October 31, 2000
Annual Report
Institutional Money Market Fund
Federal Money Market Fund
Victory Funds
LOGO(R)
<PAGE>
Table of Contents
Shareholder Letter 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
The Victory Portfolios
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.
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.
Victory Funds
LOGO(R)
Call Victory at:
800-539-FUND (800-539-3863)
Visit our web site at:
www.victoryfunds.com
1
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Letter to our Shareholders
On behalf of Victory Funds, thank you for your continued support and
confidence in using Victory Funds to help meet your investment goals! We
strive on a daily basis to make sure you have the appropriate information you
need to remain confident in your choice to invest in Victory Funds. To that
end, I am pleased to present the Victory Institutional Money Market and
Federal Money Market Funds Annual Report for the period ending October 31,
2000. I hope you find this report useful, easy to read, and a valuable tool.
The past year has been an exciting time for Victory Funds. Through the
combination of a new sales and marketing literature system, a new and
improved Internet presence, and the support of the many financial
intermediaries offering Victory Funds, we are now over 30 mutual funds strong
with more than $20 billion in assets under management.
Two of Victory Funds' core beliefs are guidance and education. We recognize
it can be a complex decision to invest in securities through mutual funds,
particularly when your hard-earned savings to fund a child's education, a new
home, or a comfortable retirement is on the line. That's why I feel it is
important for our shareholders to know "What Makes Victory Funds Different?"
I am confident that after you review the following points you will be
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. Dependability is the essence of Victory Funds. When you
entrust your money to a Victory Fund, you can rest assured that the portfolio
managers of the Funds are known for adhering to the fund's stated management
style and investment objective.
Discipline. A highly rigorous and disciplined investment process, refined
over decades by the wisdom of experienced money managers, guides the
selection of securities for Victory Funds. Key Asset Management, Inc., an
established firm with a 100-year heritage, meticulously implements this
proven process.
Teamwork. A knowledgeable team of investment professionals supports
Victory Fund portfolio managers, who have an average of 17 years of
experience.
Guidance. Victory strives to make sure you have the information you need to
make the best investment decisions. The guidance available through investment
professionals, "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 ultimate measure of your investment success is performance.
At Victory Funds, our long-term perspective leads us to pursue the optimal
return with a reasonable level of risk. We are committed to achieving
consistent, rewarding results over time.
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, 2000
INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
INVESTOR SELECT INVESTOR SELECT
CLASS CLASS CLASS CLASS
Seven-Day Yield 6.39% 5.80% 6.29% 6.05%
Seven-Day Effective Yield 6.60% 5.96% 6.49% 6.23%
One Year Total Return 6.16% 5.88% 5.95% 5.69%
Maturity Schedule
As of October 31, 2000
Days to Maturity INSTITUTIONAL FEDERAL
MONEY MARKET MONEY MARKET
Less than 30 Days 62.6% 65.6%
31 to 60 Days 16.8% 6.2%
61 to 90 Days 2.1% 3.6%
Greater than 90 Days 18.5% 24.6%
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.
The total return figures set forth above may reflect the waiver of a portion
of certain fees for various periods since the Fund's inception date. In such
instances and without such waiver of fees, the total returns would have been
lower. Fee waivers are voluntary and may be modified or terminated at any time.
2
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THE VICTORY PORTFOLIOS Schedules of Investments
Institutional Money Market Fund October 31, 2000
(Amounts in Thousands)
Principal Amortized
Security Description Amount Cost
Bankers Acceptances (1.5%)
Toronto Dominion, 6.50%, 11/1/00........ $ 20,000 $ 20,000
Toronto Dominion, 6.51%, 1/31/01........ 30,000 29,512
Toronto Dominion, 6.50%, 2/20/01........ 12,500 12,249
Total Bankers Acceptances (Amortized Cost $61,761) 61,761
Certificates of Deposit (18.4%)
ABN-AMRO North American Bank,
6.72%, 3/2/01......................... 30,000 29,999
Bank of America, 7.34%, 5/15/01......... 40,000 40,000
Bank One NA Illinois, 7.15%, 6/15/01.... 25,000 24,997
Bayerische Landesbank New York,
6.60%, 3/7/01......................... 30,000 29,996
Bayerische Landesbank New York,
6.35%, 3/26/01........................ 6,600 6,593
Bayerische Landesbank New York,
6.06%, 6/18/01........................ 6,000 5,968
Canadian Imperial Bank of Commerce,
7.01%, 11/22/00....................... 30,000 30,000
Canadian Imperial Bank of Commerce,
6.52%, 11/27/00....................... 50,000 50,000
Canadian Imperial Bank of Commerce,
7.06%, 12/27/00....................... 10,000 10,000
Canadian Imperial Bank of Commerce,
6.87%, 8/16/01........................ 30,000 29,993
Deutsche Bank, 6.51%, 1/31/01........... 25,000 24,997
Deutsche Bank, 6.76%, 2/14/01........... 10,000 10,001
Deutsche Bank, 6.78%, 9/11/01........... 40,000 39,992
Dresdner Bank, 7.18%, 6/7/01............ 20,000 19,999
National City Bank, 6.98%, 8/2/01....... 35,000 34,990
National Westminster Bank,
6.93%, 4/27/01........................ 50,000 49,993
Rabobank, 7.01%, 11/20/00............... 10,000 10,001
Rabobank, 6.83%, 12/22/00............... 40,000 40,005
Rabobank, 6.68%, 2/12/01................ 30,000 29,997
Rabobank, 6.62%, 2/16/01................ 20,000 19,997
Royal Bank of Canada,
6.55%, 12/20/00....................... 100,000 100,002
Societe Generale, 6.85%, 12/21/00....... 10,000 10,000
Societe Generale, 6.75%, 12/29/00....... 25,000 25,000
Toronto Dominion, 6.69%, 12/27/00....... 50,000 50,000
UBS Finance, 6.22%, 12/11/00............ 30,000 29,989
Wachovia Bank, 6.59%, 11/15/00.......... 15,000 15,000
Total Certificates of Deposit
(Amortized Cost $767,509) 767,509
Commercial Paper (55.8%)
ABB Treasury Center USA,
6.49%, 12/12/00....................... 50,000 49,630
Asset Securitization Capital Corp.,
6.50%, 11/2/00 (b).................... 25,000 24,995
Asset Securitization Capital Corp.,
6.50%, 11/7/00 (b).................... 30,000 29,968
Asset Securitization Capital Corp.,
6.49%, 11/15/00 (b)................... 15,000 14,962
Principal Amortized
Security Description Amount Cost
Asset Securitization Capital Corp.,
6.48%, 12/6/00 (b).................... $ 75,000 $ 74,527
Baker Hughes, Inc.,
6.65%, 11/1/00 (b).................... 125,000 125,000
Bellsouth Telecom,
6.48%,11/15/00........................ 50,000 49,874
Brown Forman Corp.,
6.50%, 11/20/00 (b)................... 20,000 19,931
Brown Forman Corp.,
6.50%, 11/16/00 (b)................... 10,000 9,973
Brown Forman Corp.,
6.50%, 11/17/00 (b)................... 20,000 19,942
Canadian Wheat Board,
6.43%, 3/19/01........................ 30,000 29,261
Chevron,
6.66%, 11/15/00....................... 10,000 9,974
Corporate Asset Funding Co.,
6.49%, 11/28/00 (b)................... 50,000 49,757
Corporate Asset Funding Co.,
6.49%, 12/5/00 (b).................... 20,000 19,877
CXC, Inc.,
6.50%, 11/15/00 (b)................... 50,000 49,873
CXC, Inc.,
6.50%, 11/27/00 (b)................... 50,000 49,765
CXC, Inc.,
6.49%, 12/5/00 (b).................... 50,000 49,694
Delaware Funding Corp.,
6.50%, 11/17/00 (b)................... 24,564 24,493
Delaware Funding Corp.,
6.50%, 11/28/00 (b)................... 75,000 74,634
Diageo Capital PLC,
6.56%, 1/16/01 (b).................... 25,000 24,654
Edison Asset Securitization,
6.50%, 11/1/00 (b).................... 50,000 50,000
Fleet Funding Corp.,
6.50%, 11/10/00 (b)................... 57,917 57,823
Fuji Photo Finance,
6.62%, 1/25/01........................ 15,000 14,766
General Motors Acceptance Corp.,
6.65%, 11/2/00........................ 99,976 99,958
Gillette Finance,
6.62%, 11/1/00........................ 100,000 100,000
Household Finance,
6.66%, 11/1/00........................ 100,000 99,999
Iowa Student Loan Liquidity,
6.50%, 11/21/00,
LOC Bank of America................... 19,781 19,710
JP Morgan & Co.,
6.48%, 11/6/00........................ 100,000 99,910
JP Morgan & Co.,
6.56%, 2/5/01......................... 16,750 16,457
Marsh & McLennan Co., Inc.,
6.65%, 11/1/00........................ 15,000 15,000
Marsh USA, Inc.,
6.50%, 2/13/01........................ 50,000 49,061
Matson Navigation,
6.50%, 11/7/00........................ 10,000 9,989
See notes to financial statements.
3
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THE VICTORY PORTFOLIOS Schedules of Investments--continued
Institutional Money Market Fund October 31, 2000
(Amounts in Thousands)
Principal Amortized
Security Description Amount Cost
McGraw Hill,
6.47%, 12/4/00........................ $ 80,000 $ 79,526
McGraw Hill,
6.47%, 12/6/00........................ 8,876 8,820
Moriarty Ltd.,
6.50%, 12/8/00 (b).................... 50,000 49,666
Pitney Bowes Credit,
6.49%, 11/6/00........................ 50,000 49,955
Redwood Receivables Corp.,
6.50%, 11/2/00 (b).................... 100,000 99,982
Salomon Smith Barney, Inc.,
6.50%, 11/3/00........................ 75,000 74,973
SBC Communications, Inc.,
6.48%, 11/2/00........................ 39,000 38,993
SBC Communications, Inc.,
6.47%, 11/14/00....................... 30,000 29,930
SBC Communications, Inc.,
6.72%, 11/27/00....................... 15,000 14,927
SBC Communications, Inc.,
6.49%, 11/28/00....................... 44,000 43,786
SBC Communications, Inc.,
6.50%, 2/8/01......................... 50,000 49,106
Sheffield Receivables,
6.51%, 11/1/00 (b).................... 100,000 100,001
Sony Capital Corp.,
6.49%, 11/2/00 (b).................... 34,000 33,994
UBS Finance,
6.65%, 11/1/00........................ 100,000 100,000
Unilever Capital Corp.,
6.49%, 11/27/00....................... 25,000 24,883
Verizon Global Funding Corp.,
6.48%, 11/14/00....................... 50,000 49,883
Verizon Global Funding Corp.,
6.50%, 11/15/00....................... 49,890 49,764
Total Commercial Paper
(Amortized Cost $2,331,646) 2,331,646
Corporate Bonds (15.3%)
American Express Credit Corp.,
6.75%, 6/1/01......................... 5,000 5,000
Associates Corp. of North America,
6.78%*, 11/27/00**.................... 15,000 15,011
AT&T Capital Corp.,
6.88%, 1/16/01,....................... 7,000 7,002
AT&T Capital Corp.,
6.97%*, 1/9/01**, MTN................. 8,500 8,506
Beneficial Corp.,
6.84%*, 11/20/00**, MTN............... 25,000 25,012
Beneficial Corp.,
6.27%*, 7/9/01**, MTN................. 7,440 7,397
Beneficial Corp.,
6.83%*, 11/15/00**, MTN............... 17,500 17,521
Capital One Funding Corp.,
6.65%*, 11/2/00**,
LOC Bank One.......................... 18,381 18,381
Principal Amortized
Security Description Amount Cost
Capital One Funding Corp.,
6.65%*, 11/2/00**,
LOC Bank One.......................... $ 5,200 $ 5,200
Capital One Funding Corp.,
6.65%*, 11/2/00**,
LOC Bank One (c)...................... 4,722 4,722
Capital One Funding Corp.,
6.65%*, 11/2/00**,
LOC Bank One (c)...................... 17,700 17,700
Capital One Funding Corp.,
6.65%*, 11/2/00**,
LOC Bank One (c)...................... 20,437 20,437
Ford Motor Credit Co.,
6.25%, 11/8/00........................ 13,000 13,000
Ford Motor Credit Co.,
5.77%, 2/12/01, MTN................... 5,000 4,983
Ford Motor Credit Co.,
6.00%, 2/27/01, MTN................... 7,000 6,984
Ford Motor Credit Co.,
6.78%*, 11/27/00**.................... 30,000 30,021
General Electric Capital Corp.,
5.52%, 1/16/01, MTN................... 3,500 3,492
General Electric Capital Corp.,
7.38%, 5/23/01, MTN................... 5,000 5,007
General Motors Acceptance Corp.,
6.99%*, 11/20/00, MTN................. 10,000 10,001
General Motors Acceptance Corp.,
6.98%*, 11/27/00, MTN................. 20,000 20,001
Goldman Sachs Group LP,
6.81%*, 12/22/00**, (c)............... 17,000 17,004
Goldman Sachs Group LP,
6.94%*, 1/25/01** (c)................. 7,500 7,503
Goldman Sachs Group LP,
6.20%, 2/15/01 (c).................... 21,205 21,160
Goldman Sachs Group, Inc.,
6.80%*, 12/6/00**, MTN................ 31,485 31,508
Goldman Sachs Group, Inc.,
6.76%*, 12/14/00**, MTN............... 30,000 30,023
Goldman Sachs Group, Inc.,
6.83%*, 11/20/00**, MTN............... 20,000 20,026
Household Finance,
6.45%, 3/15/01........................ 7,000 6,984
IBM Credit Corp.,
6.21%, 12/11/00, MTN.................. 10,000 9,999
IBM Credit Corp.,
5.05%, 1/22/01, MTN................... 10,000 9,959
J.P. Morgan & Co.,
6.61%*, 11/16/00**, MTN,
LOC National Bank of Detroit.......... 40,000 40,000
Jim M. & Melinda A. Schwerkoske Project,
Lucas County, Ohio,
6.76%*, 11/2/00**,
LOC Mid American National Bank........ 10,100 10,100
John Deere Capital Corp.,
6.76%*, 1/25/01**, MTN................ 10,000 9,999
Lexington Financial Services,
6.65%*, 11/1/00**,
LOC LaSalle National Bank............. 5,295 5,295
See notes to financial statements.
4
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THE VICTORY PORTFOLIOS Schedules of Investments--continued
Institutional Money Market Fund October 31, 2000
(Amounts in Thousands)
Principal Amortized
Security Description Amount Cost
Morgan Stanley Dean Witter,
6.77%*, 11/1/00**..................... $ 50,000 $ 50,001
Morgan Stanley Dean Witter,
6.76%*, 12/15/00**,
LOC National City Bank, MTN........... 13,000 13,000
Morgan Stanley Dean Witter,
6.77%*, 11/1/00**, MTN................ 50,000 50,000
Pomeroy Investments,
6.69%*, 11/2/00**,
LOC First Star........................ 3,250 3,250
Presrite Corp.,
6.70%*, 11/2/00**,
LOC National City Bank................ 3,750 3,750
SeaRiver Maritime, Inc.,
6.60%*, 11/1/00**,
LOC Exxon Mobil Corp.................. 30,700 30,700
Texas Disposal Systems,
6.67%*, 12/1/00**..................... 7,000 7,000
Transamerica Financial Corp.,
6.77%*, 12/4/00**, MTN................ 15,000 15,000
Total Corporate Bonds (Amortized Cost $637,639) 637,639
Municipal Bonds (0.5%)
Arkansas (0.3%):
Union County Industrial
Development Revenue,
Del-Tin Fiber Project,
6.65%*, 11/1/00**,
LOC Bank One Chicago.................. 12,000 12,000
Mississippi (0.2%):
Mississippi Business Finance Corp.,
6.67%*, 12/8/00**,
Guaranteed by BPAMOCO................. 10,000 10,000
Total Municipal Bonds (Amortized Cost $22,000) 22,000
Repurchase Agreement (5.9%)
Paine Webber,
6.60%, 11/1/00,
(Collateralized by $48,790 various
U.S. Government Securities,
0.00%, 5/15/01-7/16/01,
market value $46,965)................. 46,044 46,044
Salomon Brothers, Inc.,
6.62%, 11/1/00,
(Collateralized by $199,130 various
U.S. Government Securities,
0.00%-8.00%, 4/6/01-7/1/30,
market value $204,000)................ 200,000 200,000
Total Repurchase Agreement
(Amortized Cost $246,044) 246,044
Principal Amortized
Security Description Amount Cost
Time Deposit (1.8%)
PNC Nassau, 6.56%, 11/1/00.............. $ 75,000 $ 75,000
Total Time Deposit (Amortized Cost $75,000) 75,000
U.S. Government Agencies (2.7%)
Federal Home Loan Bank (0.7%):
5.97%, 12/1/00.......................... 15,000 14,997
5.13%, 4/17/01.......................... 15,000 14,884
29,881
Federal National Mortgage Assoc. (0.2%):
6.65%, 9/17/00, MTN..................... 10,000 9,919
Student Loan Marketing Assoc. (1.8%):
6.80%*, 11/7/00**, MTN.................. 35,000 34,980
6.82%*, 11/7/00**, MTN.................. 40,000 39,993
74,973
Total U.S. Government Agencies
(Amortized Cost $114,773) 114,773
Total Investments
(Amortized Cost $4,256,372) (a) -- 101.9% 4,256,372
Liabilities in excess of other assets -- (1.9)% (77,517)
TOTAL NET ASSETS -- 100.0% $4,178,855
(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.
(c) 144a security which is restricted as to resale to institutional
investors only.
* 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 October 31, 2000. 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 Schedules of Investments
Federal Money Market Fund October 31, 2000
(Amounts in Thousands)
Principal Amortized
Security Description Amount Cost
U.S. Government Agencies (59.3%)
Federal Farm Credit Bank (16.6%):
6.55%, 11/1/00.......................... $ 50,000 $ 50,000
6.47%, 12/1/00.......................... 75,000 75,000
6.50%, 2/1/01........................... 90,000 90,000
215,000
Federal Home Loan Bank (15.3%):
6.05%, 11/3/00.......................... 25,000 25,000
6.09%, 11/3/00.......................... 28,000 27,999
6.25%, 11/17/00......................... 10,000 10,000
6.60%, 2/2/01........................... 16,900 16,900
6.39%, 2/7/01........................... 25,000 24,966
5.13%, 4/17/01.......................... 26,875 26,704
6.98%, 5/25/01.......................... 10,000 10,000
7.00%, 6/6/01........................... 3,000 3,007
7.20%, 6/7/01........................... 10,000 10,012
7.00%, 6/14/01.......................... 3,000 3,008
5.94%, 7/2/01........................... 25,750 25,648
7.00%, 8/7/01........................... 10,000 10,000
7.13%, 11/15/01......................... 5,000 5,032
198,276
Federal Home Loan
Mortgage Corp. (11.0%):
6.57%, 11/1/00.......................... 47,000 47,000
6.40%, 11/9/00.......................... 45,000 44,936
6.39%, 1/4/01........................... 25,000 24,716
6.35%, 1/5/01........................... 25,000 24,980
141,632
Federal National Mortgage
Association (9.3%):
5.13%, 11/30/00......................... 2,500 2,497
8.25%, 12/18/00......................... 7,535 7,548
6.52%, 3/16/01.......................... 40,000 39,991
6.55%, 3/20/01.......................... 20,000 19,999
5.31%, 4/24/01.......................... 4,045 4,017
7.00%, 5/17/01.......................... 3,000 3,007
6.00%, 6/19/01.......................... 8,750 8,703
6.87%, 6/28/01.......................... 3,000 3,006
6.84%, 7/18/01.......................... 25,000 24,996
6.87%, 10/2/01.......................... 6,500 6,500
120,264
Student Loan Marketing Assoc. (6.6%):
6.79%*, 11/7/00**....................... 25,000 24,986
6.93%*, 11/7/00**....................... 50,000 50,000
6.96%*, 11/7/00**....................... 9,750 9,750
84,736
Tennessee Valley Authority (0.5%):
6.00%, 11/1/00.......................... 3,050 3,050
6.50%, 8/20/01.......................... 3,100 3,092
6,142
Total U.S. Government Agencies
(Amortized Cost $766,050) 766,050
Principal Amortized
Security Description Amount Cost
Repurchase Agreement (47.5%)
Bear Stearns & Co., Inc.,
6.61%, 11/1/00,
(Collateralized by $310,679 various
U.S. Government Securities,
0.00%-10.00%,
9/1/13-10/15/30,
market value $310,561)................ $300,000 $ 300,000
Warburg Dillon Read,
6.61%, 11/1/00,
(Collateralized by $273,134 various
U.S. Government Securities,
8.75%-10.75%,
2/15/03-2/15/19,
market value $319,806)................ 313,531 313,531
Total Repurchase Agreement
(Amortized Cost $613,531) 613,531
Total Investments
(Amortized Cost $1,379,581) (a) -- 106.8% 1,379,581
Liabilities in excess of other assets -- (6.8)% (87,380)
TOTAL NET ASSETS -- 100.0% $1,292,201
(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, 2000. 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, 2000
(Amounts in Thousands, Except Per Share Amounts)
Institutional Federal
Money Market Money Market
Fund Fund
ASSETS:
Investments, at amortized cost $4,010,328 $ 766,050
Repurchase agreements, at amortized cost 246,044 613,531
Total 4,256,372 1,379,581
Interest receivable 28,017 9,733
Receivable for capital shares issued 2 11
Prepaid expenses and other assets 218 20
Total Assets 4,284,609 1,389,345
LIABILITIES:
Dividends payable 21,879 6,728
Payable to brokers for investments purchased 82,069 90,000
Accrued expenses and other payables:
Investment advisory fees 704 230
Administration fees 41 13
Custodian fees 69 25
Accounting fees 2 2
Transfer agent fees 66 20
Shareholder service fees -- Select Shares 795 73
Other 129 53
Total Liabilities 105,754 97,144
NET ASSETS:
Capital 4,178,715 1,292,251
Undistributed net investment income 154 14
Accumulated net realized losses from
investment transactions (14) (64)
Net Assets $4,178,855 $1,292,201
Net Assets
Investor Shares $1,313,929 $865,366
Select Shares 2,864,926 426,835
Total $4,178,855 $1,292,201
Outstanding units of beneficial
interest (shares)
Investor Shares 1,313,920 865,398
Select Shares 2,864,930 426,851
Total 4,178,850 1,292,249
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
<PAGE>
Statements of Operations
THE VICTORY PORTFOLIOS For the Year Ended October 31, 2000
(Amounts in Thousands)
Institutional Federal
Money Market Money Market
Fund Fund
Investment Income:
Interest income $240,021 $74,382
Total Income 240,021 74,382
Expenses:
Investment advisory fees 7,775 3,043
Administration fees 4,007 1,427
Shareholder service fees--Select Shares 5,726 960
Custodian fees 740 256
Accounting fees 146 125
Legal and audit fees 314 106
Trustees' fees and expenses 80 25
Transfer agent fees 663 50
Registration and filing fees 224 80
Printing fees 145 57
Other 45 41
Total Expenses 19,865 6,170
Expenses voluntarily reduced (2,524) (1,549)
Net Expenses 17,341 4,621
Net Investment Income 222,680 69,761
Change in net assets resulting from operations $222,680 $69,761
See notes to financial statements.
8
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Statements of Changes in Net Assets
(Amounts in Thousands)
<CAPTION>
Institutional Money Market Fund Federal Money Market Fund
Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
From Investment Activities:
Operations:
Net investment income $ 222,680 $ 102,489 $ 69,761 $ 47,494
Net realized gains/(losses) from
investment transactions -- (14) -- (64)
Change in net assets resulting from operations 222,680 102,475 69,761 47,430
Distributions to Shareholders:
From net investment income
Investor Shares (89,857) (64,880) (48,229) (35,599)
Select Shares (132,829) (37,609) (21,532) (11,895)
Change in net assets from distributions
to shareholders (222,686) (102,489) (69,761) (47,494)
Capital Transactions:
Proceeds from shares issued 21,497,913 9,707,193 5,394,772 4,573,820
Dividends reinvested 147,067 55,255 62,512 42,935
Cost of shares redeemed (19,895,701) (8,973,406) (5,282,763) (4,415,124)
Change in net assets from capital transactions 1,749,279 789,042 174,521 201,631
Change in net assets 1,749,273 789,028 174,521 201,567
Net Assets:
Beginning of period 2,429,582 1,640,554 1,117,680 916,113
End of period $ 4,178,855 $ 2,429,582 $ 1,292,201 $ 1,117,680
Share Transactions:
Issued 21,497,913 9,707,193 5,394,772 4,573,820
Reinvested 147,067 55,255 62,512 42,935
Redeemed (19,895,701) (8,973,406) (5,282,763) (4,415,124)
Change in shares 1,749,279 789,042 174,521 201,631
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Institutional Money Market Fund
Investor Shares
Year Year Year Year Year
Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, October 31,
2000 1999 1998 1997 1996<F2>
<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 0.060 0.049 0.054 0.053 0.053
Distributions
Net investment income (0.060) (0.049) (0.054) (0.053) (0.053)
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 6.16% 5.03% 5.53% 5.46% 5.41%
Ratios/Supplemental Data:
Net Assets,
End of Period (000) $1,313,929 $1,313,571 $1,068,521 $585,663 $671,575
Ratio of expenses to
average net assets 0.30% 0.27% 0.27% 0.28% 0.27%
Ratio of net investment income
to average net assets 5.96% 4.91% 5.38% 5.32% 5.27%
Ratio of expenses to
average net assets<F1> 0.37% 0.41% 0.42% 0.48% 0.48%
Ratio of net investment income
to average net assets<F1> 5.89% 4.77% 5.23% 5.12% 5.06%
<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> 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>
THE VICTORY PORTFOLIOS Financial Highlights--continued
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Institutional Money Market Fund
Select Shares
Year Year Year Year Year
Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, October 31,
2000 1999 1998 1997 1996<F2>
<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 0.057 0.046 0.051 0.051 0.050
Distributions
Net investment income (0.057) (0.046) (0.051) (0.051) (0.050)
Net Asset Value, End of Period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 5.88% 4.72% 5.22% 5.17% 5.16%
Ratios/Supplemental Data:
Net Assets, End of Period (000) $2,864,926 $1,116,011 $572,033 $488,639 $373,090
Ratio of expenses to
average net assets 0.56% 0.57% 0.56% 0.55% 0.52%
Ratio of net investment income
to average net assets 5.80% 4.63% 5.09% 5.06% 4.97%
Ratio of expenses to
average net assets<F1> 0.63% 0.71% 0.71% 0.75% 0.73%
Ratio of net investment income
to average net assets<F1> 5.73% 4.49% 4.94% 4.86% 4.77%
<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> 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.
11
<PAGE>
<TABLE>
THE VICTORY PORTFOLIOS Financial Highlights
(For a Share Outstanding Throughout Each Period)
<CAPTION>
Federal Money Market Fund
Investor Select
Shares Shares
Year Year Period Year Year Period
Ended Ended Ended Ended Ended Ended
October 31, October 31, October 31, October 31, October 31, October 31, Fiscal Year Ended November 30,
2000 1999 1998<F2> 2000 1999 1998<F2> 1997 1996 1995
<S> <C> <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 $ 1.000
Investment
Activities
Net
investment
income 0.058 0.047 0.048 0.055 0.045 0.031 0.048 0.047 0.051
Distributions
Net
investment
income (0.058) (0.047) (0.048) (0.055) (0.045) (0.031) (0.048) (0.047) (0.051)
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 5.95% 4.82% 4.91%<F3> 5.69% 4.56% 3.14%<F3> 4.94% 4.65% 5.26%
Ratios/
Supplementary
Data:
Net Assets at
end of period
(000) $865,366 $834,055 $717,972 $426,835 $283,625 $198,141 $243,499 $42,159 $21,848
Ratio of
expenses to
average net
assets 0.30% 0.28% 0.27%<F4> 0.55% 0 .53% 0.43%<F4> 0.53% 0.64% 0.63%
Ratio of net
investment
income to
average
net assets 5.79% 4.72% 5.22%<F4> 5.61% 4.47% 5.06%<F4> 4.91% 4.59% 5.15%
Ratio of
expenses to
average net
assets<F1> 0.43% 0.45% 0.48%<F4> 0.68% 0.71% 0.54%<F4> 0.90% 0.92% 0.91%
Ratio of net
investment
income to
average
net
assets<F1> 5.66% 4.55% 5.01%<F4> 5.48% 4.29% 4.95%<F4> 4.54% 4.31% 4.90%
<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, 2000
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 30 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. 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
in the United States. 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 Funds' investment adviser
deems creditworthy under guidelines approved by the Board of Trustees,
subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price generally
equals the price paid by a Fund plus interest negotiated on the basis of
current short-term rates, which may be more or less than the rate on the
underlying securities. The seller, under a repurchase agreement, is
required to maintain the value of collateral held pursuant to the
agreement at not less than the repurchase price (including accrued
interest). Securities subject to repurchase agreements are held by the
Funds' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by the Funds under the 1940 Act.
Securities Purchased on a When-Issued Basis:
The Funds may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal
settlement date at a stated price and/or yield, thereby, involving the
risk that the price and/or yield obtained may be more or less than those
available in the market when delivery takes place. At the time the Funds
make the commitment to purchase a security on a when-issued basis, the
Funds record the transaction and reflect 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.
Continued
13
<PAGE>
Notes to Financial Statements--continued
THE VICTORY PORTFOLIOS October 31, 2000
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. There were no securities on loan as
of October 31, 2000.
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.
3. Related Party Transactions:
Investment advisory services are provided to the Fund by Key Asset
Management Inc. ("the Adviser), 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 a
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.
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.
Continued
14
<PAGE>
Notes to Financial Statements--continued
THE VICTORY PORTFOLIOS October 31, 2000
In addition, BISYS Fund Services Ohio, Inc., an affiliate of BISYS
serves the Trust as 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, 2000:
<TABLE>
<CAPTION>
Investment Advisory Fees Administration Fees
Maximum
Percentage
of Average Voluntary Voluntary
Daily Fee Fee
Net Assets Reductions Reductions
(000) (000)
<S> <C> <C> <C>
Institutional Money Market Fund .................................... 0.25% $796 $1,728
Federal Money Market Fund .......................................... 0.25% $852 $ 697
</TABLE>
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 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.
4. Capital Share Transactions:
Transactions in capital shares were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Institutional Money Market Fund Federal Money Market Fund
Year Year Year Year
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Capital Share Transactions:
Investor Shares:
Issued ...................................... 5,524,423 4,336,459 3,704,085 3,339,377
Reinvested .................................. 24,308 19,944 42,171 31,417
Redeemed .................................... (5,548,371) (4,111,344) (3,714,946) (3,254,666)
Total ....................................... 360 245,059 31,310 116,128
Select Shares:
Issued ...................................... 15,973,490 5,370,734 1,690,687 1,234,442
Reinvested .................................. 122,759 35,311 20,341 11,518
Redeemed .................................... (14,347,330) (4,862,062) (1,567,817) (1,160,457)
Total ....................................... 1,748,919 543,983 143,211 85,503
</TABLE>
5. Federal Income Tax (unaudited):
As of October 31, 2000, 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 of 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) (hereafter referred to as the Funds) at
October 31, 2000, the results of each of their operations for the year then
ended, the changes in each of their net assets for the two years then ended,
and the financial highlights for each of the periods presented, in conformity
with accounting principles generally accepted in the United States of
America. These 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 auditing standards generally accepted in the
United States of America, 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, 2000, by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
December 14, 2000
16
<PAGE>
The Victory Funds
127 Public Square
OH-01-27-1612
Cleveland, Ohio 44114
PRSRT STD
U.S. POSTAGE
PAID
Cleveland, OH
Permit No. 1535
Victory Funds
LOGO(R)
Call Victory at:
800-539-FUND (800-539-3863)
Visit our web site at:
www.victoryfunds.com
1AR-IMMVF 11/00
