith Barney,
4.96%, 6/1/99 15,000 14,936
Salomon Smith Barney,
4.81%, 6/7/99 25,000 24,876
Sigma Financial Corp.,
4.88%, 9/13/99 10,000 9,817
Sino Chemical,
4.84%, 5/12/99,
LOC ABN AMBRO 14,200 14,179
Sino Chemical,
4.81%, 5/26/99 20,000 19,933
Texas Agricultural Finance Authority,
4.85%, 6/18/99 11,000 10,929
Transamerica Finance,
4.87%, 5/4/99 15,000 14,994
UBS Finance,
4.90%, 11/22/99 20,000 19,442
Walt Disney Co.,
6.25%, 6/21/99 10,000 10,014
Walt Disney Co.,
4.84%, 9/17/99 15,000 14,720
Weyerhaeuser Real Estate,
4.80%, 5/14/99 35,000 34,940
Weyerhaeuser Real Estate,
4.78%, 5/18/99 14,546 14,513
Weyerhaeuser Real Estate,
4.78%, 5/19/99 10,850 10,824
Xerox Corp.,
4.77%, 5/18/99 20,000 19,955
Total Commercial Paper
(Amortized Cost $926,013) 926,013
Corporate Bonds (28.5%)
American General,
8.50%, 6/15/99 2,000 2,008
American General,
7.20%, 11/30/99 2,000 2,023
Associates Corp., N.A.,
6.75%, 6/28/99 5,000 5,006
Associates Corp., N.A.,
6.63%, 7/15/99 7,250 7,263
Associates Corp., N.A.,
8.25%, 12/1/99, MTN 7,180 7,310
AVCO Financial Services,
8.50%, 10/15/99, MTN 4,000 4,058
Beta Finance,
5.03%*, 5/4/99** 10,000 10,000
Beta Finance,
5.26%*, 5/4/99** 10,000 10,000
CIT Group Holdings,
6.38%, 5/21/99, MTN 2,000 2,001
CIT Group Holdings, 6.63%,
6/28/99, MTN 2,000 2,005
CIT Group Holdings,
6.10%, 8/9/99, MTN 3,000 3,008
Danis Construction Co.,
4.92%*, 5/6/99**,
LOC Fifth Third Bank 5,100 5,100
Dell Tin Fiber LLC,
5.00%*, 5/5/99**,
LOC 1st Chicago 12,000 12,000
Ford Motor Credit Corp.,
7.90%, 5/17/99, MTN 5,000 5,005
Ford Motor Credit Corp.,
7.47%, 7/29/99, MTN 1,000 1,006
GE Capital Corp.,
8.75%, 10/25/99 3,000 3,048
General American Life Insurance,
5.14%*, 5/1/99** 60,000 60,000
General American Life Insurance,
5.14%*, 5/3/99** 10,000 10,000
General Motors Acceptance Corp.,
4.95%*, 5/19/99, MTN 15,000 14,999
General Motors Acceptance Corp.,
7.13%, 6/1/99 1,500 1,502
General Motors Acceptance Corp.,
8.40%, 10/15/99, MTN 2,750 2,790
Goldman Sachs Group,
5.18%*, 5/1/99**, MTN 10,000 10,001
<PAGE>
Goldman Sachs Group,
5.36%*, 5/3/99** 10,000 10,000
John Deere Capital Corp.,
5.65%, 8/6/99, MTN 3,000 3,004
Lehman Brothers Holding, Inc.,
4.98%*, 5/23/99**, MTN 45,000 45,000
Lexington Financial Services,
5.00%*, 5/5/99**, LOC LaSalle
National Bank 2,505 2,505
Liberty Lighthouse US Capital,
5.04%*, 5/1/99**, MTN 15,000 14,998
Merrill Lynch,
5.10%*, 5/1/99**, MTN 10,000 9,999
Merrill Lynch,
5.11%*, 5/1/99, MTN 10,000 10,000
Merrill Lynch,
5.13%*, 5/1/99** 10,000 10,000
Merrill Lynch,
5.14%*, 5/1/99**, MTN 10,000 10,003
Morgan Guaranty Trust Co.,
4.86%*, 5/27/99** 30,000 29,995
Morgan Stanley Dean Witter,
5.10%*, 5/15/99**, MTN 13,000 13,000
Morgan Stanley Dean Witter,
6.82%, 12/15/99, MTN 10,000 10,106
Morgan Stanley Group, Inc.,
5.75%, 10/8/99 10,000 10,028
Nations Bank Note,
5.04%, 5/7/99 10,000 10,000
Nations Bank Note,
5.00%, 1/5/00 20,000 19,997
Norwest Financial, Inc.,
6.05%, 11/19/99 6,800 6,833
Norwest Financial, Inc.,
6.88%, 12/15/99 10,400 10,515
Norwest Financial, Inc.,
7.25%, 3/15/00 10,000 10,173
Pomeroy Investments,
5.02%*, 5/6/99**,
LOC Fifth Third Bank 3,450 3,450
Presrite Corp.,
4.88%*, 5/6/99**, LOC NCB 4,500 4,500
Salomon Smith Barney,
6.25%, 10/1/99 17,000 17,070
Salomon Smith Barney,
6.50%, 3/1/00 13,000 13,145
Sea River Maritime, Inc.,
4.90%*, 5/3/99**,
Guaranteed by Exxon Corp. 13,200 13,200
Sigma Financial, Inc.,
5.08%*, 5/4/99** 10,000 10,000
Southwestern Ohio Steel,
5.02%*, 5/6/99**,
LOC Star Bank 4,480 4,480
Transamerica Finance Corp.,
5.05%*, 5/11/99** 8,000 8,000
Transamerica Finance Corp.,
5.25%*, 7/22/99**, MTN 40,000 40,000
USL Capital Corp.,
6.69%, 5/14/99, MTN 1,300 1,301
USL Capital Corp.,
5.30%, 6/8/99** 5,000 5,010
USL Capital Corp.,
5.28%*, 7/1/99** 5,000 5,002
USL Capital Corp.,
7.40%, 11/2/99 5,000 5,058
USL Capital Corp.,
7.54%, 12/22/99 5,000 5,076
Xerox Credit,
5.32%, 3/31/00 18,000 17,993
Total Corporate Bonds
(Amortized Cost $569,574) 569,574
U.S. Government Agencies (6.0%)
Federal Home Loan Bank (1.5%):
4.77%, 6/30/99 (b) 20,000 19,841
5.00%, 1/5/00,
Callable 7/5/99 @ 100 (b) 10,000 10,000
29,841
Federal National Mortgage
Assoc. (2.9%):
4.52%*, 5/4/99** (b) 33,000 33,000
4.64%*, 5/4/99** (b) 25,000 25,000
58,000
Student Loan Marketing
Assoc. (1.6%):
4.61%*, 5/4/99** (b) 32,500 32,500
Total U.S. Government Agencies
(Amortized Cost $120,341) 120,341
<PAGE>
Repurchase Agreements (11.9%)
Goldman Sachs Group L.P.,
4.90%, 5/3/99,
(Collateralized by $50,987
U.S. Treasury Bond
11.25%, 2/15/15,
market value -- $81,600) 80,000 80,000
Lehman Brothers, Inc.,
4.90%, 5/3/99,
(Collateralized by $64,002,
U.S. Treasury Notes,
5.63%-7.00%, 12/31/99-7/15/06,
market value -- $71,402) 70,000 70,000
Paine Weber,
4.90%, 5/3/99,
(Collateralized by $91,020
U.S. Treasury Bills,
0.00%, 7/29/99-10/28/99,
market value -- $89,896) 88,129 88,129
Total Repurchase Agreements
(Amortized Cost $238,129) 238,129
Securities Purchased With Cash Collateral (5.2%)
Short Term Securities (1.0%):
General American Funding
Agreement, 5.10%, 3/29/00 14,447 14,447
AIM Short Term Prime
Money Market Fund 1,909 1,909
AIM Liquid Assets
Money Market Fund 2,666 2,666
19,022
Repurchase Agreements (4.2%):
Salomon Corp.,
5.04%, 5/3/99
(See Significant Accounting
Policies, Securities Lending in
the Notes to Financial Statements
for collateral description) 25,000 25,000
Goldman Sachs Group L.P.,
5.04%, 5/3/99
(See Significant Accounting
Policies, Securities Lending in
the Notes to Financial Statements
for collateral description) 25,000 25,000
Nations Bank,
5.04%, 5/3/99
(Collateralized by $23,958
Star Bank, 6.63%, 12/15/06,
National City Bank of PA,
7.25%, 10/21/11,
Mellon Bank, 7.63%, 9/15/07,
market -- value $25,750) 25,000 25,000
Morgan Stanley Dean Witter,
5.04%, 5/3/99
(Collateralized by $11,250
Crestar Financial,
6.50%, 1/15/18,
Archer Daniels Midland,
6.75%, 12/15/27,
market value -- $11,620) 10,000 10,000
85,000
Total Securities Purchased
With Cash Collateral (Cost $104,022) 104,022
Total Investments
(Amortized Cost $2,104,553) (a) -- 105.1% 2,104,553
Liabilities in excess of other assets -- (5.1)% (102,549)
TOTAL NET ASSETS -- 100.0% $2,002,004
(a) Cost and value for federal income tax and financial
reporting purposes are the same.
(b) All or a portion of this security was loaned as of
April 30, 1999.
* Variable rate securities having liquidity sources through
bank letters of credit and/or liquidity agreements. The interest
rate, which will change periodically, is based upon bank prime
rates or an index of market interest rates. The rate reflected on
the Schedule of Portfolio Investments is the rate in effect at
April 30, 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.
<PAGE>
THE VICTORY PORTFOLIOS Schedules of Investments
Federal Money Market Fund April 30, 1999
(Amounts in Thousands) (Unaudited)
Principal Amortized
Security Description Amount Cost
U.S. Government Agencies (79.9%)
Federal Farm Credit Bank (16.5%):
4.77%, 8/2/99 $ 50,000 $ 50,000
4.84%, 6/1/99 70,000 69,999
4.60%, 5/3/99 50,000 50,000
169,999
Federal Home Loan Bank (10.3%):
5.10%, 5/11/00 19,175 19,172
5.00%, 4/20/00 10,000 9,998
5.03%, 10/29/99,
Callable 1/29/99 @ 100 5,000 5,000
5.00%, 10/28/99,
Callable 1/28/99 @ 100 15,000 15,000
4.86%*, 6/17/99 6,500 6,497
4.73%, 5/7/99 50,000 49,960
105,627
Federal Home Loan Mortgage
Corp. (13.6%):
7.125%, 7/21/99 25,000 25,121
4.70%, 7/2/99 25,000 24,798
4.78%, 6/18/99 40,000 39,748
4.75%, 6/4/99 25,000 24,888
4.86%, 6/3/99 25,000 24,890
139,445
Federal National Mortgage
Assoc. (32.4%):
4.72%, 10/13/99 42,950 42,021
4.86%, 10/12/99 10,000 10,039
4.63%, 7/26/99 25,000 24,723
4.69%, 7/22/99 10,000 9,893
4.71%, 7/13/99 30,000 29,713
4.69%, 7/12/99 22,500 22,289
4.83%*, 6/24/99 25,000 24,995
4.79%, 5/25/99 15,000 14,952
4.75%, 5/19/99 50,000 49,881
4.79%, 5/18/99 55,000 54,877
4.69%, 5/13/99 50,000 49,923
333,306
Overseas Private Investment
Corp. (1.3%):
4.80%*, 1/15/09** 2,194 2,194
4.80%*, 1/15/09** 2,048 2,048
4.80%*, 1/15/09** 2,261 2,261
4.80%*, 1/15/09** 975 975
4.80%*, 1/15/09** 5,850 5,849
13,327
Student Loan Marketing
Assoc. (5.8%):
5.05%, 1/19/00,
Callable 4/19/99 @ 100 10,000 10,000
5.21%*, 11/9/99 20,000 20,035
4.49%*, 6/28/99 30,000 29,973
60,008
Total U.S. Government Agencies
(Amortized Cost $821,712) 821,712
Repurchase Agreements (26.9%)
Financial Services (26.9%):
Donaldson-Lufkin Jenrette
Securities Corp., 4.91%,
5/3/99 (Collateralized by
$199,732 various U.S.
Government securities,
0.00%-8.45%, 7/12/99-6/1/17,
market value -- $197,002) 197,002 197,002
Lehman Brothers, Inc., 4.92%,
5/3/99 (Collateralized by
$81,380 various U.S.
Government securities,
5.53%-6.12%, 2/5/04-9/4/08,
market value -- $81,584) 80,000 80,000
Total Repurchase Agreements
(Amortized Cost $277,002) 277,002
Total Investments
(Amortized Cost $1,098,714) (a) -- 106.8% 1,098,714
Liabilities in excess of other assets (6.8)% (70,077)
TOTAL NET ASSETS -- 100.0% $1,028,637
(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 Portfolio Investments is the
rate in effect at April 30, 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.
<PAGE>
Statements of Assets and Liabilities
THE VICTORY PORTFOLIOS April 30, 1999
(Amounts in Thousands, Except Per Share Amounts) (Unaudited)
Institutional Federal
Money Market Money Market
Fund Fund
ASSETS:
Investments, at amortized cost $1,781,424 $ 821,712
Repurchase agreements, at cost 323,129 277,002
Total 2,104,553 1,098,714
Cash 1 --
Interest receivable 7,816 2,996
Receivable from brokers for investments sold 1,750 --
Prepaid expenses and other assets 310 136
Total Assets 2,114,430 1,101,846
LIABILITIES:
Dividends payable 7,582 3,803
Payable to brokers for investments purchased -- 69,172
Payable for capital shares redeemed 135 --
Payable for return of collateral received 104,022 --
Accrued expenses and other payables:
Investment advisory fees 264 119
Administration fees 121 7
Custodian fees 34 4
Accounting fees 1 1
Transfer agent fees 1 10
Shareholder service fees--Select Shares 153 36
Other 113 57
Total Liabilities 112,426 73,209
NET ASSETS:
Capital 2,001,857 1,028,631
Undistributed net investment income 140 1
Accumulated undistributed net realized gains
from investment transactions 7 5
Net Assets $2,002,004 $1,028,637
Net Assets
Investor Shares $1,222,375 $ 763,452
Select Shares 779,629 265,185
Total $2,002,004 $1,028,637
Outstanding units of beneficial interest (shares)
Investor Shares 1,222,363 763,452
Select Shares 779,629 265,185
Total 2,001,992 1,028,637
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.
<PAGE>
Statements of Operations
THE VICTORY PORTFOLIOS For the Six Months Ended April 30, 1999
(Amounts in Thousands) (Unaudited)
Institutional Federal
Money Market Money Market
Fund Fund
Investment Income:
Interest income $49,506 $23,771
Securities lending income 3 --
Total income 49,509 23,771
Expenses:
Investment advisory fees 2,403 1,203
Administration fees 1,442 289
Shareholder service fees--Select Shares 879 307
Custodian fees 187 98
Accounting fees 53 49
Legal and audit fees 101 52
Trustees' fees and expenses 24 12
Transfer agent fees 94 31
Registration and filing fees 95 111
Printing fees 82 32
Other 19 19
Total Expenses 5,379 2,203
Expenses voluntarily reduced (1,760) (563)
Net Expenses 3,619 1,640
Net Investment Income 45,890 22,131
Realized Gains from Investments:
Net realized losses from investment transactions (13) (8)
Change in net assets resulting from operations $45,877 $22,123
See notes to financial statements.
<PAGE>
THE VICTORY PORTFOLIOS Statements of Changes in Net Assets
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
Institutional Money Market Fund Federal Money Market Fund<F1>
Six Months Six Months Eleven Months
Ended Year Ended Ended Ended Year Ended
April 30, October 31, April 30, October 31, November 30,
1999 1998 1999 1998 1997
<S> <C> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 45,890 $ 70,214 $ 22,131 $ 27,461 $ 5,455
Net realized gains
(losses) from
investment transactions (13) 19 (8) 6 --
Change in net assets resulting
from operations 45,877 70,233 22,123 27,477 5,455
Distributions to Shareholders:
From net investment income
Investor Shares (29,745) (44,160) (16,725) (22,345) (5,455)
Select Shares (16,145) (26,052) (5,406) (5,116) --
From net realized gains from
investment transactions -- (15) -- (3) --
Change in net assets from
distributions to shareholders (45,890) (70,227) (22,131) (27,464) (5,455)
Capital Transactions:
Proceeds from shares issued 4,168,711 5,290,832 2,225,576 2,715,391 471,869
Dividends reinvested 24,994 37,208 19,849 23,954 3,317
Cost of shares redeemed (3,832,242) (4,761,794) (2,132,893) (2,066,744) (273,846)
Change in net assets from
capital transactions 361,463 566,246 112,532 672,601 201,340
Change in net assets 361,450 566,252 112,524 672,614 201,340
Net Assets:
Beginning of period 1,640,554 1,074,302 916,113 243,499 42,159
End of period $ 2,002,004 $ 1,640,554 $ 1,028,637 $ 916,113 $ 243,499
Share Transactions:
Issued 4,168,711 5,290,832 2,225,576 2,715,391 471,869
Reinvested 24,994 37,208 19,849 23,954 3,317
Redeemed (3,832,242) (4,761,794) (2,132,893) (2,066,744) (273,846)
Change in shares 361,463 566,246 112,532 672,601 201,340
<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.
<PAGE>
Notes to Financial Statements
THE VICTORY PORTFOLIOS April 30, 1999
(Unaudited)
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 issues two classes of shares: Investor Shares and Select
Shares. Each class of shares has identical rights and privileges except with
respect to fees paid under shareholders service plans, expenses allocable
exclusively to each class of shares, voting rights on matters affecting a
single class of shares, and the exchange privilege of each class of shares.
The Institutional Money Market Fund seeks to obtain a high level of current
income as is consistent with preserving capital and providing liquidity. The
Federal Money Market Fund seeks to provide high current income to the extent
consistent with the preservation of capital.
2. Reorganization:
The Trust entered an Agreement and Plan of Reorganization with The SBSF
Funds, Inc. d/b/a Key Mutual Funds pursuant to which all of the assets and
liabilities of each Key Mutual Fund transferred to a Fund of the Victory
Portfolios in exchange for shares of the corresponding Fund. The Key Money
Market Fund transferred its assets and liabilities to the Victory Federal
Money Market Fund. The reorganization, which qualified as a tax-free exchange
for federal income tax purposes, was completed on March 23, 1998, following
approval by shareholders of SBSF Funds, Inc. d/b/a Key Mutual Funds at a
special shareholder meeting held on March 6, 1998. The following is a summary
of shares outstanding, net assets, net asset value per share and unrealized
appreciation immediately before and after the reorganization:
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.
<PAGE>
Repurchase Agreements:
The Funds may acquire repurchase agreements from financial institutions such
as banks and broker-dealers which the Fund's investment adviser deems
creditworthy under guidelines approved by the Board of Trustees, subject to
the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price generally equals the price
paid by a Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying securities.
The seller, under a repurchase agreement, is required to maintain the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). Securities subject to repurchase
agreements are held by the 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.
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 33 1/3% 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. The following Funds had
securities with the following market values on loan as of April 30, 1999
(amounts in thousands):
Market Value of
Loaned Securities
Institutional Money Market Fund $121,860
As disclosed in the Schedule of Investments the Victory Institutional Money
Market Fund invested cash collateral in a Goldman Sachs Group, L.P.
Repurchase Agreement with an interest rate of 5.04% and a maturity date of
5/3/99 which was collateralized by the following securities (amounts in
thousands):
Principal Description Market Value
$ 2,232 AT&T Corp., 7.50%, 6/1/06 $ 2,480
1,000 Boeing Co., 7.88%, 2/15/05 1,108
2,000 Ford Motor Credit Corp., 5.77%, 9/15/48 2,005
1,336 General Electric Capital Corp., 2.97%, 2/1/49 1,337
1,055 Midwest Power Systems, Inc., 7.13%, 2/1/03 1,104
1,500 Motorola, Inc., 8.40%, 8/15/31 1,851
1,544 Motorola, Inc., 6.50%, 11/15/28 1,540
2,061 Province of Ontario, 7.75%, 6/4/02 2,254
10,087 Province de Quebec, 7.50%, 7/15/23 11,354
1,000 Sun Canada Financial Co., 6.63%, 12/15/07 1,009
2,000 USB, 6.30%, 7/15/08 2,039
$28,081
<PAGE>
As disclosed in the Schedule of Investments the Victory Institutional Money
Market Fund invested cash collateral in a Salomon Corp. Repurchase Agreement
with an interest rate of 5.04% and a maturity date of 5/3/99 which was
collateralized by the following securities (amounts in thousands):
Principal Description Market Value
$2,393 Atlantic Richfield, 9.88%, 3/1/16 $ 3,051
2,500 Carolina Power & Light, 8.63%, 9/15/21 2,984
4,550 Danaher Corp., 6.00%, 10/15/08 4,384
4,200 General Motors, 5.95%, 3/14/03 4,217
115 Minnesota General Electric, 5.75%, 11/1/11 113
4,230 Province de Quebec, 5.74%, 3/2/26 4,236
3,250 Texas Petroleum, 8.38%, 3/15/05 3,583
3,395 Tele-Communications, Inc., 9.80%, 2/1/12 4,431
$26,999
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 Adviser"), a wholly owned subsidiary of KeyBank National
Association ("Key"), a wholly owned subsidiary of KeyCorp. 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 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.
<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 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.
Additional information regarding related party transactions is as follows for
the six months ended April 30, 1999:
Investment Advisory Fees Administration
Fees
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
(000) (000)
Institutional Money Market Fund 0.25% $895 $865
Federal Money Market Fund 0.25% $563 --
5. Capital Share Transactions:
Transactions in capital shares were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Institutional Money Market Fund Federal Money Market Fund
Six Months Year Six Months Eleven Months
Ended Ended Ended Ended
April 30, October 30, April 30, October 30,
1999 1998 1999 1998<F1>
<S> <C> <C> <C> <C>
Capital Share Transactions:
Investor Shares:
Issued 1,863,785 2,546,563 1,566,506 2,003,171
Reinvested 9,336 11,444 14,637 19,609
Redeemed (1,719,260) (2,075,151) (1,535,657) (1,548,317)
Total 153,861 482,856 45,486 474,463
Select Shares:
Issued 2,304,926 2,744,269 659,070 712,220
Reinvested 15,658 25,764 5,212 4,345
Redeemed (2,112,982) (2,686,643) (597,236) (518,427)
Total 207,602 83,390 67,046 198,138
<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>
<PAGE>
THE VICTORY PORTFOLIOS Financial Highlights
<TABLE>
<CAPTION>
Institutional Money Market Fund
Investor Shares
Six Months Year Year Year Six Months
Ended Ended Ended Ended Ended
April 30, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1999 1998 1997 1996<F6> 1995<F5>
(Unaudited)
<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 0.024 0.054 0.053 0.053 0.290
Distributions
Net investment income (0.024) (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 2.45%<F3> 5.53% 5.46% 5.41% 2.90%<F3>
Ratios/Supplemental Data:
Net Assets,
End of Period(000) $1,222,375 $1,068,521 $585,663 $671,575 $504,536
Ratio of expenses to
average net assets 0.27%<F4> 0.27% 0.28% 0.27% 0.26%<F4>
Ratio of net investment income
to average net assets 4.88%<F4> 5.38% 5.32% 5.27% 5.69%<F4>
Ratio of expenses to
average net assets<F1> 0.46%<F4> 0.42% 0.48% 0.48% 0.49%<F4>
Ratio of net investment income
to average net assets<F1> 4.69%<F4> 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.
THE VICTORY PORTFOLIOS Financial Highlights
<TABLE>
<CAPTION>
Institutional Money Market Fund
Select Shares
Six Months Year Year Year June 5,
Ended Ended Ended Ended 1995 to
April 30, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Year Ended April 30,
1999 1998 1997 1996<F6> 1995<F2><F5> 1995 1994
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.023 0.051 0.051 0.050 0.012 0.500 0.028
Distributions
Net investment income (0.023) (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 $ 1.000
Total Return 2.31%<F3> 5.22% 5.17% 5.16% 1.23%<F3> 4.91% 2.80%
Ratios/Supplemental Data:
Net Assets,
End of Period(000) $779,629 $572,033 $488,639 $373,090 $11,479 $449,814 $541,229
Ratio of expenses to
average net assets 0.55%<F4> 0.56% 0.55% 0.52% 0.51%<F4> 0.27% 0.55%
Ratio of net investment income
to average net assets 4.59%<F4> 5.09% 5.06% 4.97% 5.33%<F4> 4.91% 2.78%
Ratio of expenses to
average net assets<F1> 0.74%<F4> 0.71% 0.75% 0.73% 1.00%<F4> 0.51% 0.55%
Ratio of net investment income
to average net assets<F1> 4.41%<F4> 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>
THE VICTORY PORTFOLIOS Financial Highlights
<TABLE>
<CAPTION>
Federal Money Market Fund
Investor Select
Shares Shares
Eleven
Months
Six Months Ended Six Months Period Ended Fiscal Year Ended November 30,
Ended April, October 31, Ended April, October 31,
1999 1998<F2> 1999 1998<F2> 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net Asset Value,
Beginning of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities
Net investment income 0.023 0.048 0.022 0.031 0.048 0.047 0.051 0.034 0.026
Distributions
Net investment income (0.023) (0.048) (0.022) (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 $ 1.000 $ 1.000
Total Return 2.34%<F3> 4.91%<F3> 2.21%<F3> 3.14%<F3> 4.94% 4.65% 5.26% 3.37% 2.61%
Ratios/Supplementary Data:
Net Assets at end
of period (000) $763,452 $717,972 $265,185 $198,141 $243,499 $42,159 $21,848 $28,606 $16,222
Ratio of expenses to
average net assets 0.28%<F4> 0.27%<F4> 0.53%<F4> 0.43%<F4> 0.53% 0.64% 0.63% 0.59% 0.55%
Ratio of net investment
income to average
net assets 4.66%<F4> 5.22%<F4> 4.40%<F4> 5.06%<F4> 4.91% 4.59% 5.15% 3.35% 3.16%
Ratio of expenses to
average net assets<F1> 0.39%<F4> 0.48%<F4> 0.64%<F4> 0.54%<F4> 0.90% 0.92% 0.91% 0.87% 0.83%
Ratio of net investment
income to average
net assets<F1> 4.55%<F4> 5.01%<F4> 4.29%<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>
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
1IMM-SEMI-AR 6/99
